Introducing Harbor Views Inaugural HCM Quarterly Update

Human Capital Management

As the economy continues to rebound from the short but sharp COVID recession, the pace of transaction activity across all segments of capital markets has reached record levels. As with the broader market, M&A volumes in Human Capital Management remained strong through the second quarter, with 231 deals taking place over the last twelve months. VC activity in the HCM space was particularly robust, with a total of $3.1B worth of deals in Q2 alone. Later Stage VC funding has become the predominant driver of deal volume, accelerating capital flows and reflecting the maturation of VC-backed HR Tech startups. In 2020, markets witnessed a recession unusual in both its depth and its transience, with a sharp decline and subsequently rapid V-shaped recovery. Broader trends in the HCM space are being driven by both cyclical trends amplified by this macroeconomic whiplash and secular trends accelerated by the pandemic.

Staffing & Talent Acquisition: Automating the Hiring Process as Labor Shortage Heightens Cyclical Demand

A widescale, chronic shortage of skilled workers is driving robust staffing growth, with IT and healthcare workers in particularly high demand. The need for new talent has also led to increased interest and investment in recruitment marketing, sourcing, video interviewing and resume-building tools. This trend is well-illustrated by Jobvite’s $175M acquisition of JazzHR, a recruiting software provider, and two notable transactions in the recruitment process automation and conversational AI space: PandoLogic’s acquisition of Wade & Wendy and StepStone’s acquisition of Mya.

Learning: Reskilling &

Upskilling the Workforce Companies are not only seeking new talent, but also looking for innovative ways to train at scale and upskill current employees. As a result, a great deal of capital has gone toward the transformation of learning. Careerlong learning is now a high priority, and many businesses are leveraging the power of video and peer-to-peer technologies to make this a reality. Cornerstone’s $1.3B acquisition of Saba last April was a transformative transaction for the corporate learning sector. Cornerstone itself was taken private for $5.2B by Clearlake Capital in August of 2021. Other notable deals include WCAS’s acquisition of web-based learning management provider Absorb Software for $500M in June 2021. We expect similar transactions in the future, as learning continues to play an ever-growing role in the employee experience.

Employee Engagement & Benefits: New Urgency for Retention in a Hybrid World

Given the above two trends, it should come as no surprise that corporations are also looking to retain workers and hedge against “The Big Quit” or “Great Resignation”. Many companies are now offering more flexible work options and investing in tools that empower and engage their employees. Peakon, the developer of an employee success and HR platform built to optimize employee engagement and retention, was acquired by Workday in March 2021 for $702M. In Q3 2021, Harbor View Advisors represented CultureIQ in its sale to Perceptyx, the leading employee listening and people analytics platform.

Corporate Wellness: The New Imperative

The corporate wellness industry continues to grow rapidly, with the U.S. market predicted to reach $15.5B by 2024 with a CAGR of 8%. In Q2 2020, corporate wellness was also one of the largest capital contributors to the uptick in VC spending. The excitement surrounding the space can be seen in several recent transactions. For example, corporate wellness company Gympass raised $220M and achieved a $2.0B valuation. Mental health benefits platform Lyra Health raised $200M at a $4.4B valuation in June 2021. We expect further investment in the space as employers and employees alike recognize the importance of wellbeing.

ELEVATED MULTIPLES ACROSS ALL SUB-SECTORS

Talent Acquisition realizes highest YoY multiple expansion

Median Revenue Multiples

Source: PitchBook, Data as of June 2021 TTM

ANTICIPATING THE HIRING WAVE

Talent Acquisition and Staffing companies outperform the S&P 500

Source: Refinitiv

Indices based on equal-weighted prices and comprised of:

Core HR | ADP, ASUR, BNFT, CDAY, NSP, ORCL, PAYX, PAYC, PCTY, SAP, SGE, TNET, WDAY Staffing | AMN, ASGN, BBSI, BGSF, CCRN, JOB, KELYA, KFRC, MAN, MHH, RAND, RGP, RHI, STAF, TBI, VOLT Talent Acquisition | DHI, HSII, KFY Talent Management | CSOD, FC, HSTM, LME

HCM PUBLIC TRADING STATISTICS

CORE HR

TALENT MANAGEMENT

TALENT ACQUISITION

STAFFING

n/m: multiples less than 0x or greater than 50x

Source: PitchBook

HR M&A TRANSACTIONS

TALENT ACQUISITION

Source: PitchBook

STAFFING M&A TRANSACTIONS

STAFFING

Source: PitchBook, SIA

HCM FINANCING TRANSACTIONS

NOTABLE FINANCINGS

Driven by increased investment in wellness, automation and corporate learning solutions

RECORD FINANCING QUARTER

Bolstered by increased Later Stage VC activity

HCM VENTURE CAPITAL ACTIVITY

Jun-2021

Source: PitchBook, HRTECH Feed

STAFFING SUB-SECTOR SPOTLIGHT

Pre-pandemic, labor shortfalls were already driving growth in staffing, especially in more specialized segments: IT, education, healthcare, life sciences, and engineering / technical. And with IT staffing in particular, COVID-19 has only further elevated levels of demand. Broader corporate IT transformation has continued unabated, with COVID-19 actually spurring IT investments as companies re-assess their enterprise tools (per Gartner, a majority of companies accelerated their digital business in response to the pandemic). This has created sustained and outsized demand for IT staffing – notably, IT staffing and workforce solution firm Softworld generated double digit growth resulting in upwards of $100M in revenue despite the general market disruption. Softworld was then acquired by Kelly (Nasdaq: KELYA) in April 2021 for $215M.

And, in general, the staffing M&A markets remain incredibly active and healthy. Both financial and strategic buyers are still on the hunt for target assets to capitalize on high levels of demand, penetrate new markets, and ease pressure on rates. In the aforementioned specialty segments, the combination of spiking market demand and higher margins tied to premium services makes these spaces attractive to investors and consolidators. In IT staffing, potential buyers are not only invigorated by the seemingly ever-expanding addressable market – but they also see a unique combination of growth potential and demonstrated “recession resilience”.

However, there are preliminary indications that the IT staffing consolidation cycle may be moving past its peak. Some consolidators are starting to exercise more price discipline on acquisitions or are being more selective as they look to round out their platform portfolios. In the ongoing quest to capture margin or diversify into onestop shops, a number of buyers who were actively acquiring pure-play IT staffing assets are now folding in digital transformation or specialized enterprise consulting firms (e.g., ASGN’s acquisitions of LeapFrog, Integrated Solutions Management, IndraSoft, and ERPi).

On the company management side, due to the talent shortages over the past few years, staffing firms have had to become more competitive on wages, as well as benefits and other ancillary perks – which has eroded gross margins to some degree. However, as is often the case during market disruptions, many staffing firms have looked at ways to streamline their operations and potentially run leaner – be it layering technology or automation into the business or just re-assessing operating expense line items.

SUCCESSFUL STAFFING OUTCOMES

Represented by Harbor View Advisors

BROAD & DEEP HCM INDUSTRY EXPERTISE

Acquired by Acquired by

Acquired by

Acquired by Acquired by Received an Investment from

Acquired by Acquired by Acquired by

Acquired by Received an Investment from

Received an Investment from Acquired by

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.