Workstream Likely To Be Acquired

During Workstream’s earnings call today, Chairman Mike Mullarkey stated that the company has decided to move forward with the unsolicited offer and has signed a letter of intent to merger with the “US-based payroll business”.

The companies are moving forward aggressively and have about 2 weeks, or until January 25th, to come to terms on a formal merger agreement.  Sure, a lot can breakdown in negotiations, but all signs right now point towards the deal happening.  Interestingly, and contrary to my post last week, the agreement is “exclusive”, essentially meaning Workstream will not be auctioning off the company to the highest bidder.

Due to the non-binding letter of intent agreement, Workstream is restricted from identifying the prospective acquirer.  Which bears the question everyone seems to be asking, “Who is it?” 

In my last post, I predicted 3 companies in the mix - ADP, Ultimate Software, and Paychex.  One I forgot to mention was Ceridian.  By process of elimination, though, I have come down to one company I did not mention, Empagio, that could quite possibly be the suitor.

Most of you are probably wondering, “Who is Empagio”?  Well, Empagio is basically a private HR outsourcing firm bought out by the management team last year.  Unlike most HRO providers, Empagio owns their own technology platform, formerly known as Tesseract.  [Correction] Tesseract was one of the original web-based mainframe HRMS solutions and known as the gold standard before Peoplesoft arrived with their client-server application.  Through the years, many different owners have bolted on functionality such as self-service and migrated the application to become web-based.  Today, Empagio uses the solution as the backbone to their service.  Empagio has approximately 50 clients of which over half being large name-brand enterprises that use the solution to run their  payroll.  Hence, being a US-based payroll business.

So, why Empagio and not one of the other vendors mentioned?

  • ADP - Simply put, ADP’s technology acquisition strategy seems to be focused on solid technology vendors leveraging a SaaS, multi-tenant environment.  And they are willing to pay a premium on the companies and products they cherish.  Think VirtualEdge and Employease.  In my opinion, Workstream is not that and the person bidding on Workstream would be bottom-fishing at this point (as Mullarkey validated, they are cheap in comparison to other publicly traded talent management vendors right now).
  • Ceridian - Ceridian has many management and shareholder issues that prevents them from an acquisition now.  Needless to say, they really don’t have an acquisition strategy nor a cohesive talent management strategy.
  • Ultimate Software - Yes, Ultimate has the capital, and yes, payroll is core to everything they sell.  But I would describe them more as a SaaS vendor than a payroll business.  I also think they would probably prefer an acquisition that would be more accretive to earnings.
  • Paychex - Simply not a good fit in terms of market focus (SMB versus large enterprise).  Paychex and talent management are not two words used together today.

I’m a sucker for good drama and the suspense on this deal is killing me!

January 9th, 2008

39 Comments Add your own

  • 1. Phil Fersht  |  January 10th, 2008 at 3:52 pm

    My money’s on ADP…

  • 2. Lexy Martin  |  January 11th, 2008 at 8:51 am

    My money is on ADP as well. Workstream’s compensation piece is just too good and that would be a very strategic acquisition for ADP to add that. Looking ahead for the next few years, companies are going to need that component to optimize salary/compensation management.

  • 3. Tim Hughes  |  January 11th, 2008 at 9:41 am

    Jason - great prediction with Empagio!

    As a former Empagio exec who left after the buyout earlier this year, I had also thought Empagio was behind this move.

    We had earlier tried to acquire an HCM platform and were outbid. This aquisition makes sense and Empagio is on an acquisiton binge lately, having just bought UniTime, a time & attendance vendor.

    By the way, Empagio wasn’t bought out by management. We were outbid by an outside investor group, led by Seth Bernstein.

  • 4. Dubs  |  January 11th, 2008 at 9:49 am

    +1 for ADP.

  • 5. Lisa Rowan  |  January 11th, 2008 at 10:08 am

    I already told you my view, Jason. I say its ADP and I concur with Lexy that the Kadiri comp is probably worth the purchase alone.

  • 6. Jason Corsello  |  January 11th, 2008 at 10:24 am

    I’m taking bets. If ADP is the suitor I will pay $5 to your favorite charity. If it isn’t ADP, you will pay $5 to my favorite charity. Who wants some action?

  • 7. Phil Fersht  |  January 11th, 2008 at 10:44 am

    $5 to each of us?

