Human Capital Management
2021: A YEAR IN REVIEW
While 2020 dramatically shifted how people work, 2021 brought continued change as different forces in the labor market took effect. Unemployment rates have returned to pre-pandemic levels and unemployment stimulus has run its course, but employers continue to face challenges filling open positions. The Great Resignation began in 2021, and employers have increased reliance on HCM solutions to help retain and bolster their workforce
In 2021 the HCM segment experienced record M&A activity, VC investments and IPOs, with activity accelerating into year end. The number of M&A transactions in Q4 increased 40% above Q3, with the largest rise occurring within Talent Acquisition and Core HR VC investments increased over fivefold compared with 2020 The 2021 investment in wellness and learning companies alone exceeded the total capital raised in 2020 for all HCM segments. Finally, HCM IPO activity quadrupled relative to both 2019 and 2020 The capital flowing into the space has not only bolstered balance sheets for continued consolidation, but also for accelerated technology innovation as players strive to solve for complex macro-economic challenges. Here are five subsectors that saw transformative transaction activity in 2021:
Screening and Assessments: Global talent shortages have ignited the need for assessment and screening tools, as companies scramble to streamline screening, improve candidate experience and decrease hiring time Consolidation in the background screening space was headlined by acquisitions where both Equifax and TransUnion expanded their capabilities in people data. Three of the largest background screening players completed IPOs in 2021, and three background screening firms partnered with new financial sponsors in Q4 Assessment providers joined broader talent acquisition platforms throughout the year, and VC investors continued to fund innovative pre-hire assessments
Staffing: High-margin focus and selectivity defined the staffing M&A rebound in 2021. In an effort to become “one-stop shops,” active consolidators folded in digital transformation or specialized enterprise consulting firms. The year, we also saw non-staffing companies vertically integrate by partnering with staffing firms to improve their talent acquisition efforts and combat labor scarcity. Staffing remains a seller’s market (for now) with M&A activity generally being led by PE-owned strategic buyers seeking to scale their existing platforms and create value for future exits.
Employee Engagement: Employee engagement has remained an increasingly important strategy for retaining workers and communicating across a virtual or hybrid workforce Culture and feedback software vendors quickly consolidated this year, led by Workday’s acquisition of Peakon. Employee engagement also continues to receive VC interest, as evidenced by an increase of nearly 3x over 2020’s capital flows
Learning & Development: Upskilling and reskilling workers is a continuing theme as accelerating digital transformation widens the skills gap for many workers. E-learning and LMS platforms continue to lead the learning market, but new disruptors in the space are starting to get noticed, particularly in the coaching world. Coaching platforms are being leveraged as a way to upskill existing employees to fill talent gaps E-learning platforms raised nearly $2B in funding this year (60%+ of overall learning investments), followed by digital coaching solutions ($620M raised).
Corporate Wellness: The wellness space received more VC funding in 2021 than in the combined 5 years prior. Although physical health is an obvious component, especially during a pandemic, the definition of wellness is expanding. Mental health and wellbeing tools were strengthened with the $3B merger of Headspace and Ginger, and the importance of financial wellness was highlighted as on-demand pay platforms received over $1B in funding. Consolidation within employee safety training and compliance continues as investors value regulatory mandates.
We expect consolidation and investment in Human Capital solutions to remain strong in 2022. Labor market challenges are likely to persist, and employers will seek to improve hiring, engagement, development and wellness of their employees.
