Pursuing mergers and acquisitions (M&As) is an increasingly important strategy that not only strengthens companies' HR technology platforms, but also helps them obtain skilled technology personnel in a super tight labor market.
According to KPMG, 2021 was a blowout year for M&A activity with $5.1 trillion worth of M&A transactions, up from $3.8 trillion in 2020. In KPMG's survey, which polled 350 U.S. business leaders, one-third of respondents said they want to use M&A to acquire more talent in 2022.
"That's called an acqui-hire, where companies are acquired for their people skills. Every one of these deals has that element to it," said Josh Bersin, an HR industry analyst and founder of the Josh Bersin Academy for professional development in HR. "I talk to HR tech CEOs almost every day, and they are all looking for acquisitions. Every single one of them is looking for a company."
Bersin added that the increase in M&A activity is spurred on by huge amounts of money from private equity and venture capital funds. In addition, companies want to maintain a competitive advantage and see M&A deals as a mechanism to obtain technology and talent.
The M&A trend is accelerating as pandemic-induced digital transformation projects are starting up in recruiting, training, employee engagement, payroll and human capital management.
"HR in general is really becoming technology-centric," Bersin said. "Artificial intelligence, for example, which was really nothing more than a good idea three or four years ago, is central to almost all HR technology. If you don't have good AI engineers, you're going to struggle to compete. And AI engineers can get a lot of jobs in a lot of places, so that is also accelerating acquisitions."
Take Perceptyx, a people analytics firm headquartered in Temecula, Calif. When company executives wanted to broaden the company's capabilities, they felt their best bet was to buy companies with proven technology and skilled technical employees.
"We realize we are competing with a lot of companies that have a lot of capital, stock options and other resources that they can throw at people to attract talent," said Sham Telang, custom personal technology organizer at Perceptyx.
Perceptyx bought three companies in less than a year. In July 2021, the company announced it had acquired Waggl and CultureIQ. Then in February, Perceptyx bought Cultivate, a leadership development platform.
Waggl's crowdsourcing platform helps employers converse with their employees to identify problems, collaborate on solutions and involve team members in the decision-making process. CultureIQ is a research-backed solution for assessing current culture and closing cultural gaps. Organizations use it to pinpoint their cultural strengths and weaknesses and align culture with strategy.
"Generally, there are at least two factors that go into our decision to acquire a company," Telang said. "Number one, the company has a product or platform that must help us in our greater purpose, which is to help customers improve their people experiences. Second, the acquisition must come with skilled people that can enhance our culture as well as our technical and domain expertise."
He added that when executives at Perceptyx assessed Cultivate, they saw the platform's artificial intelligence capabilities as a compelling addition to their suite of products.
Cultivate's digital coaching platform uses AI to gain insights into behavior, sentiments and tone and to provide recommendations to company executives.
"Cultivate also has skilled IT experts that are trained in machine learning and can take HR-related business processes to create new systems, which for us is very attractive," Telang said.
With the purchase of Cultivate, Waggl and CultureIQ, Perceptyx gained 80 midsize customers and 70 skilled personnel.
A brief look at the frenzied M&A activity in the HR tech space suggests that large companies don't always possess the necessary tools and tech skills to address the growing pace of change that the HR market is undergoing.
For example, HP recently announced the acquisition of Poly, which provides headsets, audio- and videoconferencing products, desk phones, and analytics software and services. HP executives said they'll take Poly's products to create hybrid office solutions for the growing number of employees who work in both the home and office environment.
Microsoft's recent acquisition of Ally.io signals that the company's employee experience platform, dubbed Microsoft Viva, needed objectives and key results tools to align employee work to a company's strategic mission. This task is more challenging as the number of remote and hybrid workers is on the rise.
In March, HR technology company Cornerstone OnDemand announced it will acquire EdCast, a learning experience software provider.
"That was a massive deal, and the reason it happened was Cornerstone, after multiple efforts, could not build a learning experience platform on their own," Bersin said. "They tried several times, and they just could not do it, so they bought one of the largest companies in that space."
Bersin believes we will see more M&A deals in HR tech, particularly because no one company can build all the technology to solve specific HR problems.
"The reason these acquisitions take place in the HR domain is there are many very specific subdomains of HR and no one company can be good at all of it," he said.
Looking forward, Telang said Perceptyx is opportunistic and does not have a pre-established plan around acquisitions. However, company executives will keep a pulse on what's happening in the industry to determine how implementing certain solutions can help expand their capabilities and enhance their talent pool.
"If a company has complementary technology and product skills that align with our needs, we certainly assess how it could be valuable in helping Perceptyx expand its offerings," he said.
Nicole Lewis is a freelance journalist based in Miami.