IBM Buys HR App Maker Kenexa For $1.3 Billion In Cash
September 4, 2012 Timothy Prickett Morgan
You remember the days back in the early Gerstner era, when IBM wanted to assure independent software makers that it would not compete with them so they would port their wares to Big Blue’s servers, operating systems, and middleware? Well those days are long gone, and the acquisition of human resources software provider Kenexa last week just goes to show it.
Kenexa, which is based in the Philadelphia suburb of Wayne, Pennsylvania, was established in 1987 as a recruiting service for a bunch of different industry verticals. The company rolled out its first suite of software in 1993 and three years later, it had acquired a whopping 15 companies to build out its human resources portfolio. The company got out of the headhunting biz entirely during the dot-com boom, and snapped up more companies during the bust, eventually going public in June 2005. Since then, Kenexa has done a bunch of other acquisitions, and has built itself up as a provider of talent acquisition and management software and related services to over 8,900 companies worldwide, who have used its wares to review or manage some 110 million people to date.
The company sells a mix of packaged and online software, including applications for candidate searches, skills management, outsourcing, employee surveys, and compensation comparison and analysis. Human resources and talent management software is a hot item these days, with SAP shelling out $3.4 billion last December for SuccessFactors and Oracle spending $1.9 billion for Taleo in February of this year. Both SuccessFactors and Taleo are notable in that they offer software-as-a-service, meaning it runs on the vendors’ own clouds rather than on customer infrastructure, which in theory makes it easy to sell and support.
The Kenexa buy is one of the largest ones that IBM has done this decade, rivaling its acquisition of SPSS in July 2009 for $1.2 billion. IBM shelled out a much more impressive $5 billion in November 2007 to buy Cognos, and seems to have a full toolbox of business intelligence wares to peddle to customers since it bought data warehouse appliance maker Netezza two years ago for $1.7 billion. IBM has bought a slew of companies that offering marketing and web analysis and has been clearly trying to position itself as the King of Clickstream Analytics. And now it wants a piece of the human resources action. While IBM probably doesn’t care much if it annoys Oracle, it probably does care if it annoys SAP, but that’s the way it goes. Particularly with upstart Workday, created by PeopleSoft founder Dave Duffield to take a second run at people software, filed for its initial public offering last week. (By the way, IBM is a Workday customer. Or rather, was. Maybe IBM took a run at Workday and was rebuffed, and then countered with the Kenexa deal?)
While IBM’s Software Group is getting a company with 8,900 customers and 2,600 employees, what it is not getting is a company that knows how to make lots of money. The HR company has lost money for the past four years, with the ink $142.7 million deep in 2008 against sales of $203.7 million. In 2009, sales fell to $157.7 million, and the losses only came to $31.1 million. By 2010, as we were in theory pulling out of the Great Recession, Lenexa had $196.4 million in revenues and only lost $5.8 million. Last year, sales were up nicely to $282.9 million, but Kenexa lost $7.3 million. IBM’s bean counters no doubt think they can knock the company’s operations and finances into shape or Big Blue would not have spent a 42 percent premium over the company’s market cap on the day before the deal was announced.
As you might expect, IBM’s Software Group tried to social wash the deal, saying that the deal “bolsters IBM’s leadership in helping clients embrace social business capabilities while gaining actionable insights from the enormous streams of information generated from social networks every day.” While that may be true, this is a hell of a lot more about business than it is about social.
Kenexa has 2,800 employees and operates in 21 countries today, soon to be a lot more with IBM’s footprint being close to 10 times that number with a lot more depth. IBM expects the Kenexa deal to close in the fourth quarter, provided that no one else wants to take a run at it, of course. Maybe someone can run talent management software against Kenexa and see if it is worth more than $1.3 billion?