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Human Capital Management

Q1 2023

M&A Trends & Outlook:

Q1 HCM SUMMARY & OUTLOOK

HVA’S Q1 2023 HCM REPORT

In the first quarter of 2023, the Human Capital Management industry witnessed a continuous reduction in M&A activity after an unprecedented year for M&A and investment in 2022 There were a total of 75 acquisitions, an 18% decrease from the 97 deals in the fourth quarter of 2022 This decline in M&A transactions can be attributed to the current economic uncertainty and market instability that continue to affect investor confidence. Despite these challenges, our outlook remains optimistic for M&A activity as strategic acquirers seek to ramp up inorganic growth strategies and acquire complimentary companies in a less frothy valuation environment.

VC Trends & Outlook:

The number of venture capital deals increased quarter-over-quarter and the amount of funding increased significantly This increase is mainly driven by two deals that accounted for $800M in investment, both of which play in the workforce management space (See page 12). While investment has increased, the average investment in Q1 was $24M compared to $34M in 2022, returning to prepandemic levels. Investors have access to record amounts of dry powder but are exercising caution with their investments, particularly in the wake of the Silicon Valley Bank collapse Given recent market volatility and the impact of global events, investors are likely to remain cautious and focused on investing in high-quality startups with strong fundamentals and potential for long-term growth

TALENT MANAGEMENT

The staffing sector saw a decrease in M&A activity, with a total of 30 deals compared to 35 in the previous quarter The deals that did take place were mainly focused on financial staffing and IT

• Financial Services and IT Staffing: Osceola Capital-backed staffing company Talent Group acquired technology staffing firm Queen Consulting Group Also, IT staffing firm Agency Worx was acquired by freelance staffing company WorkGenius Korn Ferry acquired SALO, a consulting and staffing firm for accounting, finance, and HCM professionals. Similarly, financial services and IT staffing firm ProTask was acquired by IT staffing firm Inspyr Solutions

Activity within talent management was driven by acquisitions in the learning and talent analytics segments The combined subsectors accounted for over 50% of acquisitions within talent management

• Learning: Deskless workforce training platform eduMe acquired TikTok-like learning platform Playbook to deliver immersive, standardized training to frontline workers Developer of learning and hiring platform for nurses NextStep was acquired by caregiver training platform CareAcademy.

• Talent Analytics: Humanforce, a provider of workforce management tools, announced its plans to acquire people management and analytics platform intelliHR for 8x revenue

TALENT ACQUISITION

In the Core HR sector, M&A activity was driven by acquisitions of compensation & benefits and payroll companies Consolidation has accelerated as companies look for ways to improve their overall compensation packages and retain top talent

• Compensation & Benefits: Employee benefit platform Jellyvision acquired Picwell, which offers AI-generated benefits decision support. Moreover, Mexican startups Plerk and Minu announced their merger, combining Plerk’s digital employee benefits card into Minu’s employee service platform

• Payroll: CAVU HCM has been an active acquirer in the payroll sector through two acquisitions in February The company acquired cloud-based payroll provider ABCS and payroll services provider Pay Team, expanding its reach in Atlanta and Pennsylvania

The talent acquisition sector had the lowest M&A activity and public company performance of the HCM sectors tracked The deals recorded were mainly within background screening (See page 7) and talent sourcing, driven by continued demand for reliable and cost-effective screening and sourcing solutions

• Background Screening: Public players in the space are expanding globally. Sterling (NAS:STER) acquired two pre-employment screening providers First, Sterling acquired Latin American background screening provider Socrates and second, global provider of pre-employment screening A-Check Global

• Sourcing: Talent acquisition platform that utilizes AI and ML Talvista was acquired by interview intelligence platform Clovers. Notably, players in the space are rolling out new products that leverage AI to enhance recruiters’ search efforts, such as SeekOut’s launch of SeekOut Assist

HCM PUBLIC MARKETS

REVENUE & EBITDA MULTIPLES

YoY Median Revenue Multiples

Driven by 50%+ decrease in enterprise value across 3 players (FVRR, STER, UPWK)

Source: PitchBook, Data as of March 2023

YoY Median EBITDA Multiples

Driven by 30%+ decrease in enterprise value across 3 players (COUR, XM, UDMY)

SUB-SECTOR ECOSYSTEM

Despite facing challenging market conditions that affected the overall S&P index, the Core HR index emerged as the top-performing index, while the Talent Acquisition index underperformed during the period.

Source: Refinitiv

HCM PUBLIC TRADING STATISTICS

HVA’S Q1 2023 HCM REPORT

DEAL COUNT BY SUBSECTOR

$2.6B TO BE ACQUIRED BY

$12.5B TO BE ACQUIRED BY

$1.5B TO BE ACQUIRED BY

$885M FEB 2023

ACQUIRED BY

$4.6B FEB 2023

ACQUIRED BY

UNDISCLOSED FEB 2023

ACQUIRED BY

UNDISCLOSED FEB 2023

ACQUIRED BY

UNDISCLOSED JAN 2023

ACQUIRED BY

Sources: PitchBook, SIA

HCM NOTABLE TRANSACTIONS

RECENT NOTABLE ACQUISITIONS

• Works Human Intelligence (WHI) operates a payroll software intended to simplify hiring and staffing work.

