STRONG M&A DEAL VOLUME DESPITE A CHOPPY MARKET FOR HUMAN CAPITAL MANAGEMENT SOFTWARE WITH AN EXPECTED RETURN TO NORMAL IN 2021
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STRONG M&A DEAL VOLUME DESPITE A CHOPPY MARKET FOR HUMAN CAPITAL
MANAGEMENT SOFTWARE WITH AN EXPECTED RETURN TO NORMAL IN 2021
HUMAN CAPITAL MANAGEMENT SAAS INDUSTRY UPDATE | Q4 2020
Q4 2020
Human Capital Management SaaS
Strong M&A Deal Volume Despite a Choppy Market for
Human Capital Management Software
CONTRIBUTORS HIGHLIGHTS
David Michaels Last twelve-month (LTM) merger and acquisition (M&A) activity was strong with 171 deals and dollar
Head of Technology, Media & Telecom value of nearly $120 billion, with H2’20 showing a strong return in M&A activity.
Managing Director
Q4’20 deal activity jumped to 55 deals, setting a new quarterly record, a strong rebound from 25
(858) 926-5950
deals in Q2’20.
dmichaels@capstoneheadwaters.com
M&A targets were valued at a relatively healthy 5.1x LTM revenue, a step down from the 5.7-5.8x
peaks we saw in 2016 and 2019, though Capstone expects multiples to rise as we get deeper into the
Teak Murphy recovery.
HCM Software
Director Stock prices rose 11.7% as the segment continues to recover, though it remains below the broader
(310) 746-5006 Enterprise SaaS & Cloud companies and NASDAQ for the year as headwinds for the segment remain.
tmurphy@capstoneheadwaters.com Just one initial public offering (IPO) for the quarter as Nittsusystem (TSE:4013) opened up 83% from
its offer price but steadily fell over the quarter.
M&A for HCM SaaS will likely remain active though many deals will continue to involve bargain
hunting for struggling businesses in the near term, though hot areas like remote workforce
management may see acquirers get aggressive for well-positioned products.
www.capstoneheadwaters.com
KEY TAKEAWAYS M&A ACTIVITY & MULTIPLES PUBLIC COMPANY VALUATION & OPERATING METRICS CAPSTONE HEADWATERS HCM SOFTWARE TEAM
HCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
KEY TAKEAWAYS
TRANSACTION ACTIVITY MEDIAN VALUATION MULTIPLES MEDIAN PUBLIC COMPANY METRICS
LTM M&A activity was strong at 171 deals with Q4 M&A LTM median revenue multiple of 5.1x remains Stock prices continue to recover, up 11.7% for the
activity of 55 deals, both setting new records amid healthy considering the environment but is well quarter, though the segment underperformed the
a strong rebound from just 25 deals in Q2. below the 5.7-5.8x range seen in 2016 and 2019. broader Enterprise SaaS & Cloud companies and
Less than 10% of deals report multiples, making it NASDAQ in 2020.
Just one IPO for the quarter as Nittsusystem
difficult to draw conclusions.
(TSE:4013) opened up 83% from its offer price but Median revenue growth fell to just 6%, the lowest
steadily fell, ending the quarter down 10% from its Public company median revenue multiple of 6.0x level since 2015, while projected growth of 10.1%
offer and down 46% from its opening price. sets a new record level as investors increasingly shows expectations of improvements but remains
look past COVID-19 struggles and focus on future below the 12%+ growth seen in recent years.
value.
Median EBITDA margin of 23.6% marks a new high
as companies manage operating expenditures
(opex) for profits.
