The year 2017 has started with media reports speculating on the private equity firm Multiples Alternate Asset Management’s plans to acquire 80 percent stake in HRO & Tech firm PeopleStrong for Rs. 400 crore. Following last year’s trend that saw Aon Hewitt acquiring hiring assessment company CoCubes at an estimated Rs. 70 - 80 crore all cash deal — the attention towards the HR industry continues.
The fundamental drivers of the HR Industry are conspicuous — evolving workforce trends, increased stimulus to skilling by the government, intensifying talent demands in corporate India are the factors that are giving impetus to the HR market. However, overall, the HR function is underinvested, but more and more CEOs are getting sensitized about the importance of investing in new-age products and services to solve the traditional talent challenges. These are bringing two forces into play — increased intervention of startups into HR, and more investment in flowing into this industry. Since 2012, the number of startups in HR Technology alone has multiplied by 6 times to 300 businesses in the domain today, and the investments have grown 5 times, from $10 million cumulative investment in 2012 to $50 million in 2015 over 31 rounds.
In the US, there are over 30 publicly traded companies in the space across segments of HR. While the Indian ecosystem is way behind and has lots of to catch up, the maturity of the Indian market is accelerating. In the last 10 years, only one HR business went IPO (Infoedge – Naukri.com), and in the first of last year, the market has seen two of them — TeamLease IPO received an over-whelming response and was subscribed over 66 times in February; while Quess Corp in July got fully subscribed by 144 times on closure.
Since 2012, the number of start-ups in HR technology alone has multi- plied by 6 times, and the cumula- tive investment has soared to $50 million in 2015
The news in the last couple of months has again brought HR into the limelight. Aon Hewitt acquired Gurgaon-based hiring assessment company CoCubes in an all-cash deal at a valuation of INR 70 - 80 crore. The business rationale of this acquisition was to bring CoCubes’s assessment capability and technology at the entry-level hiring and adding that to the specialized leadership assessment solutions that legacy Hewitt brought to Aon Hewitt.
Earlier this month, the media broke the news that Multiples PE was also getting into the HR space and was planning to buy 80% stake in PeopleStrong (HRO and HR technology company) for Rs. 400 crore from current investors including Lumis Partners, HDFC Holdings, and The HR Fund. PeopleStrong has been one of the few companies that have been able to transform from a service company (primarily HRO and RPO when they started) to a technology product company that builds innovative HR tech products. It is also speculated that PeopleStrong management and employees will continue to own 1/4 company that will make this team the only team owning that level of sizeable portion after such investment.
From an investor’s point of view, a startup in HR tech needs to showcase scalability. A tech product always has a higher possibility of being easily scalable compared to a services solution. That is where the industry is seeing investments flowing into. The market has also seen additional investments happening in the HR space — Greytip Software, a leading provider of HR and Payroll solutions to SMEs & enterprises across India raised Rs 35 crore in its series B round of funding from New Enterprise Associates (NEA), while Blume Ventures expanded its business in June 2016. Darwinbox, a Hyderabad-based HR software-as-a-service (SaaS) startup also raised seed funding in July by Mohandas Pai's 3one4 Capital, Endiya Partners and Tracxn Labs to fuel their expansion plans.
2017 will be the year to watch for HR industry. Companies that have raised capital will be looking at expanding their portfolios by incubating or acquiring niche HR tech products. Additionally, there is a growing interest by traditional IT companies to provide HR tech solutions beyond the traditional ERP deployment and taking to market niche products that can add to their portfolio of offerings. As the HR tech industry witnesses a flurry of activity, it is also expected that more HR services and tech companies will take the IPO route while we will see increased M&A activity in time to come.
The Multiples - PeopleStrong deal proves that if one identifies a niche in this market and build a profitable, scalable business backed with a strong globally deployable technology platform, one can win.