The Great Resignation and the global talent shortage have driven the need to streamline the employee screening process, improve the candidate experience and decrease time to hire where possible VC investments in the space have increased over sevenfold in 2021 as investors back technology solutions that creatively address hiring challenges. In 2021, we saw over $900M in total investment for screening and assessments, more than the last five years combined. Technical assessments garnered the most attention from investors and reached $410M in funding or over 40% of the total funding
Background Screening: A Continuing Active M&A and IPO Market
The background screening sector continues to transform through consolidation and data access innovation. Equifax expanded the reach of its Workforce Solutions unit with the $1 8B acquisition of Appriss Insights, a valuation of 12x revenue TransUnion followed suit with its $638M acquisition of Sontiq, expanding its credit monitoring capabilities. Checkr, the market leader in contingent workforce screening, raised $250M at a valuation of over $4B in a Series E raise led by Durable Capital Screening prospective employees across borders remains particularly challenging. After completing its IPO, First Advantage acquired two overseas background screening providers, MultiLatin Advisors and GB Group Joining First Advantage in an IPO this year were HireRight and Sterling, spurring increased transparency as their financial performance is now in the public eye. Three other background screening companies gained new financial sponsors in Q4: Cisive, SJV Data Solutions and Employment Screening Resources. More recently in Q1 2022, Housatonic Partners invested in two background screening providers Accusource and PeopleG2. This could drive renewed emphasis on inorganic growth and drive additional consolidation
Assessment M&A and VC Interest
$422M Raise OCT 2021
We have seen robust activity in the pre-hire assessment space for years, driven by consolidators like PSI (now Lifelong Learner), and transaction activity remained robust in 2021 as assessment data is central to achieving both talent acquisition and employee development priorities Assessments are increasingly part of broader HR solutions, demonstrated by Paradox’s acquisition of image-based personality assessment platform Traitify, and Outmatch’s continued roll up of talent acquisition technologies Outmatch recently rebranded as Harver with its acquisition of the AI-powered recruitment platform formerly backed by Insight Partners Criteria also broadened its platform with the acquisition of video interviewing platform Alcami Interactive. Skills-based assessments for engineering talent received heightened VC investments in 2021, ranging from Andela’s $200M Series E to Karat’s $110M Series C and CodeSignal’s $50M Series C
What’s Next for Screening & Assessments?
We expect pre-hire screening to continue its robust activity in 2022. Ongoing labor market challenges will drive a focus on efficient and effective hiring. With many well-financed players in the mix, robust investment and M&A is likely to continue.
As the broader economy continued to bounce back and strengthen throughout 2021, M&A within staffing returned to pre-pandemic levels with increases in deal volume reported in each of the key staffing verticals. The restored momentum was largely due to financial and strategic buyers’ ongoing pursuit of scale to capitalize on elevated demand, penetrate new markets and ease pressure on rates. Additionally, 2021 saw non-staffing companies acquiring staffing companies, adding a new buyer universe segment and yet another tailwind to the staffing M&A landscape Elsewhere, several active consolidators demonstrated a marked shift in acquisition strategy with preferences for specialization or diversification
The Vertical Integration of Staffing Firms
In a sign of the times, non-staffing companies increasingly partnered directly with staffing firms to improve talent acquisition efforts and combat the scarcity of labor resources. Heating, ventilation and air conditioning provider Comfort Systems USA partnered with temporary staffing firm Kodiak Labor Solutions, and logistics provider Takkion acquired renewable energy staffing firm Airway Services Meanwhile, fan monetization platform Patreon acquired Clear Talent, a startup-focused recruitment services firm.
Active Consolidators Aim to Become “One Stop Shops”
In the quest to capture margin or enhance service offerings, a number of buyers who were actively acquiring pure-play staffing assets folded in digital transformation or specialized enterprise consulting firms Noteworthy examples include the Adecco Group’s $1.8 billion acquisition of Akka Technologies, an engineering consulting and R&D services firm and talent solutions provider Eliassen Group acquiring Lightwell, an IT consulting company Furthermore, ASGN, a company that has done several such acquisitions, acquired ERPi to further enhance its healthcare solution capabilities
The Seller’s Market Continues (For Now)
As this M&A cycle matures, buyers will likely become more selective as they round out their platforms and begin to exercise an extra degree of price discipline on acquisitions However, M&A activity levels remain relatively high and valuations steady, especially in high-margin, specialty areas of staffing such as IT, healthcare, life sciences and engineering. Spotlighting IT staffing, the elevated demand and strategic buzz will continue to track corporate IT transformation, which does not appear to be slowing down This trend is reflected in The Planet Group’s numerous acquisitions throughout 2021, which included IT staffing firms IT Works Recruitments and OmniPoint Staffing. Also, in August, ManpowerGroup strategically enhanced its IT staffing platform, Experis, with the $925 million acquisition of ettain group. Earlier in the year, ettain completed two IT staffing transactions of its own: INT Technologies and Bradford & Galt Overall, valuations are showing some indications of a post-peak, with premium outcomes less frequent but still very possible for the right assets. M&A activity generally continues to be led by PE-owned strategic buyers seeking to scale their existing platforms and create value for future exits.
