Human Capital Technology M&A Transactions by US-Based Acquirers

Between Q1 2020 and Q2 2024, over $12 billion was deployed into the human capital technology sector through M&A transactions by US-based acquirers.

Human capital technology refers to the suite of tools and systems designed to manage and enhance an organization’s workforce capabilities. This technology encompasses software solutions that assist in recruiting, managing, training, and optimizing the workforce and human capital. It includes, but is not limited to, systems for human resource management (HRM), talent management, payroll, workforce analytics, and employee performance management.

The rising demand for human capital technology is driven by the integration of generative AI, enhancing efficiency and personalization in workforce management. Innovations in this field optimize workforce planning and agility in fluid labor markets. The importance of human capital technology is expected to grow, addressing labor challenges, improving employee experiences, and supporting digital transformation across industries.

Human capital technology companies typically trade at enterprise value to revenue multiples of 1x to 5x and EBITDA multiples of 7x to 17x, indicating a high-growth industry where acquirers are paying a premium for these companies.

In the time period covered in this report, 70% of the deal count and 72% of the total capital invested was made by financial acquirers. This predominance reflects the sector’s growth potential, scalability, and opportunities for consolidation and operational improvements. Financial acquirers leverage these opportunities with their capital resources and expertise in scaling businesses.

• The valuation multiples are based on a sample set of private and public human capital technology companies and M&A transactions in the sector. The data was collected on July 7, 2024.
• The sample set typically trades at an enterprise value to revenue multiple range of between 1x and 5x, with increasing average multiples as the enterprise value increases.
• Average enterprise value to EBITDA multiples range from 7x to 17x. A multiple in this range indicates a high-growth industry where companies are expected to grow their revenues significantly over time. Acquirers are willing to pay a premium for these companies based on their current EBITDA positive state, future growth potential, and the strategic value they provide.

• Between Q1 2020 and Q2 2024, over $12 billion was deployed across 84 M&A transactions in the human capital technology sector by US-based firms at an average deal size of $153 million.
• Q4 2021 reflects the period with the most significant deployment of capital, $5.3 billion, while Q1 2022 experienced the highest deal count, 11. 
• While the deal count shows variability, it consistently remains at around 4 deals per quarter with a range of between 4 to 6 deals per quarter. This consistency indicates a stable interest in deal-making, even as the investment sizes and market conditions fluctuate.
• The largest transaction was the acquisition of Cornerstone OnDemand by Clearlake Capital Group for $5.2 billion, which was completed on October 16, 2021.

• US-based acquirers predominantly targeted domestic companies, with 75% of the total deal count (63 deals) and 75% of their capital investment ($9.7 billion) directed towards US-based firms.
• The large portion of capital invested in the Netherlands was driven by the acquisition of Unit4 by the Boston-based private equity firm TA Associates for $2.2 billion, which was announced on March 22, 2021.
• US-based acquirers invested a total of $1 billion into Australia-based businesses through four acquisitions: Ascender HCM, which was acquired by Dayforce for $500 million; ELMO Software by K1 Investment Management for $341 million; PayGroup by Deel for $80 million; and IntelliHR by Accel-KKR for $51 million.

• A large majority of the deals (51 deals) and capital invested ($9.5 billion) into human capital technology companies by US-based acquirers was done through buyouts or leveraged buyouts. 
• The average deal size in buyouts and leveraged buyouts was around $186 million. This highlights that buyouts and leveraged buyouts were the preferred transaction structure for US-based investors making acquisitions in this sector. 
• Public to private investments accounted for the second highest amount of capital invested ($5.5 billion), through the lowest deal count (2 deals). This statistic is driven by the acquisition of Cornerstone OnDemand by Clearlake Capital Group for $5.2 billion, coupled with the acquisition of ELMO Software by K1 Investment Managers for $341 million.
• Significant capital was invested through M&A transactions, with $3.4 billion invested across 33 deals. This underscores the strategic importance of mergers and acquisitions in the human capital technology sector, highlighting ongoing consolidation and strategic realignments.
• Upon separating the deal types between financial and strategic investments it was noted that financial transactions made up 70% of the total deal count (94 deals) with 72% of the total capital invested ($17.7 billion), while strategic transactions accounted for 30% of the transactions (40 deals) and 28% of the capital invested ($6.8 billion).

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The demand for human capital technology has trended positively and will continue to grow, driven by several key factors. One significant trend is the adoption of generative AI, which is transforming HR technologies by enhancing functionalities such as talent acquisition and management.

This innovation speeds up human capital management processes and offers new levels of efficiency and personalization in managing workforce challenges.

Founders and shareholders of human capital technology companies should be mindful of exit opportunities. The most active acquirers in the sector are financial acquirers who contribute the majority of capital and deal flow and focus mostly on US-based acquisitions.

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