M&A OUTLOOK NOTABLE RECENT M&A TRANSACTIONS MOST ACTIVE BUYERS
M&A for HCM SaaS will likely remain active though Buyer Target Segment EV
many deals will continue to involve bargain hunting Workforce $11.0B
Management
for struggling businesses in the near term. Hot
areas like remote workforce management may see Workforce $3.9B
Management
acquirers get aggressive for well-positioned
Workforce
products. Management
$1.4B
Strategics benefit from recovering valuations but Core Admin $645M
may remain opportunistic on M&A given a cloudy
Workforce
recovery timeline. Private equity is actively back in Management
$575M
the market though are hesitant to pay up for
companies with more business model uncertainty. Core Admin $160M
As the recovery continues we expect the segment Workforce $81M
Management
to rebound further with some potentially new
interesting longer-term trends emerging as Core Admin $75M
capabilities like remote employee management and
Workforce $41M
increased use of outsourced contractors provide Management
more staffing flexibility.
Core Admin $37M
3KEY TAKEAWAYS M&A ACTIVITY & MULTIPLES PUBLIC COMPANY VALUATION & OPERATING METRICS CAPSTONE HEADWATERS HCM SOFTWARE TEAM
HCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
M&A TRANSACTION VOLUME BY SEGMENT
Transaction volume reached 171 deals for the past twelve months, surpassing 2019’s recent high by 30%.
» The 55 deals in Q4’20 marks a strong rebound from Q2’s 25 deals, setting a new quarterly record, as activity was strong though many deals were smaller transactions at lower multiples for
struggling businesses as COVID-19 heavily impacted the segment.
Private deal dollars hit a record $15.4 billion over the past twelve months, driven by Ultimate’s $11 billion deal with Kronos in Q1’20 while Q4’20 contributed $1.4 billion in deal dollars.
Public dollars fell to $4.5 billion with just three deals in the past twelve months, two in Q3’20 and one in Q4’20.
M&A activity was driven by lower end deals with some larger transactions, 2021 activity is difficult to project as the segment continues to recover but Capstone expects increased activity as
businesses continue to recover.
180
160
50
140
120
35
30
100
Transactions
80 31 82
37
32 49 60
60
35 23
40
30
20 41 37 39
28 32
18
0
2015 2016 2017 2018 2019 2020
Total Private $ $1,008 $4,997 $2,230 $2,575 $4,553 $15,358
Total Public $ $728 $32,233 $4,672 $0 $12,886 $4,488
LTM = Last Twelve Months
Hiring Workforce Management Core Admin Sources: Capital IQ and 451 Group
5HCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
M&A TRANSACTION VOLUME BY DEAL SIZE
Median LTM transaction size of $15 million marks a new low as activity was driven by bargain hunting acquirers opportunistically looking for well priced tuck-ins.
Q4’20 saw seven deals with reported deal values, with just two deals above $25 million in reported deal value, though both were $1 billion+ transactions.
The vast majority of deals had unreported deal values with 60% of those with disclosed value below $25 million for the year despite large deal activity hitting a peak with six deals above $500 million,
representing a record for large deal activity.
180
160
140
120
100 143
80
112
101
60 73 69
56
40
42
6 12
20
5
32 6 8 42 32
34 6 2 7 17
13 9 8 9 7
0
2015 2016 2017 2018 2019 2020
Total Deals 80 94 92 120 132 171
Deals w/ Value 24 21 23 19 20 28
Median ($M) $23 $28 $67 $50 $49 $15 LTM = Last Twelve Months
$0-$25M $25-$100M $100-$500M $500-$1B $1B+ Not Disclosed Sources: Capital IQ and 451 Group
6HCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
MEDIAN M&A REVENUE MULTIPLES
The median LTM M&A revenue multiple of 5.1x remains relatively strong, though a step down from 2019’s 5.7x level, as deal multiples have trended down in 2020 but premium deals are still getting
done, as evidenced by the 7.7x multiple at the 75th percentile.
Multiples will likely continue to have a high degree of variability in the near term.
» A lot of deals at lower valuations continue to be driven by consolidation to survive, though better positioned companies that have survived the downturn and return to growth will likely come to
market in 2021 after sitting out in 2020 to focus on the business.
» Certain businesses in segments like virtual workforce management, digital learning, etc. could trade at premium multiples as aggressive acquirers look to fill gaps and capture tailwinds driving
growth in those segments.
