HR software firm Jobvite, no stranger to acquisitions/mergers, recently announced a deal to combine with JazzHR and NXTThing RPO. The deal creates not only a larger firm but a solution with small business and enterprise reach in the recruiting space.
Here’s a quick look at M&A deals in the HR space and that of the recent Jobvite transaction.
M&A in application software and HR specifically
Vendor consolidation is not a new thing in the application software space. There are only so many ways for a company to grow organically and inorganically. Organic growth is often constrained by a lack of applications for one’s suite, the capital available to fuel the growth, and, time to expand into more global and/or vertical spaces. One advantage of organic growth is that the founders often avoid dilution of their equity.
Inorganic growth is driven by mergers and acquisitions. It’s often a fast way for an acquirer to:
- Gain new customers.
- Increase market share.
- Expand the functional footprint of the product line.
- Acquire new enabling technologies.
- Pick up additional employees.
- Enter new markets.
Inorganic growth often trades speed for capital and integration concerns. Acquisitions cost money and the combined product lines may have different user experiences, technology platforms, data models, etc. while the combined firms may have different cultures, price points, target customers, go-to-market strategies, etc. Post-merger integration work is not insignificant.
Venture capitalists (VCs) and private equity (PE) firms often encourage M&A deals in the application software space. For long-in-the-tooth software firms, two or more big firms are smashed together in order to achieve ‘operational synergies’. In plain speak, they’ll try to cut out a lot of redundant sales, finance, product development and marketing personnel and milk the cash cow renewals and maintenance streams to make the deal accretive fast. For newer firms, they’ll put two or more portfolio firms together to create a bigger solution suite. The accretive opportunity comes in cross-selling products to the other firm’s customers and in doubling the sales pipeline.
M&A activity in the HR application software space is quite common. Even with a massive amount of investor capital, it can take 1-2 decades to build out an HRMS suite organically. To grab market share and improve deal margins, HR vendors frequently acquire a number of solutions. Some of these deals are small, tuck-in deals where the larger firm acquires a niche solution that closes a functional hole in the product line immediately. Other deals, where the acquiror and the acquired are of material size and functional footprint are only a bit less common.
The reason HR is a hot place for M&A activity is that there are hundreds and hundreds of new HR technology firms launched annually. Not all of these can become full HRMS suite solutions so some will need to be acquired and some, sadly, die away. To compete with vendors who can sell a dozen or more HR applications is tough and expensive. The market just can’t support so many similar solutions.
The new Jobvite deal
Jobvite is doing another M&A deal. Before we discuss the current transaction, let’s remember they raised a lot of capital and bought three firms in 2019. According to a TechCrunch article in February 2019:
Jobvite, the company that was once an early mover in leveraging social networks to help source job opportunities and find interesting candidates for openings, is today announcing two big moves to double down on its ambition to build a bigger platform for recruitment and applicant tracking.
The company has picked up an investment of more than $200 million, and it will be using the money to acquire three smaller companies focusing on different aspects of the recruitment process: Talemetry (which specializes in recruitment marketing); RolePoint (for employee referrals and in-company moves); and Canvas (a text-based conversational bot to get the screening process started).
Late last month, they announced a deal to acquire JazzHR and NXTThing RPO (see official release here). The company’s latest moves cement their strategy to build a powerful talent acquisition suite. K1 Investment Management appears to be the catalyst behind the deal. K1 may have contributed additional capital to help grow the combined company and permit more hiring of team members. K1’s prior investments have included: Apttus, Clarizen, WorkForce Software and Zapproved .
Jobvite will continue to serve larger firms (like Ingram Micro, Exelon, and Premise Health) while JazzHR will provide SMB recruiting software solutions. A recruiting process outsourcer, like NXTThing RPO, provides an outsourced recruiting solution for its clients.
According to Jobvite:
Combined, the company serves more than 10,000 employer customers and operates a network of more than 1,000 partners to host 485,000 open jobs, attract 11 million job seekers per month, and manage greater than 188 million candidates.
This transaction is also triggering a change in leadership for Jobvite as JazzHR’s CEO Pete Lamson will now lead the combined firms. I spoke with him this week about the deal. We discussed that:
- The three firms are coming together quickly.
- The firms will remain separate firms and customers should see no change in the respective cultures of each entity. Pete did indicate that the firms will come together in time but there’s no pressure or need to so now.
- The deal’s economics are buoyed on driving net-new sales and cross-selling some solutions to other entities customers.
- No headcount reductions are part of the deal economics.
- JazzHR has some 300 channel partners who generate about half of the company’s new business. These partners might benefit from having more solutions from Jobvite to offer to customers and prospects (or in moving upmarket).
- Jobvite and JazzHR, while solving similar problems for clients, really don’t overlap in the market with JazzHR clearly focused on the SMB space.
Lamson and I also discussed the go-to-market style for the combined firm. He wants Jobvite to remain a firm that is easy to do business with. Their pricing permits unlimited users and unlimited jobseekers/candidates. His philosophy is that this may cost them a little in some deals but it creates a significant amount of goodwill with customers. That positive brand experience should payoff in favorable customer reviews and referrals. He also reminded me of the hundreds of third-party products/tools that integrate with Jobvite.
I’ve covered Jobvite frequently over the years. My earliest piece might have been a December 2008 story I did for ZDNet. Thirteen years ago, I wrote:
To Jobvite’s credit, they’ve taken a more nuanced, considered approach to this matter. They don’t do a blind grab of employees’ contacts. They don’t spam the social networks that their employees belong to either. Jobvite’s SaaS (software as a service) based solution allows the SMB in-house HR manager/Recruiter to craft new job positions and post them to a company branded (Jobvite built) website. This HR manager/Recruiter forwards the new postings to selected employees within the firm and asks them to forward the posting to friends, colleagues, family, etc. These forwarded positions become the Jobvites (i.e., job invitations). Jobvites can be forwarded to anyone in an employee’s Outlook, Gmail or other contact list (e.g., social network).
More recently, I noted how JazzHR and Namely were partners.
I mention all of this as it shows a pattern of organic growth, inorganic growth and partnerships. This is all a good thing as it shows the company (and its acquired firms) are good at developing new business from many different angles. Software buyers want a solution powered by a vendor with staying power.
This deal is less about plugging holes within a product line and more on bringing a SMB option together with enterprise solutions in the recruiting space. This increases Jobvite’s addressable market and also provides a mechanism for customers to move up/down market without leaving Jobvite. Many of Jobvite’s competitors are clearly locked into one market space (e.g., very large enterprises only) and their growth prospects are constrained.
I believe that keeping the entities somewhat separate is a good thing. Years ago, a large enterprise software CEO was trying to buy a mid-market firm in the same functional space. I asked him what he wanted to get out of the deal. He said his best sales people needed only to sell 4 mega-deals a year to make a great income. His best sales person once did ten deals in a year. In contrast, the mid-market firm he wanted to buy had sales people who did fewer in-person sales calls and demos yet closed between 12-50 deals annually. That’s one a month or one per week. He was buying the mid-market firm to learn the sales & marketing practices of that company and see what could be leveraged in the large enterprise sales processes of his firm. My big takeaway was that solutions that are targeted for different buyers and market segments need different sales approaches and sales professionals. Sometimes, separation is the right way to go.