Workday acquires Adaptive Insights for $1.55bn on eve of IPO

In its largest acquisition to date, cloud HCM and financials giant Workday today announced it is buying business planning vendor Adaptive Insights, whose IPO had been due to take place this week.

The purchase price of $1.55 billion, which includes $150 million to take on unvested equity options held by Adaptive employees, is twice the $705 million valuation targeted by Adaptive in its IPO filing. Adaptive reported $114 million revenue in the twelve months ended April 30th and 33% subscription growth in its latest quarter.

The business planning company was loss-making but had been making "great progress" on improving its margin and cashflow, says Workday CFO Robynne Sisco, speaking on a call with financial analysts this morning. The acquisition will therefore reduce Workday's projected margins and cashflow in the current financial year by an as-yet unspecified amount.

Business planning for enterprise financials

Workday already has a planning product, which it announced three years ago and brought to market a year later. But while this will continue as Workday's product for workforce planning, it wasn't offering the functionality that enterprise customers look for in a financial planning product, CEO Aneel Bhusri admits today:

We wanted to be in the market now with a financial planning solution — and our product was three years away.

Workday clearly sees an opportunity to sell the Adaptive Insight business planning product to its larger financials customers, to cater for their budgeting, planning, consolidation, analytics and forecasting needs. Adaptive Insights has had an integration to Workday in place since 2015 and there are already 30-40 joint customers, says Bhusri. This amounts to around 10% of the total installed base of Workday financials customers, but Bhusri believes there's potential to do more:

It's still early days in figuring out the sales planning, but the clear opportunity is to take the Adaptive product and sell it upmarket through our fairly sizeable salesforce.

Currently, Adaptive's 3,800-strong customer base skews towards midmarket organizations, who account for 38% of the total, says its CEO Tom Bogan. Just over a third are smaller businesses, while 23% — less than a quarter — are classed as enterprise. Bogan will stay on as CEO of the acquired business.

Adaptive Insights in harmony with Workday

Adaptive's cloud-based product will be "harmonized" with Workday's product over time, says Bhusri, across elements such as the user interface, security model and metadata. That's an easier task for a business planning product than it would be for a transactional system, he adds.

The two companies are also in harmony in terms of culture and values, says Bhusri, with a common perspective on customer focus and employee engagement:

Culture and values are everything to Workday and we are in lockstep on that.

Meanwhile, the current Workday Planning product, which the vendor has hitherto been marketing as its solution for financial planning & analysis as well as workforce planning, will remain in place as the preferred planning tool for its HCM customers, says Bhusri:

Workday Planning is now going to focus on workforce planning, which is a key requirement for many of our mega HCM customers.

Workday has made at least ten acquisitions over its history — the most recent being 'talent agility' platform Rallyteam, which it announced on Friday. But the pattern has been to make smaller technology or talent acquisitions which can then be developed into organic product offerings. Indeed, the Workday Planning product itself followed this pattern, which grew out of the acquisition of Gridcraft in April 2015.

Adaptive Insights is a much larger acquisition and will operate "as a fairly standalone company," Bhusri indicated today. That marks a significant change of tack, although it shouldn't be taken as indicative of more to come, he says.

My take

Since its inception, Workday has wanted build analytics and planning directly into financials, so that users can work and iterate with real-time data rather than having to run a new report every time something changes. Maybe that's the ultimate intention here, but it's not the prime mover for this acquisition.

CEO Aneel Bhusri was quite open about the rationale. Workday's own planning tool was nowhere near capable of the functionality finance professionals are looking for today when it comes to business planning. So if Workday wants to accelerate sales of its financials product — which it clearly does — then it needs a powerful planning product in its portfolio, and buying Adaptive Insights delivers that.

Over time, as Bhusri indicated, the Adaptive business planning cloud will look increasingly like the rest of Workday's application family, will use the same common services and will converge on the same metadata model. But that doesn't necessarily mean that it's going to converge with those two other products and become an integral part of financials in line with the original vision. Workday has a platform now, and another possibility is that the integration will be a more loosely coupled affair, via the platform.

But those technicalities will come later. What's much more important today is the ability to offer a proposition that answers the needs of customers and prospects. It was notable how much the phrase "digital transformation" has been cropping up in the course of today's announcement. Clearly the finance people that Workday is talking to want to stay ahead of a fast-moving business landscape and they're demanding a powerful planning tool as part of the solution.

This is all about business. Workday has had no choice but to bring Adaptive Insights into the fold in order to satiate that demand.