HR Tech – development in the sector and recent M&A activity

An employee engagement is undergoing a drastic change in the current times which is in turn transforming the roles and responsibilities of the  human resource department in every organisation.  Work from home and restricted interactions with employees in lock down phase has pressed the need to almost completely digitizing the human resource function in the companies and the whole business at HR Tech companies is seeing a big jump and that has opened up more reasons for deal activity in an already very active sector globally. 

Human resource department is responsible for managing processes covering the entire life cycle of the employee, starting right from the interviews, assessment, joining, training and onboarding, on job interactions with other employees, work productivity & collaboration, payroll & performance management and up to closing formalities upon exit of the employee. Today we have HR Tech companies encompassing either part or full universe of HR processes digitally through online recruitment, online assessment and applicant tracking, virtual interviews, remote onboarding and digital compliance, online employee communication and collaboration platform, digital payroll and reimbursements, online appraisals and finally, remote exit compliance.

Let us dig deeper into what exactly is happening in this business vertical. Broad themes/trends, that will/are being offered to the clients and  forecasted for the coming year are on an accelerated path are :

Proctored assessments: Pre-interview assessments tests have become a norm in most organizations and Proctored exams will soon become a necessity eliminating the need for physically conducting tests under a human invigilator.

Gamification: Gamification tools are increasingly being  used by HR to keep employees engaged, enhance collaboration and restrict their distractions from mobile apps while working at home.

Alternative workforce: Work from home is equivalent to Work from anywhere; Demand for gig economy workforce is expected to sharply increase and Organizations would hire more freelancers globally

Deep-Tech : AI & ML for recruitment, employee engagement, compliance etc or using social media for recruiting & branding

The space has also seen competition from newcomers into the sector, the biggest being Facebook. Workplace by Facebook can be a serious deal due to its awareness, simplicity to use and a slightly informal approach making users comfortable to communicate. It has already garnered numerous biggies as its clients including Walmart, Starbucks, Spotify and Nestle. Google Meet has also provided an option to start a video meeting directly from Gmail. Workday has started its Workday People Experience offering, extending from its ERP service. These are just the bigger companies in this space while numerous smaller companies have also actually doubled their revenues in this pandemic like Qualtrics, Medallia, Glint, BetterWorks, Lattice, 15Five etc. HR Tech companies are also moving towards providing a complete HR Suite with end-to-end facilities.

With business accelerating and technology interface from other application converging into HR activity,  it is bound to rejuvenate  M&A activity in the sector , naturally resulting in new additions to list of unicorns in this space; to name few – Workhuman, Zoho, Andela, BetterUp, Reflektive, PayFit, League, Betterworks, Peakon, Allyo, Eightfold and Glassdoor. Talking about M&A, deal rationale mainly attributed to market entry, geographical diversification, expansion of service offerings and client acquisition. Recent deal multiples; average revenue multiple being 5.4x (5.7x in 2019, pre-Covid) are amongst the highest in IT driven service applications. The number of deals in HR Tech have hit a record of 150 deals in the LTM and 48 in Q1’20 globally as per records. There were four Multi-billion deals – acquisition of P&I by Hg Saturn Fund, Instructure by Thoma Bravo, Saba Software by Cornerstone and Click Software by Salesforce.

Back in India, the space is heating up with numerous start-ups like Zoho, Darwinbox, Simplilearn, Idfy, Wheebox, Peoplestrong, Zeta amongst others accelerating. Latest deals were fund raisings by WorkIndia, Interview Bit, Phenom people and acquisition of Qilo by Peoplestrong, Mimir by Hackerrank and Aspiring Minds by SHL Global.

Going forward, from the deal perspective, it is expected that number of deals might take a slight hit in FY20 however the deal multiples are expected to remain at premium based on the long-term prospects of this Industry. And in terms of the financial health, HR Tech companies are getting ample time to hard-pitch the prospective clients and bag some good contracts. Also, companies are increasingly realizing the importance of online-first approach and are preparing big-time for the digital transformation, with HR at the fore-front.

Closing thoughts would be that unique solutions which improve productivity with an easy-to-operate & maintain interface will see the biggest movements. And after the announcements by major companies deferring work-from-home until 2021, remote working is the biggest workplace trend that we might be seeing in a very long time!