First Analysis Investment Banking
October 2011
Chicago, IL 60
First Analysis Corporation
One South Wacker • Suite 3900
Chicago, IL 60606
312-258-1400 • www.firstanalysis.com
Labor Markets
The Bureau of Labor Statistics (“BLS”) reported continued labor market improvements with non-farm payrolls flat
from July to August while the BLS unemployment rate continues to hover just north of 9.0%. The employment
environment continues to present a headwind for many companies across the HR Services and Technology sectors.
Monthly Change in U.S. Non-Farm Employment
(January 2001 to August 2011)
Monthly U.S. Unemployment Rate
(January 2001 to August 2011)
(all employees, in thousands)
Source: U.S. Bureau of Labor Statistics. Source: U.S. Bureau of Labor Statistics.
Industry Focus: Demographic Changes Highlight Increasing Role
of Talent Management Systems
While current conditions are dominated by near- to medium-term national and
global economic factors, several longer-term demographic trends are likely to
have a sustained impact on demand for agile and dynamic SaaS-based talent
management systems.
Baby Boomers Exit the Workforce
. As baby boomers exit the workforce,
the need for skilled workers will escalate. An estimated 7,000 baby boomers
turn 65 each day, or 78 million between now and 2030. As a result, many
companies will soon be facing a shortage of skilled workers. To manage this
dynamic, proven and effective talent management systems that enable
companies to identify, attract, train and retain new talent will be in demand.
Lifers are an Endangered Species
. There has been a generational shift in career attitudes that increases
employee turnover and, therefore, necessitates developing depth of talent throughout the organization. Younger
workers are expected to engage in four to seven different careers in their lifetime. As a result, businesses need to
develop workers that are capable of (nearly seamlessly) stepping into vacated positions. Therefore, performance
measurement tools that facilitate performance-based compensation and retain the best employees will be
increasingly important.
-900 -700 -500 -300 -100 100 300 500 700 900Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11
0% 2% 4% 6% 8% 10% 12%
Page 2 of 8
“Heavy” HRMS Systems Ready to be Replaced by “Light” Talent Management Systems
. Legacy Human
Resource Management Systems (HRMS) have often been an offering within a broad suite of products offered by
ERP vendors. These HRMS systems are often less effective solutions than focused talent management offerings
that are developed and maintained to be class-leading solutions. In particular, HRMS systems often suffer from:
Require costly IT support (since they are installed within the firewall);
Require expensive and complex upgrades;
Require formal training to use.
These deficiencies provide opportunities for SaaS-based talent management solutions to replace many incumbent
systems by providing intuitive, low-maintenance and easily-deployed solutions.
Growth Across Service Sectors Increases Need to Manage Human Capital
. As the U.S. economy transforms
and the services sector expands while the manufacturing sector declines, people management becomes more
important relative to managing hard assets. Competitive advantage will be won and defended by a company’s
ability to identify, attract, train, and retain an inventory of human capital. In this context, effective talent
management systems become an increasingly critical management tool.
Industry Stock Market Performance
While HR Technology stocks have performed strongly over the past five years, recent performance is has been
weaker and lagged both the HR Services index as well as the broader markets.
5 Year Indexed Performance
1 Year Indexed Performance
Source: Capital IQ.
HR Services Index includes: ADP, AON, CBZ, HRB, KELY.A, MAN, NSP, PAYX and TW. HR Technology Index includes: CNQR, INTU, KNXA, MWW, SFSF, TLEO, and ULTI.
-100% -50% 0% 50% 100% 150% 200%
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 HR Services Index HR Technology Index
S&P 500 NASDAQ -100% -50% 0% 50% 100% 150% 200%
Sep-10 Dec-10 Mar-11 Jun-11 Sep-11
HR Services Index HR Technology Index
S&P 500 NASDAQ (11.6%) (0.6%) (1.3%) 1.9% 8.0% (15.4%) (15.0%) 71.1%
Page 3 of 8
Public Market Trading Multiples
Median public market valuations for companies in the industry are currently 3.44x 2011 consensus estimate
revenue for the HR Technology group and 1.10x 2011 consensus estimate revenue for the HR Services Group.
