In the report, available on request, we explore the latest HR Tech sector tends, review recent M&A and investment activity, compare valuation multiples (trading and acquisition) and analyse the strategy of key players in the space.
Like so many other industries, the Human Capital sector is faced with continued change and disruption. From updated recruitment methods for attracting and supporting an increasingly transient workforce to employee engagement and the push towards a digital workforce experience, technology is transforming the future of work.
Employers globally are on a journey towards end-to-end digitalisation, aiming for greater accessibility, flexibility and connectivity for employees as well as greater efficiency for HR functions. For talent acquisition managers, access to skilled candidates remains the number one priority, centred increasingly around Millennials and soon to be followed by an emergent Generation Z — a marked shift in the generational composition of the workforce. Programmatic job postings have become commonplace, enabling simultaneous campaigns on multiple job boards / aggregators, spend management across all sources and automated job slot optimisation. Similar changes are emerging across other HR functions with offerings ranging from SaaS-based systems and cloud computing to data analytics and AI.
In Venero’s latest sector report on HR Tech M&A and Investment activity, we explore the latest HR Tech sector tends, review recent M&A and investment activity, compare valuation multiples (trading and acquisition) and analyse the strategy of key players in the space.
Below are some of the key takeaways from the report:
1. M&A Activity Highlights
- The HCM market is large and growing
- There is a steady appetite for M&A, particularly for sub-$500M deals
- No signs of slowdown in M&A, despite short term market volatility
2. M&A Activity Breakdown
- As companies grow to valuations beyond c.$200M, M&A becomes an increasingly unlikely exit option
- 73% of HR Tech M&A deals were sub-$100M transactions
3. Trading Valuation Multiples
- Most companies are trading between 2–8x forward sales (average 4.8x)
- Companies like Workday and Paycom trade at as much as 10–12x forward revenues, pricing in strong execution and annual growth above 30%
- Recurring revenues, renewal rates and customer lifetime value expansion are crucial valuation drivers
4. M&A Transaction Multiples
- Acquisition multiples strongly correlate to performance track record, projected growth and synergy potential
- Most acquired companies have revenues between $10M-100M and are valued between 2–8x EV/Sales (average 5.0x)
5. Investment Activity Overview
- Steady appetite for investments by VCs and CVCs
- $3bn of HR Tech investments in 2017, with average investment size increasing
- 2018 off to a promising start
6. Investment Activity Breakdown
- Talent Acquisition solutions attracting the lion share of investment
- VCs doubling down on HCM, with a preference for platforms vs. point solutions
- The US is by far the largest market, followed by the UK
7. Trends and Disruptors
- 6 key megatrends impact HR Tech today
- Evolutionary rather than disruptive technological solutions
- Applications of A.I. being considered in virtually every HR Tech sub-category, however killer applications still lagging compared to e.g. fintech
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