7.0x
6.0x 5.8x 5.7x
Median Revenue Multiple
5.0x 5.1x
5.0x
4.0x 3.8x
3.0x
3.0x
2.0x
1.0x
0.0x
2015 2016 2017 2018 2019 2020
25th % 2.0x 2.3x 2.4x 2.0x 3.4x 2.2x
LTM = Last Twelve Months
75th % 4.0x 8.7x 6.0x 5.2x 8.3x 7.7x Sources: Capital IQ and 451 Group
7HCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
NOTABLE RECENT M&A TRANSACTIONS
LTM
Enterprise Premium to
Ann. Date. Buyer Target Segment Target Description Strategic Rationale Revenue
Value 1 Mo Prior
Multiple
The combination of the two industry leaders creates a $3
Workforce Develops human resources management software including
02/20/20 billion revenue business valued at $22 billion with a broad $11.0B 7.3x NA
Management attendance, scheduling, payroll, and hiring software.
solution for the HCM segment.
Operates a cloud-based technology skills platform that allows
Workforce Pluralsight will be more agile and be able to further
12/13/20 for individuals and teams to acquire technology skills through $3.9B 10.5x 27.7%
Management accelerate its strategic vision as a result of the deal.
skill development exercises.
Provides HR management SaaS software focusing on employee Cornerstone adds significant scale with plans to
Workforce $1.4B
02/24/20 training, performance management, learning and assessment streamline the consolidated business to drive margin 5.4x NA
Management
management, compensation management, etc. improvements and increased innovation.
Silver Lake provides the capabilities for the company to
Develops a cloud-based payroll and human resource software, $645M
07/08/20 Core Admin further strengthen its current offerings, and to develop NA NA
including production and supervision capabilities.
new and innovative products.
Zebra furthers strengthen its offering within the retail
Workforce Provides retail workforce management software consisting of $575M
07/28/20 vertical with the acquisition of a retail-focused workforce 8.7x NA
Management task management, retail auditing, and mobility solutions
management system.
Offers Medicare secondary payer (MSP) compliance software
Verisk further expands its claims partners business with
09/11/20 Core Admin consisting of mandatory insurer reporting, electronic date $160M NA NA
the tuck-in acquisition of Franco Signor.
interfaces, and monitoring correspondence capabilities
Develops HR software for functions such as job application Battery’s acquisition of Easy Software is aimed at further
07/24/20 Workforce $81M 1.4x 93.3%
management, personnel development, employee self service, driving the growth of the company through both organic
Management
etc. and inorganic means.
Fineos’s strengthens its market position with the
08/10/20 Provides quoting and underwriting SaaS for the employee acquisition of one of the leading quoting, rating, and
Core Admin $75M 5.2x NA
benefits industry. underwriting software providers in the employee benefit
space.
Provides cloud-based and mobile environmental, health, and Damstra increases its growth potential and diversification
07/08/20 Workforce $41M 12.8x 85.5%
safety risk software consisting of governance, risk management, throught the acquisition, which allows the company to
Management
and compliance management solutions. accelerate its innovation and expand internationally.
Provides workforce management SaaS that provides features
10/13/20 Quhuo further strengthens its position within the Chinese
Core Admin for workforce allocation and optimization, information and $37M NA NA
HCM market with this acquisition.
expense management, etc.