2011E Revenue Multiples
HR Technology
HR Services
2011 Projected
Revenue Growth 52.4% 20.1% 18.7% 13.4% 35.6% 43.6% 18.2% 6.6% 10.7% 31.6% 9.2% 3.1% 1.0% 15.3% 17.7% 13.7%
Source: Capital IQ. Data as of September 30, 2011. (1) Reflects EV / 2011E Gross Profit.
2011E EBITDA Multiples
HR Technology
HR Services
2011 Projected
EBITDA Margin 3.9% 28.0% 17.1% 37.0% 22.3% 16.0% 18.2% 42.3% 21.2% 21.4% 18.9% 23.8% 11.3% 3.6% 3.0% 1.8%
Source: Capital IQ. Data as of September 30, 2011.
Currently, both the HR Services Index and the HR Technology Index are valued below both their near term and
longer term historical averages.
5 Year Historical Mean Forward EBITDA Multiples
1 Year Historical Mean Forward EBITDA Multiples
Source: Capital IQ.
HR Services includes: ADP, AON, CBZ, HRB, KELY.A, MAN, PAYX, NSP, and TW.
HR Technology includes: CNQR, INTU, KNXA, LWSN, TLEO, and ULTI (excludes SFSF as an outlier).
5.32x 4.61x 4.29x 3.44x 2.84x 1.34x 0.75x 4.18x 2.11x 1.56x 1.18x 1.10x 0.81x 0.80x 0.78x 0.48x
SFSF CNQR ULTI INTU TLEO KNXA MWW PAYX ADP AON TW HRB CBZ NSP MAN KELY.A
NMF 16.5x 25.2x 9.3x 12.7x 8.4x 4.1x 9.9x 9.9x 7.3x 6.2x 4.6x 7.2x 4.0x 4.5x 4.3x
SFSF CNQR ULTI INTU TLEO KNXA MWW PAYX ADP AON TW HRB CBZ NSP MAN KELY.A
0.0x 5.0x 10.0x 15.0x 20.0x 25.0x 30.0x 35.0x
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 HR Services Service Avg
HR Tech Tech Avg
0.0x 5.0x 10.0x 15.0x 20.0x 25.0x 30.0x 35.0x
Sep-10 Dec-10 Mar-11 Jun-11 Sep-11
HR Services Service Avg
HR Tech Tech Avg
Median Metrics EV / Revenue: 1.10x Revenue Growth: 10.7% Median Metrics EV / EBITDA: 6.2x EBITDA Margin: 18.9% Median Metrics EV / EBITDA: 12.7x EBITDA Margin: 18.2% Median Metrics EV / Revenue: 3.44x Revenue Growth: 20.1% Average = 16.6x Average = 8.4x Average = 7.8x Average = 17.9x (1) (1) (1)
Page 4 of 8
Industry Merger & Acquisition Activity
Select M&A Transactions (Announced 05/01/2011 to 09/30/2011)
Date
Anncd. Status Target
Target Industry Target Location Acquiror Enterprise Value ($ millions)
09/23/11 Closed GMT Corporation Application Software GA Verint Systems Inc.
(NasdaqGS:VRNT) $42.0 09/22/11 Closed Paytime, Inc., Paytime Payroll
Division
Human Resource and
Employment Services --- TruPay Corporation NA
09/14/11 Closed Asparity Decision Solutions,
Inc. Application Software NC
Automatic Data Processing,
Inc. (NasdaqGS:ADP) NA 09/13/11 Closed Eagle Technology Group, Inc. Human Resource and
Employment Services WI The Reserves Network, Inc. NA 09/09/11 Closed Tandem Select Human Resource and
Employment Services CO Sterling Infosystems, Inc. NA 09/01/11 Closed Peoplelink Staffing Solutions,
LLC
Human Resource and
Employment Services IN
Groupe CRIT SA
(ENXTPA:CEN) NA
08/29/11 Closed L&L Payroll Service Human Resource and
Employment Services CA Redding Bank of Commerce NA 08/06/11 Closed Drake & Company Of Madison,
Inc.