• The additional capital will be used to support the company’s next phase of growth and augment WHI’s enduring customer value proposition.

• Qualtrics helps organizations collect feedback and data across 4 sectors: Customers, Employees, Brand, and Product.

• SAP divested Qualtrics to Silverlake and CPP Investments, which will allow Qualtrics to partner with ERP vendors to broaden its overall market and bolster investments into new technologies, like artificial intelligence.

• Momentive Global, formerly known as SurveyMonkey, is a survey software product that enables organizations to engage with customers and employees.

• This public-to-private acquisition will bolster Symphony Technology Group’s portfolio of software, analytics, and data companies.

• Redzone Production Systems is an employee management and coaching program focused on mid-tier food and beverage manufacturers.

• QAD, backed by Thoma Bravo, can now expand their supply chain software to drive rapid, tangible increases in retention and productivity on the frontline.

• KnowBe4, Inc. operates the world's largest simulated phishing platform to assess, track, and mitigate the ongoing threat of social engineering attacks.

• Vista will provide additional resources and operational expertise to enhance KnowBe4’s services and scale the business to international clients.

• Salo provides consulting, fractional, and direct-hire services for senior-level positions in finance, accounting, and human resources.

• The acquisition will broaden Korn Ferry’s organizational consulting portfolio to include interim and project-based staffing capabilities.

• Nstar Global Services assists with direct-hire and temp-to-hire, offers screening and interviewing services, and provides asset relocation services.

• Westerwood Global will benefit from Nstar Global Services’ industry expertise in semiconductor, solar, and pharmaceuticals.

• Personify Search provides talent management, recruitment process outsourcing, and employee engagement for healthcare and life sciences companies.

• The deal will complement WilsonHCG’s pioneering achievements in the RPO industry and constitutes their third HCM acquisition in the past two years.

TOP ACQUIRERS – PAST 30 MONTHS

864 acquisitions since September 30, 2020

of buyers made more than 1 acquisition in the last 30 months

• MRINetwork (2022): Executive search and recruitment services

• Northbound Executive Search (2022): Recruitment and consulting services

• Dubin Workforce Solutions (2022): Executive placement services

• LotusUSA (2022): Engineering, staffing services, and technology solutions

• Savantis Solutions (Staffing Operation Unit) (2022): Staffing services

• Affordable Rehab Services (2022): Therapy staffing services 6

• Star 1 Personnel (2022): Food & hospitality staffing

• Workstaffing (2022): Staffing and recruitment for employers and jobseekers

• Apprentice Personnel (2022): Temp staffing and payroll services 5

• Efficient Hire (2022): Employee onboarding

• Apriss Insights (2021): Data & analytics

• Health e(fx) (2021): Workforce management

• Propel International (2021): Talent assessment & development

• OPRA Psychology (2021): Psychometric testing & assessment

• Human Scope (2021): Leadership assessment & development

• Quorbit (2022): Workforce planning for frontline & hourly workers

• Ascentis (2022): HRIS

• Interboro Systems (2022): HR administration

• Skill Survey (2022): Reference-checking & skills assessment

• Candidate.ID (2022): Recruitment platform

• Altru Labs (2020): Hiring & training

• Harver (2021): Pre-employment assessment

• Checkster (2020): Pre-hire reference checks

• FurstPerson (2020): Talent assessment

• Talenting (2021): Talent management platform

• QCI Healthcare (2021): Healthcare staffing

• HireVergence (2021): IT Staffing

SUB-SECTOR SPOTLIGHT: BACKGROUND SCREENING

The pressure to make efficient and effective hiring decisions in the wake of a global talent shortage and a geographically dispersed employee base has driven market interest in the need to streamline the employee screening process Background screening transactions are on track to surpass historical precedents, as 5 acquisitions have already been announced or completed in Q11 There were 9 pre-employment screening VC raises in 2022 and 1 in Q1 2023, totaling $216M The Total Addressable Market for the Background Screening industry is $13B2, and screening and verification companies serve a vital HCM role. The impact of hiring the wrong candidate is extremely detrimental - workplace misconduct cost U.S. businesses $20B in 2021 and replacing an employee can cost up to 9 months of their salary 3 .

JAN 2023 ACQUIRED BY

Background Screening M&A Deals

RECENT BACKGROUND SCREENING ACQUISITIONS

FEB 2023 ACQUIRED BY

Public Company Performance

MAR 2023 ACQUIRED BY

Despite declining stock prices (See page 2) , new innovations and robust M&A activity have caused public background screening companies to attain record levels of revenue and EBITDA in 2022 First Advantage implemented selective price increases, increased automation, and operational efficiencies to expand their customer revenue and reduce costs. They acquired Form I-9 Compliance to add Form I-9 and E-Verify product solutions, and prioritize international expansion, new technology, and enterprise risk services as strategic M&A priorities Sterling Talent Solutions grew their client base by 9%, implemented post-hire monitoring, and expanded fingerprinting revenue by 300% through a partnership with FINRA. Their recent acquisition of A-Check Global solidifies their experience in Healthcare, Industrials, and TechMedia HireRight improved their margins by managing data costs and optimizing their mix of onshore and offshore labor All three public companies underwent IPOs in 2021, spurring increased transparency in the screening industry.