Includes largest transactions based on Enterprise Value
Sources: Capital IQ and 451 Group
8HCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
MOST ACTIVE HCM SAAS BUYERS – LAST 5 YEARS
SaaS/Cloud Transactions
Companies with 2+ HCM SaaS Deals in Last 5 Years
Company Date Company Value
12/02/20 Abintegro Limited NA
03/05/20 CoreHR Limited NA
04/04/19 Unicorn Training Group Limited NA
03/05/19 Volcanic (UK) Ltd NA
10/11/18 Microdec Plc NA
7 deals 06/13/17 Selima Ltd. NA
03/15/17 Safe Computing Limited NA
06/14/18 HRnext LLC (software IP assets) NA
04/02/18 Wells Fargo(Business Payroll Services) $10M
01/02/18 Pay Systems of America Inc. NA
05/26/17 Compass HRM Inc. $6M
05/26/17 iSystems, LLC $79M
7 deals 01/03/17 Corporate Payroll Inc. $3M
03/21/16 Mangrove Software $17M
01/08/20 Herefish Inc. NA
10/01/19 Erecruit Inc. NA
07/24/18 Invenias Limited NA
(Stone Point Capital) 03/13/18 Jobscience Inc. NA
03/13/18 Talent Rover LLC NA
7 deals 11/29/17 Peoplenet Corporation NA
09/11/17 Connexys BV NA
10/02/19 Optimum Solutions, Inc. NA
07/27/17 Digital Instinct Pty. Limited NA
10/25/16 Datamatics Management Services, Inc. NA
(Hellman & Freidman) 06/28/16 EmLogis Inc. (IP assets) NA
01/14/16 Empower Software Solutions, Inc. NA
7 deals 08/19/15 Kaba Workforce Solutions LLC NA
06/11/15 Productive Scheduling Solutions NA
05/12/20 Nmbrs B.V. NA
05/29/18 Raet B.V. NA
06/19/17 Comenius Svenska AB NA
03/22/17 Bluegarden AS NA
(HG Capital and others) 02/07/17 LogBuy Limited NA
7 deals 08/20/15 Aditro AB NA
05/07/15 PBJ A/S NA
Sources: Capital IQ and 451 Group
9HCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
HCM BUYER MAP
DIVERSIFIED PROVIDERS
HIRING WORKFORCE MANAGEMENT CORE ADMINISTRATION
SOURCING RECRUITING ONBOARDING PERFORMANCE LEARNING RECOGNITION TIME & ATTENDANCE PAYROLL & BENEFITS
Red outline indicates public company
10KEY TAKEAWAYS M&A ACTIVITY & MULTIPLES PUBLIC COMPANY VALUATION & OPERATING METRICS CAPSTONE HEADWATERS HCM SOFTWARE TEAM
HCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
HCM SAAS PUBLIC COMPANY UNIVERSE
Diversified
Hiring
Workforce
Management
Core
Administration
12HCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
RECENT HCM SAAS IPOS
IPO Date Company Segment Description IPO Details
Offering Amount 71.1 Mkt Cap at 12/31 273.4 LTM Revenue 29.3
Nittsusystem provides human resource management solutions, including
Offer to Open + 73.1% EV/Rev Mult 9.1x LTM EBITDA NA
10/13/20 Core Admin employment, HR, payroll, healthcare, and labor cost management system
Open to Close - 0.6% EV/EBITDA Mult NA Gross Margin 64.6%
solutions.
TSE:4013 Open to 12/31 - 46.7% EBITDA Margin NA
Offering Amount 68.8 Mkt Cap at 12/31 295.0 LTM Revenue 52.9
Limeade provides cloud-based employee experience software solutions
Workforce Offer to Open + 0.3% EV/Rev Mult 5.1x LTM EBITDA (1.5)
12/19/19 through an integrated technology platform in the areas of employee well-
Management Open to Close 0.0% EV/EBITDA Mult NA Gross Margin 75.9%
being, engagement, inclusion, and communications.