Human Resource and
Employment Services WI
Association Management
Resources, Inc. NA 08/04/11 Closed Ashbourne Assessment
Systems Ltd.
Human Resource and
Employment Services United Kingdom
Kenexa Corp.
(NasdaqGS:KNXA) NA 08/01/11 Closed Multiple Benefit Services, Inc. Property and Casualty
Insurance GA CBIZ, Inc. (NYSE:CBZ) NA
07/27/11 Closed National Executive Personnel & Marketing Group L.C.
Human Resource and
Employment Services FL
Haskel Thompson &
Associates, LLC NA 07/26/11 Closed Drake Beam Morin, Inc. Human Resource and
Employment Services NY Lee Hecht Harrison $149.0 07/20/11 Closed SFN Group, Inc. Human Resource and
Employment Services FL
Randstad North America,
L.P. $742.9
07/20/11 Closed Mahoney Associates Inc. Human Resource and
Employment Services FL Mercer, Inc. NA
07/18/11 Announced PayFlex Systems USA, Inc. Human Resource and
Employment Services NE Aetna Inc. (NYSE:AET) $202.0 07/18/11 Announced Strategic Employee Benefit
Services of Louisiana, LLC
Human Resource and
Employment Services LA Hub International Limited NA 07/12/11 Closed Doostang, Inc. Human Resource and
Employment Services CA
Universum Communications
AB NA
07/11/11 Closed Workplace Benefit Solutions, LLC
Human Resource and
Employment Services NH Hub International Limited NA 07/11/11 Closed Summit Payroll Services, LLC Application Software NJ CPI-HR, Inc. NA
07/08/11 Closed Schloss & Co, LLC Human Resource and
Employment Services NY Sentinel Benefits Group, Inc. NA 07/07/11 Closed CyberShift, Inc. Application Software NJ SumTotal Systems, Inc. NA
06/27/11 Closed Foundation Workshop Inc. Human Resource and
Employment Services MO IBS Industries, Inc. NA
Page 5 of 8
Select M&A Transactions (Continued)
Date
Anncd. Status Target
Target Industry Target Location Acquiror Enterprise Value ($ millions)
06/24/11 Closed Resume In Minutes, Inc. Human Resource and
Employment Services VA
MEDL Mobile Holdings, Inc.
(OTCBB:MEDL) NA
06/21/11 Closed Jobpartners Plc Internet Software and
Services United Kingdom
Taleo Corp.
(NasdaqGS:TLEO) $26.0 06/07/11 Effective Xi'an Fesco Human Resource and
Employment Services China
ManpowerGroup
(NYSE:MAN) NA
06/05/11 Closed A1 Staffing and Recruiting Agency, Inc.
Human Resource and
Employment Services OK Spartan Staffing, LLC NA 06/02/11 Closed USD Insurance and Financial
Services, Inc.
Human Resource and
Employment Services CA
U.S. Retirement Partners
Inc. NA
06/01/11 Closed Corporate Benefit Consultants, LLC
Human Resource and
Employment Services CT
Brown & Brown of
Connecticut, Inc. $13.5 06/01/11 Closed Versult Group, Inc. Application Software ON Ceridian Corporation NA
05/31/11 Closed Apogee Executive Search Inc. Human Resource and
Employment Services AB DHR International, Inc. NA 05/25/11 Closed
Nationwide Better Health, Inc., Productivity Solutions
Business
Application Software --- Sedgwick Claims
Management Services, Inc. NA 05/24/11 Closed Pedagogue Solutions, Inc. Internet Software and
Services NJ
Saba Software, Inc.