What’s Next for the Staffing Industry?
The U S staffing industry is set to grow by 4% in 2022, with 7% growth in commercial staffing and 2% growth in professional staffing. Spend in IT staffing is forecasted to tick up by 6%, driven by continually intensifying competition for talent and high levels of investment in emerging technologies Staffing companies will need to innovate further to keep pace with evolving workforce and talent acquisition dynamics Critical frontiers in 2022 will be optimizing virtual recruiting practices, filling positions in remote work models, utilizing AI in recruiting efforts and the ever-present challenge of balancing competitive compensation and benefits with healthy margins.
EMPLOYEE ENGAGEMENT
Even pre-pandemic, employers were seeking solutions to bolster employee retention and measure and improve engagement Today, as we near the second anniversary of the start of the pandemic, employee burnout looms, and employers are seeking new and creative ways to reverse the effects of the past two years These challenges have only proven to be more difficult to solve while managing a virtual or hybrid workforce. Effective solutions to the underlying issues of the Great Resignation are in demand, showcased by the $400M+ increase in 2021 employee engagement investments. Funding reached $645M for employee engagement in 2021, up from $223M in 2020, a 2 8x year-over-year increase
Listening & Feedback Software
Leveraging employee measurement and listening platforms, leaders can pinpoint factors impacting their organizations and drive improvements using insights gathered. We’ve previously mentioned the Workday acquisition of employee feedback platform Peakon in January 2021 as a fuse that began what appears to be a long tail of activity in the space Between April and September, performance management player 15Five acquired engagement measurement provider Emplify, Perceptyx followed with the acquisitions of CultureIQ and Waggl, CultureAmp raised a $100M Series F and Ultimate Kronos Group acquired Great Place to Work Institute In the first few weeks of 2022, Quantum Workplace found a new financial sponsor in LLR, and Lattice brought its total funding to $330M after a Series F raise. Although the last year brought a flurry of activity in measurement, the capital flows suggest additional consolidation and innovation will continue.
Communication & Collaboration
Solving streamlined employee communication continues to be at the top of employers’ agendas since hybrid work plans are seemingly here to stay. Non-desk worker communication platform Staffbase raised $145M of Series D funding led by General Atlantic and acquired Valo Solutions to extend the Staffbase platform into the Microsoft Teams and SharePoint environments. Workplace feedback platform Tivian acquired GuideSpark, a change communication platform, to create an integrated suite for culture measurement and personalized communication. Smarp, an online employee communication platform, was acquired by Coyo to address the challenges of an increasingly mobile workforce
Improving the Employee Experience
Aligning employees with corporate values has been a longstanding approach to drive engagement and pride of ownership. Promoting values-driven work has been bolstered through recent M&A activity like payroll provider iSolved acquiring Givful, a social engagement and workplace philanthropy platform. Similarly, digital employee volunteering platform Alaya was acquired by Benevity to expand its international presence and grow its suite of corporate purpose solutions. While workplace philanthropies and volunteering have started to gain steam, long-standing solutions that improve the employee experience, such as employee rewards and recognition, continue to see consolidation. With a recently bolstered balance sheet, CultureAmp acquired Disco, a value-driven recognition platform for remote teams. Furthermore, Sodexo acquired employee rewards and recognition platform Wedoogift to expand its comprehensive set of digital gift experiences
What’s Next for Employee Engagement?
As talent shortages continue and employers focus on implementing new strategies to retain their workforce, we expect M&A and investment activity in employee engagement to continue at a healthy pace.