ASX:LME Open to 12/31 - 6.4% EBITDA Margin (2.9)%
Offering Amount 17.4 Mkt Cap at 12/31 110.9 LTM Revenue 35.3
Lancers provides a crowdsourcing freelance talent platform that matches Offer to Open + 14.9% EV/Rev Mult 2.6x LTM EBITDA NA
12/15/19 Hiring
companies with work opportunities to individuals seeking work online. Open to Close - 7.5% EV/EBITDA Mult NA Gross Margin 49.8%
TSE:4484 Open to 12/31 - 7.6% EBITDA Margin NA
Damstra provides a cloud-based workplace management platform comprising Offering Amount 33.3 Mkt Cap at 12/31 224.8 LTM Revenue 13.5
Workforce workforce management, access control, asset management, and learning Offer to Open + 39.8% EV/Rev Mult 16.4x LTM EBITDA (4.2)
10/16/19
Management management, as well as health, safety, and environmental management Open to Close - 1.2% EV/EBITDA Mult NA Gross Margin 48.0%
ASX:DTC products and modules. Open to 12/31 + 41.6% EBITDA Margin (31.4)%
Docebo provides a cloud-based SaaS learning platform to train internal and Offering Amount 56.3 Mkt Cap at 12/31 2,117.0 LTM Revenue 56.5
Workforce external workforces, partners, and customers. The company’s learning Offer to Open - 0.4% EV/Rev Mult 36.5x LTM EBITDA (3.8)
10/8/19
Management platform enables administrators to centralize, organize, and distribute learning Open to Close + 1.3% EV/EBITDA Mult NA Gross Margin 80.9%
TSX:DCBO content, track certifications, and measure results with customer analytics. Open to 12/31 + 442.9% EBITDA Margin (6.7)%
Offering Amount 110.5 Mkt Cap at 12/31 6,851.4 LTM Revenue 163.2
Fiverr operates an online marketplace platform connecting freelancers with
Offer to Open + 23.8% EV/Rev Mult 40.7x LTM EBITDA 1.2
6/12/19 Hiring businesses seeking services. The company’s platform includes approximately
Open to Close + 53.5% EV/EBITDA Mult 5,720.6x Gross Margin 81.9%
200 categories in 8 verticals.
NYSE:FVRR Open to 12/31 + 650.4% EBITDA Margin 0.7%
Source: Capital IQ
13HCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
MEDIAN STOCK PERFORMANCE – HCM SAAS UNIVERSE
HCM SaaS Universe continued its recovery, increasing 11.7% during the quarter, though HCM SaaS has underperformed the broader NASDAQ and Enterprise SaaS & Cloud as many segments of
Human Resources (HR) / Human Capital Management (HCM) have been negatively heavily impacted by COVID-19.
HCM impact from COVID-19 is largely split as segments like Freelance and Virtual Training are experiencing strong tailwinds, while businesses focused around hiring and core administration are
typically struggling to add new logos as companies reduce investment and delay purchases, favoring incumbents.
» Some payroll businesses bounced back surprisingly quickly given the obvious headwinds of unemployment and delayed new logos as investors seem willing to look past near-term issues for
businesses that are well positioned.
Stock Performance Stock Performance - 9/30 - 12/31
180% Upwork 97.9%
Docebo 74.8%
LTG 46.7%
160% 157.4% Paycom 45.3%
SEEK 44.2%
Fiverr 40.4%
TriNet Group 35.9%
Benefitfocus 29.3%
140% Ceridian HCM 28.9%
Paylocity 27.6%
ADP 26.3%
117.6% Insperity 24.3%
120% ATOSS Software 23.3%
Pluralsight 22.4%
Upland Software 21.7%
Cornerstone OnDemand 21.1%
100% Paychex 16.8%
86.7% Intuit
New Work
16.4%
12.0%
HCM SaaS Universe Median 11.7%
Workday 11.4%
80% Limeade 11.2%
Freelancer 9.9%
Roper 9.1%
HealthStream 8.8%
60% Oracle 8.4%
Recruit 6.1%
43.6% Microsoft 5.7%
36.9% IBM 3.5%
40% DHI Group (1.8)%
Wise Talent (3.7)%
21.7% Asure Software (6.0)%
51job (10.2)%
20% 15.4% CrowdWorks (13.6)%
11.7% Wantedly (14.2)%
The Sage Group (14.8)%
Damstra (15.2)%
SAP (15.9)%
0% Lancers (36.7)%
Nittsusystem 0.0%,NA
Last 5 Years Last 3 Years LTM 9/30 - 12/31
(60)% (40)% (20)% 0% 20% 40% 60% 80% 100% 120%
HCM SaaS Universe NASDAQ
LTM = Last Twelve Months
Source: Capital IQ 14HCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
MEDIAN LTM REVENUE MULTIPLES – HCM SAAS UNIVERSE
The median LTM revenue multiple of 6.0x is a slight increase from 2019, representing a new high for the segment as it continues to rebound from Q1’s low of 3.9x.
