IBM buys Kenexa for $1.3 billion, eyes social HR software, services

Summary:IBM says Kenexa will allow it to create "smarter workforce" tools to boost customer service, foster internal innovation and expert discovery. Sound familiar? Oracle, SAP and Salesforce have similar plans.

IBM on Monday said it will buy Kenexa, which provides recruiting and talent management software and services, for $46 a share, or $1.3 billion.

According to IBM, Kenexa will allow it to combine people, processes and social analytics.

Kenexa has more than 8,900 customers across multiple verticals.

IBM's grand plan is to take Kenexa's front office software and layer in social technology, consulting and other tools. The key point here is that Kenexa is more about services than software. In many regards, IBM is acquiring an HR services company. IBM says Kenexa will allow it to create "smarter workforce" tools to boost customer service, foster internal innovation and expert discovery.

With the move, IBM moves more squarely into the intersection of HR and social business. That turf is being eyed by SAP, Salesforce.com and Oracle to name a few. In Kenexa's annual report, the company outlined its competition. 

We compete with niche point solution vendors, some of whom are privately held, such as Peopleclick Authoria, iCIMS, Inc., Global Innovation Corp, Kronos, Pilat HR Solutions, Inc., SHLPreVisor, Inc., Mercer, Towers Watson and MarketPay, which offer products that compete with one or more applications in our suite of solutions. In some aspects of our business, we also compete with established vendors of enterprise resource planning software with much greater resources, such as Oracle Corporation (PeopleSoft and Taleo), SAP AG (SuccessFactors) and Lawson, Inc. To a lesser extent, we compete with vendors of recruitment process outsourcing services and survey services, including Accolo, Inc., Alexander Mann Solutions, ADP (The Right Thing) and survey services such as The Gallup Organization.

Kenexa's software and services cover employment, recruitment, assessments, compensation, learning management, surveys and social business.

kenexa

Kenexa's footprint is varied based on its competitive set. In that regard, Kenexa fits nicely with IBM, which has consultants and software revolving around the social enterprise. Meanwhile, Cowen & Co. analyst Peter Goldmacher noted that IBM got Kenexa for a better valuation than SAP and Oracle did for SuccessFactors and Taleo, respectively. 

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According to IBM, Kenexa will allow it to offer companies the ability to "attract and develop the right skills to build the right teams, for the right projects, the first time." The move also puts it more at odds with long-time partners Oracle and SAP. Both enterprise software giants have plunged into the cloud HR market largely because of Workday's momentum. IBM's secret sauce is likely to revolve around its installed base of social software---roughly 60 percent of the Fortune 100---and its services unit.

Kenexa has 2,800 employees and operates in 21 countries around the world. Kenexa is projected to have a non-GAAP profit of $1.13 a share on revenue of $363.6 million for fiscal 2012, according to Thomson Reuters. Historically, Kenexa has topped estimates for most quarters.

IBM's Kenexa purchase is expected to close in the fourth quarter. Kenexa shares were trading more than 40 percent higher in early trading Monday. Here's the year-to-date chart.

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Topics: Social Enterprise, Cloud, IBM

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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