LEARNING & DEVELOPMENT
Learning and Development received over $3B in VC funding in 2021, the second highest segment within HCM. E-learning and LMS platforms continue to dominate investments, receiving over 60% of total capital raised in the Learning and Development segment. Disruptors in the learning space, like coaching and talent mobility tools, are gaining traction with VCs, as employers look to upskill existing employees rather than look externally for talent.
Learning Solutions
Learning & Development Venture Funding
E-Learning Platforms
Coaching Platform
Skills / Talent Mobility Tools
Apprentice / Internship Tools
Mentoring Platforms
Technical Training
Executive Development
Health Care Training
DEI Training
Strategic and financial players both invested actively in learning solutions in 2021. Notable investment activity included corporate learning platform Schoox’s growth investment from Vista Equity Partners and e-learning authoring company Articulate’s $1.5B Series A raise. The emphasis on upskilling the existing talent base remains learning’s biggest tailwind. LinkedIn’s recent Skills Path pilot, for example, leverages data-driven insights to supplement skill gaps with LinkedIn Learning courses Learning management system Absorb Software received a new financial partner after Welsh, Carson’s $500M buyout. Employee knowledge platform Axonify was acquired by Luminate Capital in a $350M buyout at 10x revenue. On the strategic side, SkillSoft acquired online coding education platform Codecademy for $525M, a valuation of 12.5x revenue.
Digital Coaching Technology
The coaching market, currently valued at $10.9B, represents a large and growing part of the employee experience, and VC investors are taking notice. Coaching alone generated $620M of venture capital investment in 2021. The growth of coaching is a natural extension of the broader growth in leadership development and learning platforms As a valuable mechanism for implementing feedback and achieving individual and company goals, coaching also folds well into performance management and feedback solutions. Companies are recognizing that as a perk, coaching can complement existing recognition programs, enhance employee retention and play a strategic role in upskilling talent The increased popularity of coaching has driven the need for “coaching the coach,” demonstrated by the rise of certification and continued education for coaches. Notably, coaching education provider WBECS was recently acquired by coaching management platform Coaching.com (formerly CoachLogix) to provide coaches with learning content in addition to its coaching experience platform
What’s Next for the Learning Industry?
Learning, a traditionally analog practice, continues to benefit from an infusion of new technologies that facilitate learning paths, skill gap identification, goal tracking and more. We expect continued investment in technology, specifically in AI and data-driven solutions to deliver more impactful outcomes. We also expect to see more holistic learning offerings with themes that include mental health, DE&I and managing hybrid and remote teams With pressure from the Great Resignation, as learning solutions become more scalable, we expect development solutions to penetrate levels of the workforce that historically did not receive this benefit (such as hourly workers, front line workers and deskless workers).
Employee wellness received more VC funding in 2021 than in the combined five years prior. Although physical wellness is a big component, the whole wellness picture is much broader and encompasses all aspects that contribute to a healthy employee Areas such as wellness coaching, mental health and wellbeing, workplace safety and financial wellness contributed to the $3.3B high watermark. The enormous increase in investment underscores employers’ emphasis on providing solutions for employee wellbeing, whether it be physical, mental or financial.
Virtual Wellness & Coaching
Corporate Wellness Venture Funding
As the world embraces hybrid and remote work and healthcare slowly adopts telehealth, it’s no surprise that more nascent offerings such as wellness also adopt virtual offerings. With healthcare becoming more preventative than prescriptive, health coaches are playing a prevalent role in helping people achieve health and wellness goals Underscoring this trend, wellness coaching platform Lyra Health raised a $200M Series F led by Coatue Management valued at $4 4B Moreover, mobile health coaching software for nutrition and exercise Noom raised a $540M Series F led by Silver Lake at a $3.7B valuation.
