The billion-dollar SaaS sector of HR and payroll became a little less fragmented this month after two of the larger players each made significant acquisitions in the talent management arena.
ADP last week announced it completed the acquisition of VirtualEdge, an on-demand provider of enterprise talent management solutions covering everything from hiring to firing — the "talent lifecycle" as VirtualEdge prefers to call it. This is an interesting follow-on from ADP's purchase of leading on-demand employee services vendor Employease, which was announced in August but closed just two weeks ago. One can't help wondering if it's just coincidence that ADP has swallowed up two notable SaaS vendors in a row. Are these two swallows a sign of more to come?
Meanwhile, the week before, Nasdaq-listed Kenexa, one of VirtualEdge's larger rivals, bulked up with a $115 million deal to acquire privately-held rival BrassRing. This is the second acquisition for Kenexa since its arrival on Nasdaq in June last year, having bought WebHire at the turn of the year. It replenished its cash reserves with a secondary stock offering in March, and may have some left in the kitty for further purchases — although some industry watchers believe it may now itself become an acquisition target by rivals of ADP, and its stock price rose on the announcement of the ADP deal.
Although not in ADP's $9 billion-a-year league, Kenexa is already one of the larger listed SaaS vendors, with revenues of $83 million in the most recent twelve months and a 50% annual growth rate. The BrassRing acquisition should help it overtake its talent management rival Taleo, whose $86.6 million turnover in the most recent twelve months was achieved on a slower annual growth rate of 27.5%.
Despite the huge overall value of this sector, it's often overlooked in comparison to other more visible SaaS sectors such as CRM. Perhaps that will change now that vendors are approaching $100 million-plus annual revenues and attracting the attention of larger, better-known predators.