Investors are future-focused as the economy continues to recover, looking past the ongoing COVID-19 impact and investing into well-positioned businesses.
» Well positioned leaders typically trade at stronger multiples and are better positioned as newer entrants will have more difficulty stealing logos in the near term.
Learning management solutions and tools to manage virtual employees and outsourced contractors have experienced an uplift with ongoing work from home and outsourcing trends as investors
are betting that these solutions will continue to gain traction even after COVID-19 restrictions subside.
LTM Enterprise Value / Revenue LTM Enterprise Value / Revenue
7.0x Fiverr
Docebo 36.5x
40.7x
Paycom 31.9x
Paylocity 19.5x
5.9x 6.0x Ceridian HCM 19.3x
Damstra 16.4x
6.0x ATOSS Software 16.0x
5.5x 5.5x Workday 13.7x
Intuit 13.0x
Upwork 11.8x
Microsoft 11.1x
5.0x 4.6x
LTG
Roper
10.8x
10.1x
4.5x Nittsusystem 9.1x
Paychex 8.5x
SEEK 7.9x
Pluralsight 7.2x
4.0x 51job 6.2x
New Work 6.1x
Upland Software 6.0x
HCM SaaS Universe Median 6.0x
Cornerstone OnDemand 5.8x
3.0x Oracle 5.7x
ADP 5.2x
SAP 5.2x
TriNet Group 5.1x
Limeade 5.1x
Freelancer 4.0x
2.0x Wise Talent 3.8x
The Sage Group 3.6x
Recruit 3.4x
Wantedly 2.7x
Lancers 2.6x
1.0x HealthStream 2.3x
IBM 2.2x
Asure Software 2.2x
Benefitfocus 2.0x
CrowdWorks 1.7x
DHI Group 1.0x
0.0x Insperity 0.7x
2015 2016 2017 2018 2019 2020 0x 2x 4x 6x 8x 10x 12x 14x 16x 18x 20x 22x 24x 26x 28x 30x 32x 34x 36x 38x 40x 42x 44x
Based on data available as of 12/31/20 Based on data available as of 12/31/20
Note: For TriNet, based on net revenue (not gross revenue) LTM = Last Twelve Months
Source: Capital IQ 15HCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
MEDIAN LTM EBITDA MULTIPLES – HCM SAAS UNIVERSE
The median EBITDA multiple of 20.8x is a slight drop from the 2019 high but above last quarter’s 18.7x multiple and well above Q1’s 14.5x as valuations return.
» Investors believe Ceridian (NYSE:CDAY) will continue to displace incumbent leaders like ADP (Nasdaq:ADP) and continue the strong growth in its recurring software revenue, eventually growing
into its valuation.
» Paycom (NYSE:PAYC), and Paylocity (Nasdaq:PCTY) trade at premium multiples despite some obvious headwinds in the payroll segment as investors appear willing to look past near-term issues
and pay up for well-positioned growth companies.
» Workday (Nasdaq:WDAY) will benefit from its leadership position as companies are less likely to switch platforms and investors favor strong incumbents.
