Ultimate Software Sells for $11 Billion

In one of the biggest deals in recent HR technology history, Ultimate Software agreed to be acquired by a private equity group for $11 billion. The move will allow the cloud-based human capital management vendor to leave the pressures of Wall Street behind — at least for a while.

The Feb. 4 announcement was a surprise considering Ultimate appears to be thriving and has delivered steady year over year growth, said Holger Mueller, principal analyst for Constellation Research. “Usually private equity investors acquire troubled companies or those in transition but Ultimate is doing really well.”

The 29-year-old human capital management company, which provides a suite of tools including payroll, benefits management and talent acquisition, has more than 5,000 customers in 160 countries, and delivered $1.1 billion in revenues in 2018, up from $940  million in 2017. It dominates the market among mid-sized companies, and it has been expanding its client base to support larger global companies, making it increasingly competitive with Workday, ADP, and other industry leaders.

Ultimate Software The question now is what effect this acquisition will have on the company’s long term business prospects.

“My gut reaction is that this is probably a really good move for employees and customers,” said George LaRocque, founder and principal HCM market analyst for LaRocque LLC in New York. The company is already known for making significant R&D investments, and now that it won’t be pressured to deliver quarterly returns to public shareholders, it will more time and space to focus on long term strategy, he said.

He also doesn’t anticipate much attrition. The leadership team will almost certainly be required to stick around at least for the short term as part of the deal.

And because the company is known for having a terrific employee-focused corporate culture, employees are unlikely to flee as a result of the acquisition, even after cashing in on their stock. Stockholders will receive $331.50 per share, which is a 32 percent premium over current share prices.

“We may see changes in leadership in a year or two, but it is safe to say nothing big will happen in the short term,” LaRocque said.

Hellman & Friedman, which led the private equity group, led a similar deal to take the HR software company Kronos Inc. private in 2007 for $1.8 billion, and its founder is still running the company. “Its history with Kronos could be a sign of what’s to come for Ultimate,” LaRocque said. “The company is well run and the transition went well.”

Customers are also likely to stick around, in part because of Ultimate’s appealing payroll tools, predicted Mueller. “People change talent management vendors all the time, but no one wants to change their payroll provider,” he said. “That makes it a relatively safe investment.”

Mueller anticipates that Ultimate will use the acquisition to support its continued global expansion, which was enabled in part by last year’s acquisition of PeopleDoc, an HR company based in France. Expanding its global footprint could help the company grow more rapidly, and reposition itself to go public again in three or four years, he said.

Not a Sign of Things to Come

While acquisition deals in the HR tech space are constantly happening, Mueller and LaRocque don’t see this one as an indicator of a new acquisition trend. “There are no other companies of Ultimate’s caliber that could go private,” Mueller said. One of its close competitors, Ceridian, just went public, and companies like ADP, Oracle and SAP are simply too big to acquire.

In the meantime, Mueller encouraged current and future customers to pay attention to Ultimate’s roadmap, and where it plans to invest R&D dollars post acquisition. The company is known for investing in new development, but it remains to be seen how this deal will affect that trend.

“It’s always a good idea to know what your vendors are going to do next,” he said. It is the best way to determine if the choices they are making today will meet a company’s needs in the future.

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