  • 8. Phil Fersht  |  January 11th, 2008 at 1:55 pm

    Just send checks to “The Save Corsello’s Liver Foundation” when the announcement comes out next week :)

  • 9. Lisa Rowan  |  January 12th, 2008 at 9:32 am

    I’m in. $5 on ADP.

  • 10. Lexy Martin  |  January 12th, 2008 at 11:15 am

    Yeah…$5 on ADP. Or how about some used golf balls?

  • 11. Bill Kutik  |  January 14th, 2008 at 1:12 pm

    I say not ADP and not even a payroll company. My further thoughts at http://www.hreonline.com/HRE/story.jsp?storyId=64222871

  • 12. Meg Bear  |  January 16th, 2008 at 6:57 pm

    Lexy you are going to give your charity golf balls? What exactly does this charity support? ;-)

  • 13. Kuran  |  January 16th, 2008 at 9:43 pm

    Bill, I read your atricle. so who do you think getting wstm.

  • 14. Josh Bersin  |  January 17th, 2008 at 8:13 am

    Whoever acquires Workstream, I see this as an inevitable trend in the small business and mid-market segments. Mid-market companies (ADP’s market is actually mostly small companies, so it wouldnt be such a good fit for them) desperately need this type of software and the best possible channel would be their payroll provider. It is still far too difficult for buyers to integrate their TM software with compensation and other HRMS systems.

    The Workstream story is a good example of how hard it is to “roll up” software companies - a strategy which many VCs continue to discuss, but one which rarely works among small companies with small customer bases.

  • 15. Phil Fersht  |  January 18th, 2008 at 9:58 am

    I find it interesting that none of the big HRO vendors, or HR consulting shops are not looking to acquire their own talent management systems. You would have thought that having the ability to execute real HR practices based on their own technology and custom workflows would be appealing to some of them, as opposed to adoping “technology agnostic” approaches.

  • 16. Tim Giehll  |  January 21st, 2008 at 9:12 am

    I think you are all wrong. Ceridian is the logical suitor. ADP has already picked up Virtual Edge as their ATS solution, PayCheck has formed a “partnership” with Taleo, so that leaves Ceridian with an antiquated ATS solution that needs replaced. Actually, the best deal for Ceridian would be to acquire Bond International Software (BDI) and combine Ceridian’s global HR/payrolling business with Bond’s UK/US based Staffing/ATS technology.

  • 17. Jason Corsello  |  January 21st, 2008 at 2:34 pm

    Tim-

    ATS is the least valuable of Workstream’s assets. I would venture to assume the acquiring is not buying for the ATS.

  • 18. Phil Fersht  |  January 21st, 2008 at 5:00 pm

    A lot of software firms on the block right now… a few nerves from investors after the Netsuite stock price tanked after its IPO… will be an interesting year.

    Kodos to Corsello for getting this issue out there - will watch this with interest.

    PF

  • 19. Mark Stelzner  |  January 23rd, 2008 at 6:02 am

    Good debate all, but I will double the betting on Empagio. Per Tim Hughes’ post above, Seth Bernstein (new CEO) would love nothing more than to mirror his prior experience of selling Zurich to ADP and Stromberg to Paychex. In other words, Workstream is purely additive to Empagio holdings while ensuring the cross-sell/up-sell opportunities lead to a multiple for eventual exit. i would be surprised if the new Empagio/Workstream exists for more than 36 months post-merger (I’m willing to bet on that one too - I love to gamble). :)

  • 20. Lisa Rowan  |  January 24th, 2008 at 6:09 am

    Okay there’s a lot of evidence pointing towards Empagio. I won’t welch on my bet though, still in for the $5 on ADP. We should find out tomorrow.

  • 21. a barden  |  January 25th, 2008 at 2:01 pm

    still no news on the merger, i would have to go with empagio because rumor has it that its a private company.

  • 22. Kuran  |  January 25th, 2008 at 3:23 pm

    Folks,

    Its alerady Jan 25. No sign of anouncvement. Looks like its not happening!

  • 23. Phil Fersht  |  January 28th, 2008 at 7:15 am

    With the new wave of “R” panic, these types of acquisitions will likely not happen for a couple of months as investors / acquiring firms will want to see the price tags plummet further (unless they are highly strategic for the buyer).

  • 24. Mark Stelzner  |  January 28th, 2008 at 9:51 am

    Hey all,

    A point of clarification. This is not being touted as an “acquisition”, but instead as a merger. So, given that language (and I admit I may be reading too much into this), I highly doubt they will be picked up by a major player, thereby increasing my confidence in Empagio as the suitor firm. Given today’s announced extension, I see this as a means to bolster WSTM’s terrible stock performance via the addition of a profitable entity. Just another two cents worth of thought….