LTM Enterprise Value / EBITDA LTM Enterprise Value / EBITDA
25x Ceridian HCM
Paycom 79.8 x
95.2 x
Paylocity 69.4 x
Workday 53.4 x
21.2x ATOSS Software 53.4 x
20.8x SEEK 49.7 x
20.2x LTG 43.0 x
Intuit 33.3 x
20x Recruit 28.4 x
Roper 28.0 x
Wise Talent 26.1 x
Asure Software 25.7 x
16.1x 16.5x Microsoft 23.7 x
51job 22.7 x
15.1x Paychex 20.8 x
HCM SaaS Universe Median 20.8 x
15x ADP 20.3 x
New Work 20.1 x
Cornerstone OnDemand 17.3 x
Upland Software 17.2 x
Benefitfocus 15.4 x
SAP 14.1 x
Wantedly 13.9 x
10x HealthStream 12.4 x
Oracle 11.3 x
The Sage Group 11.1 x
Insperity 10.8 x
TriNet Group 10.7 x
IBM 9.4 x
DHI Group 4.3 x
CrowdWorks NA
5x Damstra
Docebo
NA
NA
Fiverr NA
Freelancer NA
Lancers NA
Limeade NA
Nittsusystem NA
Pluralsight NA
0x Upwork NA
2015 2016 2017 2018 2019 2020 0x 20x 40x 60x 80x 100x
Based on data available as of 12/31/20 Based on data available as of 12/31/20
Companies with EBITDA MarginHCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
MEDIAN REVENUE GROWTH – HCM SAAS UNIVERSE
Median revenue growth plunged to 6.0% with projected growth of 10.1% showing expectations for improvement, though that remains below growth rates we’ve seen for the past few years.
» Workforce management and LMS businesses like Damstra (ASX:DTC), Docebo (TSE:DCBO), and Pluralsight (Nasdaq:PS) expect above average growth as those segments are most likely to
experience new investment when managing remote workforces.
» Fiverr and Lancers expect strong growth driven by increased use of freelancers as companies try to stay lean.
» Cornerstone’s growth is driven by the acquisition of Saba Software as organic growth is much lower.
Revenue Growth vs Prior 12 Mos NTM / LTM Revenue Growth Projection
16% 15.2% Damstra 95.7%
Docebo 48.9%
Fiverr 48.7%
13.9% Nittsusystem 44.9%
14% Lancers 26.2%
Cornerstone OnDemand 20.2%
12.4% 12.1%
Upwork
Intuit
19.8%
18.7%
Paycom 16.9%
12% ATOSS Software 16.8%
SEEK 15.6%
Paylocity 15.4%
10.1% Workday 15.2%
10% LTG 14.7%
Roper 14.3%
Pluralsight 14.2%
New Work 12.2%
Wise Talent 11.5%
8% Microsoft
HCM SaaS Universe Median
10.1%
10.1%
Ceridian HCM 8.8%
6.0% SAP 6.2%
Limeade 5.9%
6% Recruit 5.2%
The Sage Group 3.7%
Paychex 3.3%
Oracle 3.0%
Upland Software 2.5%
4% 3.0% Insperity 2.1%
ADP 1.7%
Wantedly 0.5%
Benefitfocus (0.3)%
2% 51job (0.4)%
IBM (0.6)%
DHI Group (3.9)%
HealthStream (5.4)%
Asure Software (5.5)%
0% TriNet Group (8.0)%
CrowdWorks #N/A
2015 2016 2017 2018 2019 2020 NTM Freelancer #N/A
12/31/20 (20)% 0% 20% 40% 60% 80% 100% 120%
Based on data available as of 12/31/20 Based on data available as of 12/31/20
Note: For TriNet, based on net revenue (not gross revenue) LTM = Last Twelve Months
NTM = Next Twelve Months 17
Source: Capital IQHCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
MEDIAN MARGIN TRENDS – HCM SAAS UNIVERSE
Median gross margins of 67.9% remain healthy but a couple points below the high of 69.6% in 2017, though gross margins vary widely across companies.
» Higher gross margin companies are typically pure software businesses that are easily implemented with lower customer support.
» Lower gross margin businesses in the HCM Universe typically have significant service components or revenue sharing that drag down margins.
The majority of HCM companies are solidly profitable with a median 23.6% EBITDA margin, marking a new high as businesses have managed opex to maintain profits.
» Most of the low margin or unprofitable businesses spend heavily on sales & marketing to drive continued growth, forgoing near term profitability to gain scale.