TO BE ACQUIRED BY

Trends and Developments

Enhanced Use of Technology: Advanced algorithms, machine learning, and artificial intelligence are being implemented to analyze vast amounts of data quickly and accurately.

Expansion of Global Screening: Employers are now extending their screening processes to cover candidates' international backgrounds as companies expand global operations Sterling acquired Socrates to expand to Latin America and HireRight will acquire Inquiro Vitae to expand to Argentina and serve the hiring needs of multinational clients.

Improved Candidate Experience: Employers want to ensure that candidates have a positive experience during the screening process, including clear communication, timely updates, and opportunities to address any discrepancies. S2Verify acquired Yale Associates to expedite customer service and add scale.

Rise of Social Media Screening: Amidst privacy concerns, employers are increasingly leveraging social media platforms to gather insights into candidates' online presence, behaviors, and reputations. Fama, backed by Silverton Partners, acquired Social Intelligence to incorporate their social media analytics and to expand their screening partners by more than 75%

HR TECH M&A TRANSACTIONS

STAFFING M&A TRANSACTIONS

STAFFING

Sources: PitchBook, SIA

HCM FINANCING SUMMARY

2023

MENTORING

$80M

EARNED WAGE ACCESS $116M AUG 2022

RECEIVED INVESTMENT FROM WORKFORCE MANAGEMENT $300M JAN 2023

HCM FINANCING ACTIVITY

HVA’S Q1 2023 HCM REPORT

Q1 VENTURE FUNDING SUMMARY WORKFORCE MANAGEMENT DRIVES VC INVESTMENT IN Q1 2023

Workforce Management

Leadership Development Sourcing Payroll

Employee Engagement

Compensation and Benefits

Learning

Talent Analytics Assessments

Recruitment Marketing Wellness

Performance Management Hiring Tools

Video Interviewing

Rewards and Recognition

Applicant Tracking HRIS

Pre-Employment Screening

VC activity in workforce management was driven by two large raises:

1) Rippling raised $500M to cover payroll after the Silicon Valley Bank collapse The cash will now be used to improve their platform and solutions

2) Shiftkey raised $300M to improve scheduling and payments for nurses and combat nurse staffing shortages.

HR TECH UNICORN TRACKER

2023 NEWLY MINTED UNICORNS

Source: PitchBook

HCM FINANCING ACTIVITY

Mar-23 Salt Labs

Mar-23 Zorro

Mar-23 Paraform

Mar-23 GoJoe

Mar-23 Axios HQ

Mar-23 Right Hand Cyber.

Mar-23 Rain

Mar-23 Maqsad

Mar-23

Mar-23 Upduo

Mar-23 Aeqium

Mar-23

Feb-23

Feb-23 HireLogic

Feb-23 Thatch

Feb-23 Moonhub

Feb-23

Feb-23 Cusmat

Feb-23 Performica

Feb-23 Disclo Talent Acquisition

Feb-23 Dalia

Jan-23

Jan-23 Inclusio

Jan-23 Qualifi

Jan-23

Jan-23 Gigged.ai

Jan-23

Jan-23 Howdy

Jan-23 Prodoscore

Jan-23

Lead/Sole Investors

Capital

Pitango, 10D

n/m Primer Sazze Partners

Ventures

n/m Glade Brook, Greycroft

n/m AZ-VC

$184 QED Investors

n/m Muditā VP, Stand Together

n/m Impact Venture Capital

n/m Vestigo, Ridge Ventures

$18 Greylock Partners, Susa

n/m Käfer Capital, Capnamic

n/m Union Cap, Golden Ventures

Primera Capital, Arun Sarin

Greylock Partners

n/m XYZ Venture Capital

Round13 Capital

Joseph Landy

$19 GV, Andreessen Horowitz

$25 GV, Khosla Ventures

Struck Capital

Arkam Ventures

n/m Surface Ventures, Bowery

$27 General Catalyst

Lewis & Clark Ventures

Elkstone Partners

Blue Trail Partners, Converge

Augment Ventures

Portage Ventures

Company, Swift, & 186 Ventures

Par Equity

Capital One Ventures

Greycroft, Obvious Ventures

Providence Strategic Growth

TEDCO, Squadra, & SHRMLabs

HCM FINANCING ACTIVITY

Feb-23

Jan-23

PRIVATE EQUITY GROWTH / EXPANSION

The material in this report is for information purposes only and is not intended to be relied upon as financial, accounting, tax, legal or other professional advice. This report does not constitute and should not be construed as soliciting or offering any investment or other transaction, identifying securities for you to purchase or offer to purchase, or recommending the acquisition or disposition of any investment. Harbor View Advisors does not guarantee the accuracy or reliability of any data provided from third party resources. Although we endeavor to provide accurate information from third party sources, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.