(NasdaqGM:SABA) NA 05/24/11 Closed Employbridge Holdings
Company, Inc.
Human Resource and
Employment Services SC
Morgan Stanley Private
Equity NA
05/23/11 Closed Decision HR USA, Inc. Human Resource and
Employment Services FL
Bankers Employer Services
Inc. NA
05/19/11 Announced CBIZ Benefits & Insurance Services of Northern California
Other Diversified
Financial Services CA Burr, Pilger and Mayer LLP NA 05/17/11 Closed Public Data Works, Inc. Human Resource and
Employment Services NC
FirstPoint Energy
Corporation N.A. NA 05/17/11 Closed Meridian Partners, LLC Human Resource and
Employment Services FL
Pearson Partners
International, Inc. NA 05/16/11 Closed Comartis Group, Ltd. Application Software Switzerland Saba Software, Inc.
(NasdaqGM:SABA) NA 05/15/11 Closed Great Lakes Staffing Inc. Human Resource and
Employment Services WI Locate Staffing Inc. NA 05/06/11 Closed Innovation HR Inc. Human Resource and
Employment Services FL LRA Global HR, Inc. NA 05/03/11 Closed ePlan Services, Inc Internet Software and
Services CO
Paychex Inc.
(NasdaqGS:PAYX) $15.2 05/02/11 Closed Talent Associates Inc. Human Resource and
Employment Services --- Uni-World Capital, L.P. NA 05/01/11 Closed Consolidated Business
Solutions MBE, LLC
Human Resource and
Employment Services MO
SRA Benefits Company,
LLC NA
Page 6 of 8
M&A Transaction Synopses
September 23, 2011. Verint Systems Inc. (NasdaqGS:VRNT) announces the acquisition of GMT Corporation. GMT provides workforce management and optimization software.
July 18, 2011. Hub International Limited announces the acquisition of Strategic Employee Benefit Services of Louisiana, LLC. Strategic Employee Benefit Services of Louisiana provides employee benefit consulting services.
May 25, 2011. Sedgwick Claims Management Services, Inc. announces the acquisition of Nationwide Better Health, Inc., Productivity Solutions Business. The productivity solutions business of Nationwide Better Health designs and develops employee productivity software solutions. September 22, 2011. TruPay Corporation announces the
acquisition of The Paytime Payroll Division of Paytime, Inc. The Paytime Payroll Division provides payroll and payroll related services.
July 12, 2011. Universum Communications AB announces the acquisition of Doostang, Inc. Doostang operates an online career community that connects young professionals to career opportunities.
May 24, 2011. Saba Software, Inc. (NasdaqGM:SABA) announces the acquisition of Pedagogue Solutions, Inc. Pedagogue provides assessment solutions primarily for the corporate market.
September 14, 2011. Automatic Data Processing, Inc. (NasdaqGS:ADP) announces the acquisition of Asparity Decision Solutions, Inc. Asparity provides decision support and data solutions for the management of health care and employee benefits.
July 11, 2011. Hub International Limited announces the acquisition of Workplace Benefit Solutions, LLC. Workplace provides employee benefit consulting services to companies.
May 24, 2011. Morgan Stanley Private Equity announces the acquisition of Employbridge Holdings Company, Inc. EmployBridge is a leading provider of specialty staffing services
September 13, 2011. The Reserves Network, Inc. announces the acquisition of Eagle Technology Group, Inc. Eagle provides contract, contract to direct, permanent, and executive retained placement and consulting services.
July 11, 2011. CPI-HR, Inc. announces the acquisition of Summit Payroll Services, LLC. Summit develops and provides software solutions for payroll, human resource management, and benefits administration.
May 23, 2011. Bankers Employer Services Inc. announces the acquisition of Decision HR USA, Inc. Decision HR USA provides payroll administration and human resource management services.
September 09, 2011. Sterling Infosystems, Inc. announces the acquisition of Tandem Select. Tandem provides pre-employment background checking and screening services.