Gross Margins by Segment EBITDA Margins by Segment
Wantedly 105.0% Oracle 50.0%
The Sage Group 93.4% TriNet Group 47.6%
Paycom 88.3% Microsoft 46.6%
DHI Group 88.1% Paychex 40.6%
Freelancer 83.2% Paycom 40.0%
Intuit 83.1% Intuit 38.9%
Fiverr 81.9% SAP 36.8%
Docebo 80.9% Roper 35.9%
Oracle 80.3% Upland Software 35.1%
Pluralsight 79.2% Cornerstone OnDemand 33.7%
Wise Talent 77.4% The Sage Group 32.8%
Limeade 75.9% New Work 30.1%
ATOSS Software 73.7% ATOSS Software 29.9%
Workday 72.3% Paylocity 28.1%
Upwork 71.7% 51job 27.1%
SAP 70.5% ADP 25.9%
Cornerstone OnDemand 70.4% Workday 25.6%
Paychex 68.3% LTG 25.1%
Microsoft 68.3% IBM 23.6%
51job 67.9% HCM SaaS Universe Median 23.6%
HCM SaaS Universe Median 67.9% DHI Group 22.2%
Paylocity 66.9% Ceridian HCM 20.2%
Upland Software 66.9% Wantedly 19.8%
Nittsusystem 64.6% HealthStream 18.7%
Roper 64.0% SEEK 15.9%
HealthStream 62.8% Wise Talent 14.6%
Asure Software 54.6% Benefitfocus 13.0%
New Work 52.5% Recruit 12.1%
Recruit 52.2% Asure Software 8.4%
Benefitfocus 50.8% Insperity 6.8%
Lancers 49.8% Upwork 2.3%
IBM 48.2% Freelancer 2.1%
Damstra 48.0% Fiverr 0.7%
Ceridian HCM 47.3% CrowdWorks (2.1)%
ADP 44.7% Limeade (2.9)%
SEEK 44.3% Pluralsight (6.3)%
CrowdWorks 38.1% Docebo (6.7)%
LTG 28.0% Damstra (31.4)%
TriNet Group 20.3% Lancers #N/A
Insperity 18.6% Nittsusystem #N/A
0% 25% 50% 75% 100% 125% (40)% (30)% (20)% (10)% 0% 10% 20% 30% 40% 50% 60%
Based on data available as of 12/31/20 Based on data available as of 12/31/20
Note: For TriNet, based on net revenue (not gross revenue) LTM = Last Twelve Months
Note: For TriNet, based on net revenue (not gross revenue)
Source: Capital IQ 18KEY TAKEAWAYS M&A ACTIVITY & MULTIPLES PUBLIC COMPANY VALUATION & OPERATING METRICS CAPSTONE HEADWATERS HCM SOFTWARE TEAM
HCM SAAS: M&A AND VALUATION UPDATE | Q4 2020
2 SENIOR HCM SOFTWARE COVERAGE TEAM
0
Capstone Headwaters has organized a highly skilled transaction team with deep industry
expertise, close relationships with market leaders, and extensive execution experience
David Michaels Teak Murphy John Snead
Head of TMT Director, HCM Software Head of International TMT
David brings 30 years of Teak has over 20 years of John Snead is responsible for
investment banking experience experience assisting technology managing Capstone’s Central
in technology M&A and companies on mergers, European investment banking
financing acquisitions, IPOs, and capital activities
Previously, he founded raises Previously, he founded
SagePoint Advisors and was a Prior experience includes Grenport Limited, was
Co-Founder, Partner, and SagePoint Advisors, Managing Director in Kroll’s
Managing Director at Montgomery & Co., Cowen, and corporate finance group, was a
Montgomery & Co. Enterprise Partners Venture Director in Arthur Andersen’s
BS, Engineering, from University Capital Corporate Finance Practice and
of Michigan held positions at KPMG and
BS, Finance, from University of
Morgan Grenfell
MBA, Finance, from UCLA Southern California
BS, Accounting, from University
of Wolverhampton
MBA, from University of
Birmingham
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