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!
