Insights

Human Capital Management Overview

Date:

We examine the market opportunity and the drivers behind the high levels of transaction activity across the international HCM market.

High valuations and record levels of deal activity over the last 12 months

$193bn

Total Addressable Market for HCM

Growing at 9% CAGR

+110 Deals

Completed in 2018

Including Recruit's $1.2bn purchase of Glassdoor and Microsoft's $400m acquisition of Glint

$4.8bn

Invested by PE & VC in 2018

Continuing into 2019 with Ultimate Software's $11bn Sale to Private Equity

What is driving valuations and M&A?

People as resources/expenses: Having spent decades installing ERP, SCM and other automation systems, enterprises have now recognized that their people can be their biggest competitive advantage, and also their largest cost item. The ability to drive efficiencies from their workforce is paramount. 

War for talent: A combination of historically low unemployment, rise of the gig economy and a millennial workforce is driving the need to attract, engage and retain talent. 

Skills gap: Increasing need to train employees and provide the L&D platforms, tools, and analytics to deliver and measure.

Need for proactive insights: Pent-up demand in HR to harness data to generate predictive insights to help pro-actively drive business decision making, in line with other areas of enterprise. 

Acceleration of HCM SaaS: HR was one of the earliest consumers of SaaS-like models with Payroll and other SaaS HCM increasingly mainstream.

Bright Future for HCM M&A

Global opportunity: Macro tailwinds will continue to propel the HCM market worldwide driving underlying sector growth. 

Growth of Private Equity capital: Increasing deployment of private equity capital into sector, in particular into Europe.

AI & analytics: Roll out of next-gen data, analytic, and AI platforms to drive forward looking decision making.

High valuation multiples: Sector valuation multiples will continue to outperform non HCM peers, with software and tech-enabled services carrying SaaS multiples. 

One of the few horizontal software markets remaining: A fragmented global market with multiple opportunities for consolidation, through broadening product suites and new market entrants. 

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