July 08, 2011. Sentinel Benefits Group, Inc. announces the acquisition of Schloss & Co, LLC. Schloss provides retirement plans.
May 19, 2011. Burr, Pilger and Mayer LLP announces the acquisition of CBIZ Benefits & Insurance Services of Northern California. CBIZ Benefits & Insurance Services of Northern California provides insurance, long-term solutions, and employee benefits programs.
September 01, 2011. Groupe CRIT SA (ENXTPA:CEN) announces the acquisition of Peoplelink Staffing Solutions, LLC. Peoplelink Staffing Solutions offers temporary, temp-to-direct, contract, temp-to-direct, payroll, onsite outsourcing, and recruitment process outsourcing staffing solutions.
July 07, 2011. SumTotal Systems, Inc. announces the acquisition of CyberShift, Inc. CyberShift provides workforce management and expense management solutions and services.
May 17, 2011. FirstPoint Energy Corporation N.A. announces the acquisition of Public Data Works, Inc. PDW provides workforce management services.
August 29, 2011. Redding Bank of Commerce announces the acquisition of L&L Payroll Service. L&L provides payroll services to businesses primarily in California.
June 27, 2011. IBS Industries, Inc. announces the acquisition of Foundation Workshop Inc. Foundation Workshop provides employment opportunities to adults with disabilities.
May 17, 2011. Pearson Partners International, Inc. announces the acquisition of Meridian Partners, LLC. Meridian provides executive search services.
August 06, 2011. Association Management Resources, Inc. announces the acquisition of Drake & Company Of Madison, Inc. Drake offers employee staffing services.
June 24, 2011. MEDL Mobile Holdings, Inc. (OTCBB:MEDL) announces the acquisition of Resume In Minutes, Inc. MEDL focuses on offering professional resume building services online.
May 16, 2011. Saba Software, Inc. (NasdaqGM:SABA) announces the acquisition of Comartis Group, Ltd. Comartis provides assessment and talent development solutions and services in Switzerland and internationally.
August 04, 2011. Kenexa Corp. (NasdaqGS:KNXA) announces the acquisition of Ashbourne Assessment Systems Ltd. Ashbourne supplies attraction campaigns, and selection and development programmes for managers, senior leaders, and executives in the UK.
June 21, 2011. Taleo Corp. (NasdaqGS:TLEO) announces the acquisition of Jobpartners Plc. Jobpartners designs and develops strategic human resources and talent management solutions for companies in the UK and internationally.
May 15, 2011. Locate Staffing Inc. announces the acquisition of Great Lakes Staffing Inc. Great Lakes provides temporary, temp to hire, payroll services and direct placement services.
August 01, 2011. CBIZ, Inc. (NYSE:CBZ) announces the acquisition of Multiple Benefit Services, Inc. Multiple Benefit provides employee benefit consulting, support, and services.
June 07, 2011. ManpowerGroup (NYSE:MAN) announces the acquisition of Xi'an Fesco. Xi'an Fesco provides human resources to the companies.
May 06, 2011. LRA Global HR, Inc. announces the acquisition of Innovation HR Inc. Innovation provides outsourced human resources services for small and medium-sized businesses.
July 27, 2011. Haskel Thompson & Associates, LLC announces the acquisition of National Executive Personnel & Marketing Group L.C. National provides recruiting and placement services.
June 05, 2011. Spartan Staffing, LLC announces the acquisition of A1 Staffing and Recruiting Agency, Inc. A1 provides temporary staffing, temp-to-hire, direct hire, and contract staffing services.
May 03, 2011. Paychex Inc. (NasdaqGS:PAYX) announces the acquisition of ePlan Services, Inc. ePlan provides outsource solutions for the design, provision, and management of employer-sponsored retirement plans in the defined contribution industry.
July 26, 2011. Lee Hecht Harrison announces the acquisition of Drake Beam Morin, Inc. DBM provides career transition and talent development solutions to individuals and organizations.
