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HR Software Market Becomes Hotbed of M&A

Over the past twenty years, HR software has been reshaped by cloud, data analytics, and mobile apps. Now, as this new breed of software hits maturity, the market is consolidating.

This has come to fore in the past couple of weeks with two of the most significant transactions yet in HR tech.

In the first, two leading employee management solution vendors – Kronos and Ultimate Software – are being merged by their private equity owner. Instead of competing in the same niche, the two California-based firms will now take advantage of their complementary product portfolios and form a $22 billion Human Capital Management (HCM) juggernaut.

Elsewhere on a smaller scale, the market leading talent management firm Cornerstone OnDemand has proposed the acquisition of Saba – another California-based HCM firm which has pioneered a machine learning-based talent experience platform. The deal, which is worth $1.4 billion, represents a big bet on AI for talent enhancement.

Together, the deals demonstrate “investor appetite in the long-term potential and value in this core sector domain” says Acuity Partner Richard Baker. “HR software, a vertical market which is well progressed in vendors’ journey to cloud solutions, continues to see significant M&A consolidation.”

This wave of deal making is driven by several factors, with HR tech firms seeking to get on the right side of innovation, as with the OnDemand and Saba deal, and share similar products to command a larger share of the market, as with Kronos and Ultimate.

Other firms are also joining forces to combine fragmented segments of HR software into integrated systems. These complete packages are in increased demand from buyers, who are often looking to replace various single-purpose software packages with a one-stop cloud-based solution. February saw several deals of this nature. Performance management platform Betterworks bought Hyphen, which provides an employee listening and engagement platform. And digital workplace management platform WorkJam acquired on-demand staffing platform Forge.

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