Scoping out Ceridian’s 'ideal' acquisition(s)

Ceridian, one of the world’s largest HRMS and payroll providers made another acquisition, its second in 2021. This time, it acquired the recruiting and DE&I (Diversity, Equity and Inclusivity) vendor Ideal. Ideal brings smart anti-bias recruiting technology to Ceridian’s Dayforce cloud HRMS solution. Both firms are Toronto-based.

To learn more on this deal, I spoke briefly with Ceridian’s Joe Korngiebel, Chief Product and Technology Officer. Korngiebel mentioned that this deal brings a number of new people and skill sets to Ceridian. Korngiebel indicated that the people are often the most important thing Ceridian looks at when evaluating a potential acquisition.

As it turns out, Ceridian and Ideal were already well-acquainted. Ideal was a Ceridian partner – a relationship that began years ago. The companies had several joint customers and had already integrated their two product lines. For example, Dayforce’s Candidate Grading feature has harnessed the Ideal talent intelligence capabilities for the past two years (see image below).

More specifically, a November 2020  Dayforce blog states:

…Dayforce’s Candidate Grading feature helps organizations focus on the best-fit applicants by grading them against a set of criteria. Powered by AI and machine learning, this grading system becomes increasingly more accurate and efficient over time.

Korngiebel indicated that the skill matching in the Ideal tools is an algorithmic capability that gets continuously trained by recruiters. Recruiters tell the software which candidates really did/did not align with grading results.

One of the joint Dayforce/Ideal customers is Bargain Hunt. According to that same blog post:

But the true scale of the tool’s value comes to life with an example from retailer Bargain Hunt. With 90 stores across 10 states and a rapidly expanding workforce, finding ways to be more efficient in the recruiting process is critical. Leaders at Bargain Hunt said Dayforce gave them an edge in the competition for talent.

Employers with large workforces (eg: retailers) and/or turnover should find the Ideal technology to be particularly helpful. Algorithmic tools work best when large data sets are involved. Korngiebel indicated that Ceridian will likely develop benchmarks and industry views based on anonymized data emanating from customer use of the Ideal functionality.

The DEI functionality helps remove potential bias in the recruiting process by removing clues as to an applicant’s age, gender, race, etc. This makes it more likely that a recruiter will evaluate a candidate on factors like skills, capabilities and experience instead of factors like gender. The company can then track how well they are doing on a number of DEI criteria (see graphic below). Ideal’s DEI dashboard will be integrated fully into Dayforce soon, according to Korngiebel.

I saw one other capability of note within the Ideal solution. Instead of a one-time matching of a candidate to a specific job posting, the software can re-scan the applicant for other open positions and even contact the candidate electronically. Given how hot the labor market is in this vaccine economy, this might be one of the more attractive features of the Ideal products.

This acquisition is a clear example of a tuck-in deal. The previous deal, Ceridian’s acquisition of Ascender, in February 2021 was a different animal altogether. Ascender expanded Ceridian’s growing customer footprint in Asia-Pacific. According to a Ceridian announcement on that deal:

A leading HCM provider in the region, Ascender provides more than 1,200 global brands with leading HR and payroll capabilities. With this acquisition, Ceridian will have the opportunity to deliver additional value to Ascender’s customers through the Dayforce platform’s full-suite HCM capabilities, including workforce management, payroll, talent management, and time and attendance. “

Ascender has deep industry expertise across all verticals, including higher education and government, coupled with a strong partner ecosystem. Ceridian now serves a combined 1,500 customers and 2.5 million employees across 30 countries in the APJ region.

Ascender may be the latest Asia-Pacific deal by Ceridian; however, it was not the first material deal there.  There are two other deals that speak to Ceridian’s global expansion plans, especially as they pertain to Asia-Pacific. One of these deals was the acquisition of Singapore-based Excelity in the first half of 2020. Ceridian described that deal as:

Founded in 1997, Excelity works with more than 300 customers across the APAC region. It operates its proprietary native payroll platform in India, China, Hong Kong, Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand, Australia, and New Zealand delivered through the Managed Services, Platform as a Service (PaaS) and Software as a Service (SaaS) models. A leading HR outsourcing services partner in the region, Excelity delivers over 1.2 million payslips per month. Customers include Forbes, Volvo, Emerson, Oracle, QBE, Palo Alto Networks, Mammoet, Lufthansa, Uber, and Mondelez.

Another acquisition involved the Australian workforce management firm RiteQ. Ceridian describes that 2019 deal as:

The acquisition follows Ceridian’s April launch of its award-winning Dayforce Payroll solution to the Australian market. Today, the Dayforce platform offers Australian employers – including Michael Hill, Harris Farm, Optus, and G8 Education – a single HCM solution to manage the entire employee lifecycle including HR, recruiting, onboarding, performance, learning, compensation, workforce management, and payroll.

'Australia and New Zealand are highly attractive markets,' said David Ossip, Chairman and CEO, Ceridian. 'We believe that the combination of the RITEQ team’s talent, deep workforce management capabilities, and market expertise will amplify the value we deliver to employers in these markets. We look forward to continuing to drive great employee experiences and hard dollar returns for our customers.'

And, of course, let’s not forget that Dayforce was itself an acquisition by Ceridian in 2012. In under a decade, Dayforce has significantly grown its product functionality, global reach and customer count. Ceridian, as an entity was wise to do the Dayforce deal as Dayforce is clearly the future of the firm.

My take

This history lesson re: Ceridian’s M&A deals is important as it shows how the company does some deals to expand its market presence, some deals to expand core functionality, and some deals that involve advanced technology and the people needed to bring them to life. For example, the Ceridian acquisition of RelatedMatters (ie: the TeamRelate product) was clearly an all-new space and technology for Ceridian/Dayforce.

In contrast to some of Ceridian’s large competitors, Ceridian shareholders should be happy with the M&A deals to date. The firm is spending capital on deals that matter and doing so in what is likely a cost-effective manner. While some of the deals may not match the outlandish price tags and multiples that competitors have paid for some very speculative technologies, Ceridian seems to be filling in product gaps with solutions that can be integrated easily, quickly and at a relative low-cost. Where Ceridian seeks to expand its global footprint, it’s gaining market share and expertise not just hip office space or data centers in a new corner of the world.

There is lots of white space surrounding HRMS solutions and we’ll likely see a number of new niches open up in time. Firms like Ceridian will doubtlessly acquire some of these to round out their product lines. The bigger challenge comes in creating a truly global (not just multinational) HRMS suite as such an offering requires country-specific payroll engines, local regulatory knowledge and product support, local tax filing capabilities and so much more. An HR technology firm can acquire businesses in local markets, but this can be time-consuming and the collection of 200 or so unique payroll products, just to take one example, could be cost-prohibitive to incorporate into one software solution, one data model, etc.

We should watch what and where Ceridian acquires next as this will telegraph its strategy. So far, it’s loosely followed the old British Empire across the world but will certainly need to go after other populous countries soon to maintain growth. But the two most populous nations are China and India. Those countries have a number of incumbent solutions and many of these are sold/subscribed to at very low-price points. This challenge is not unique to Ceridian and it frustrates many Western software firms with their high cost of sales, high solution cost, etc.

Smart software vendors need to get ahead of this and the most important thing they can do is focus, relentlessly, on driving down the cost to develop code and to instantiate a new customer. For example, vendors that insist on using third-party systems components instead of open-source software are at a price disadvantage. Ditto for vendors building and operating their own cloud data centers. The technology world has changed and smart vendors must adapt a new economic model to survive.