June 02, 2011. U.S. Retirement Partners Inc. announces the acquisition of USD Insurance and Financial Services, Inc. USD provides retirement and financial planning services for the 403(b) K-12 education market.
May 02, 2011. Uni-World Capital, L.P. announces the acquisition of Talent Associates Inc. Talent Associates provides payroll and benefits administration services to the entertainment industry.
July 20, 2011. Randstad North America, L.P. announces the acquisition of SFN Group, Inc. SFN operates as a strategic workforce solutions provider in the U.S. and Canada.
June 01, 2011. Brown & Brown of Connecticut, Inc. announces the acquisition of Corporate Benefit Consultants, LLC. Corporate Benefit Consultants engages in the design, implementation, and administration of employee benefit programs in Connecticut.
May 01, 2011. SRA Benefits Company, LLC announces the acquisition of Consolidated Business Solutions MBE, LLC. Consolidated operates as an employee benefits consulting company.
July 20, 2011. Mercer, Inc. announces the acquisition of Mahoney Associates Inc. Mahoney is a compensation and benefits management company.
June 01, 2011. Ceridian Corporation announces the acquisition of Versult Group, Inc. Versult provides workforce management and enterprise mobility solutions for retail organizations.
May 25, 2011. Sedgwick Claims Management Services, Inc. announces the acquisition of Nationwide Better Health, Inc., Productivity Solutions Business. The productivity solutions business of Nationwide Better Health designs and develops employee productivity software solutions. July 18, 2011. Aetna Inc. (NYSE:AET) announces the
acquisition of PayFlex Systems USA, Inc. PayFlex provides administration for employee benefit programs.
May 31, 2011. DHR International, Inc. announces the acquisition of Apogee Executive Search Inc. Apogee provides executive search services for mining, energy, industrial, hospitality, real-estate, and technology sectors. Source: Capital IQ, press releases and First Analysis research.
Page 7 of 8
Industry Capital Raising Activities
In line with broader market activity, capital raising activities for the sector have been subdued. However, with
market valuations improved, companies with strong projected growth and the ability to leverage technology to
accelerate earnings growth are expected to tap the equity markets to fund future growth and provide liquidity to
shareholders. The sector continues to attract the interest of investors, and larger private companies are likely to
pursue public market options, including potential IPOs.
Select Public Capital Raising Transactions (Announced 05/01/2011 to 09/30/2011)
Date Announced / Initial Filing Date Offered / Closed / Cancelled Status Transaction Type Transaction Primary
Feature Company Primary Industry Location
Amount ($ millions) 07/20/11 NA Withdrawn Public Offering Follow-on Equity Offering Cornerstone OnDemand, Inc. (NasdaqGM:CSOD) Internet Software and Services Santa Monica, CA $171.6 05/24/11 05/24/11 Closed Public Offering Fixed-Income Offering Aon Corporation (NYSE:AON) Insurance Brokers / Data Processing and Outsourced Services Chicago, IL $499.8 05/16/11 05/19/11 Closed Public Offering Follow-on Equity Offering Kenexa Corp. (NasdaqGS:KNXA) Application Software Wayne, PA $83.3
Page 8 of 8
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(312) 258-7181
[email protected]
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Senior Vice President
(312) 258-7180
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(312) 258-7194
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This report has been prepared by the Investment Banking Department of First Analysis Securities Corporation. This report is an overview and analysis of trends and is not intended to provide investment recommendations on any specific industry or company. This is not a complete analysis of every material fact regarding any company, industry, or security. The opinions expressed herein reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. This report may contain information which was previously included in a First Analysis Research Report. A complete listing of all companies covered by First Analysis Equity Research and applicable research disclosures can be obtained by calling 1-312-258-1400 or writing to: First Analysis Securities Corporation, Equity Research, One South Wacker Drive, Suite 3900, Chicago, IL 60606. First Analysis Securities Corporation is a registered broker/dealer with FINRA and member SIPC.