  • 25. Jason Corsello  |  January 28th, 2008 at 1:59 pm

    Thanks Phil & Mark-

    Great comments. The extended merger conversation combining with the current macro-economic conditions would suggest the longer this process gets extended, the greater chance it won’t happen.

  • 26. Phil Fersht  |  February 1st, 2008 at 12:28 pm

    http://www.businesswire.com/portal/site/home/index.jsp?epi_menuItemID=887566059a3aedb6efaaa9e27a808a0c&ndmViewId=news_view&ndmConfigId=1000105&newsId=20080128005756&newsLang=en

    Suggests that something is likely soon. “US payroll provider” is rather vague…

  • 27. a barden  |  February 1st, 2008 at 3:18 pm

    Workstream is shedding its workforce to spruce up for possible merger and more. Having laid off 15% of its staff today, workstream is better positioned for merger….

  • 28. John Doe  |  February 4th, 2008 at 6:14 am

    Apparently it has happened and it was Empagio, and Mr B is already starting the layoffs. Please check the above thread from the Orlando Sentinel regarding this and other business practices.

  • 29. Phil Fersht  |  February 4th, 2008 at 1:40 pm

    good call from jason! where do I send my $5?

  • 30. Mark Stelzner  |  February 13th, 2008 at 6:29 am

    Well Jason, I think we both win. Here’s the Workstream/Empagio merger announcement fresh off the wire:

    http://biz.yahoo.com/bw/080213/20080213005606.html?.v=1

    Cash and cashier’s checks only, please. :)

    Best,
    Mark

  • 31. Bill Kutik  |  February 13th, 2008 at 6:22 pm

    Glad I didn’t bet against you, Jason, nor make a prediction of my own. Congratulations on calling it right.

  • 32. concerned reader  |  February 14th, 2008 at 10:00 pm

    Seth Bernstein is bad news. If there’s anyone out there thinking about doing business with him, you’d be smart to look the other way. The common advice seems to be “run quickly”. Stay away from Seth Bernstein.

    http://www.topix.com/forum/city/orlando-fl/TNE9F8TJ3Q9MEEL1E

  • 33. Not Seth Bernstein  |  March 28th, 2008 at 3:52 pm

    Sorry for Empagio.

    Did Seth Bernstein say that he is not selling Empagio? That means he will sell in the future… He says the same to every place he goes, then 2 to 3 years later, he sells.

    Very Important, do not trust Seth!

  • 34. Not Seth Bernstein  |  April 16th, 2008 at 4:27 am

    Visit: http://sethbernsteinbadcapitalism.blogspot.com/2008/03/seth-bernstein-good-or-bad-capitalism.html

    What has been your experience with Seth?

    I agree! Sorry for Empagio!

  • 35. baachus  |  June 13th, 2008 at 2:01 pm

    Too bad workstream cancelled the deal with empagio, im sure plenty of investors were counting on that one, and thats why ui avoid the risky ones

  • 36. Baachus  |  June 24th, 2008 at 1:48 pm

    Hmmm who knows whats going on. People are definitely being lied to, but who on what end is unknown. very fishy, but after all my research into these players. It doesnt surprise me. for example why would workstream back out of the deal and then ask for millions of dollars? arent they the ones in breach of agreement? such is the way of things. Good thing I didnt ionvest into either one of these companies. goes to show research helps, of course as u can tell from the above link people like seth will constantly have anything bad stripped from the internet, so dig deep. The info is out there.

  • 37. Craig  |  October 9th, 2008 at 8:59 am

    Hopefully Empagio will get off their asses soon and start staffing their acquisitions like Unitime with quality technical support staff. So far (speaking as an end user) it’s a JOKE!

  • 38. Andy  |  October 17th, 2008 at 12:45 pm

    I concur, the Unitime product and their technical support staff is a JOKE! Terrible product.

  • 39. Cindy  |  October 22nd, 2008 at 11:37 am

    Note: another lay-off at Workstream. This time I and many others were part of the reduction. Pretty unexpected, but perhaps it should not have been. Maybe, this is a lead-up to a sale to a company in the space looking to improve their technology. No ideas on the possible buyers, but rumors have it that mulitple vendors are actively working towards bids.

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