Mental Health & Wellbeing
Mental health and wellbeing has always been a key element of the broader wellness equation, and employers are starting to emphasize the mental wellbeing of employees According to Unmind, providing exercises on meditation, mindfulness and healthy relationships helps employees combat workplace mental health hurdles like burnout, anxiety and depression. A recent study found that the majority of employers plan to offer these trainings and tools in 2022. Wellness saw one of the biggest deals of 2021, as Headspace merged with Ginger to form a $3B digital health company Benefits providers are incorporating mental wellbeing solutions into their suites, recently shown through Benefit Systems’ acquisition of a relaxation-focused mobile app Focusly. Wondr Health (formerly Naturally Slim) broadened its weight management solution by acquiring mindfulness platform eMindful VC investors also remain focused on the space In Q3, employee mental healthcare platform Spring Health raised a $190M Series C from Kinnevik at a $1.9B valuation.
Workplace Safety
As we emerge from a pandemic, employers continue to ensure the physical safety of their employees. The focus is shifting from reactive mode of establishing COVID policies and procedures to proactively managing training and compliance. Highlighting this trend, there were consolidations in the space driven by PE and VC-backed strategics Workplace safety training provider TPC Training, a former portfolio company of Frontenac, was acquired by national training and certification organization American Safety Council via its financial backer Ridgemont Equity Partners. Health and Safety Institute, backed by Waud Capital, acquired developer of workplace safety and claims management platform Solv Solutions Alice acquired onsite employee wellness and healthcare platform Cuidas.
Financial Wellness
Lastly, there is a growing focus on financial literacy, or workplace financial wellness, and the role it plays in a healthy, productive workplace. Researchers have consistently found links between financial stress and days of work missed. Thus, financial wellness and literacy tools that reduce employee financial stress also have the potential to increase employee productivity. This trend is demonstrated by Neokred’s acquisition of a financial well-being platform, PeSeva Technologies, that teaches employees responsible financial habits. Another financial wellness platform, Earnd, offers earned-wage access to employees and was acquired by Wagestream Recently, Walmart acquired mobile budgeting application for employees Even
What’s Next for the Wellness Industry?
We expect to see personalized solutions emerge in the wellness industry, as flexible approaches scale to meet consumers (e.g., Headspace’s interactive series on Netflix). There is also an opportunity to provide value to historically underserved and underrepresented populations. Consistent proof of ROI for corporate users is likely to fuel further investment.
Source: 7 Trends that will shape workplace mental health in 2022, Unmind
HCM PUBLIC MARKETS
COMPARATIVE MEDIAN REVENUE MULTIPLES
TTM Median Revenue Multiples
Source: PitchBook, Data as of December 2021 TTM
ONE-YEAR HISTORICAL INDEX PERFORMANCE
Source: Refinitiv
Indices based on equal-weighted prices and comprised of:
HR Tech | ADP, ASUR, BNFT, CDAY, DHI, FC, HSII, HSTM, KFY, NSP, ORCL, PAYX, PAYC, PCTY, SAP, SGE, TNET, WDAY
Staffing | AMN, ASGN, BBSI, BGSF, CCRN, JOB, KELYA, KFRC, MAN, MHH, RGP, RHI, STAF, TBI, VOLT
HCM PUBLIC TRADING STATISTICS
CORE HR
TALENT MANAGEMENT
TALENT ACQUISITION
STAFFING
n/m: multiples less than 0x or greater than 50x
Source: PitchBook
SIA
Q4 HR M&A TRANSACTIONS
TALENT MANAGEMENT
Q4 HR M&A TRANSACTIONS
TALENT MANAGEMENT (CONT.)
TALENT ACQUISITION
Source: PitchBook
Q4 HR M&A TRANSACTIONS
TALENT ACQUISITION (CONT.)
Source:
Q4 STAFFING M&A TRANSACTIONS
VENTURE CAPITAL-BACKED COMPANIES INCREASINGLY PURSUING INORGANIC GROWTH STRATEGIES
$100M RAISE LED BY SEP 2021
Highlighted by: ACQUIRED BY
Source: PitchBook
$145M RAISE LED BY MAR 2021
Q4 HCM VENTURE CAPITAL ACTIVITY
Assessment Division)
HUMAN CAPITAL MANAGEMENT TEAM
PRESIDENT
Nick Mignone ASSOCIATE
Margaret McCormick VICE
Carolyn Mathis PARTNER
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