Workday’s IPO Signals Strength in HR Technology Market

Workday Inc.’s proposed stock offering is the latest indication of how quickly the human capital management technology market is maturing.

The past year has seen an unprecedented level of initial public offerings and mergers and acquisitions affecting human capital management, or HCM, and other human resources technology vendors, capped off with Workday’s expected $400 million stock sale, which could take effect by the end of September.

“The vendor landscape keeps changing as technology companies strive to provide the right combination of features and flexibility to organizations to find the right employees to move their businesses ahead,” says Nov Omana, chair of the International Association for Human Resource Information Management industry group.

Workday in particular is racing to keep pace with industry leaders Oracle Corp. and SAP, which both acquired HR technology companies to give them a stronger foothold in the market for HR software sold on a subscription basis. Oracle bought leading talent management software leader Taleo Corp. in February in a deal worth $1.9 billion. Only months before that, SAP acquired “cloud”-based HR software-maker SuccessFactors Inc. for $3.4 billion, and according to industry sources, is on track to release a group of integrated, cloud-based products in November.

Other tech giants are buying their way into the field. IBM Corp., for example, nabbed Kenexa Corp. for $1.3 billion in a deal announced just days before Workday disclosed its intent to go public. Meanwhile HCM specialists are making their own acquisitions or going public to gain market share, clout and cash. Earlier this year, Kronos Inc. bought workforce management software maker SaaShr.com. Automatic Data Processing Inc. acquired 17 companies from 2009 to 2011 as the payroll-outsourcing giant builds out its HCM offerings.

Analysts predict HR technology IPOs and mergers-and-acquisitions activity will continue as more U.S. companies upgrade aging HCM systems and choose software-as-a-service offerings to do it. “Microsoft and Kronos are two potential buyers. I think we’ll see more,” says Naomi Bloom, an industry analyst who advises HR tech companies.

The activity also is a natural consequence of an HR tech market that’s overcrowded with startups, many with investors who are eager to cash out. “If a management team is running a self-funded business, and they’re happy to go along, fine. But once they take outside money, there’s tremendous pressure for liquidity and for that exit event,” Bloom says.

Michelle V. Rafter is a Workforce contributing editor. Comment below or email editors@workforce.com.