HRTech Revolution Is Coming

Photo credit: iStockphoto/oxinoxi

If 2019 was the year of RegTech, or regulation technology, then 2020 was shaping as the year for HRTech, or at least it was until the COVID-19 pandemic stopped the world in its tracks.

HRTech has many things in common with what has already been seen in the RegTech and before that the fintech space: many small startups leveraging new technologies to create innovative solutions which, although they might be brilliant and transformative, are difficult to implement and integrate.

As with solutions in financial services and regulation, the issue for much HRTech is that often they are point solutions which not only present integration challenges for users, but—in large organizations, particularly—do not sit well with established procurement processes and internal compliance.

Revolution, fintech style

The likely progression in the HRTech sector is likely to be similar to that in the fintech industry.

Just as banks have pounced on the better fintechs and used their acquisitions to renovate their often stale offerings, so it is likely that established players in the HR sector will look to re-invigorate their own businesses with HRTech acquisitions.

Ultimately, this should be a positive process. It will give the HRTech companies an exit strategy, give existing players updated capabilities, and make the new solutions easier for organizational users to access.

There are some examples of this happening already.

In Australia, Seek is one of the country’s major online job search websites, with News Ltd as a minority shareholder for the last five years.

Recently, it was announced that Seek, along with venture capital firms AirTree and OneVentures, had extended AUD 22 million in funding to people management platform Employment Hero, a platform used by around 4,000 Australian businesses to manage the onboarding of new employees.

This was one of Australia's most significant private capital raisings of 2019 and valued Employment Hero at just over AUD 100 million.

The Employment Hero solution is aimed squarely at small and medium-sized enterprises (SMEs), which are the ones that routinely have the biggest administrative pain points around HR and in particular HR compliance.

Banks have also moved into the HRTech space. Top tier bank Westpac, for example, made an investment in the Flare HR onboarding and personnel management platform several years ago through its venture capital arm, and offers access as part of its relationship with corporates.

So far, these corporate moves are not widespread. At this stage in market development, it is more likely for HRTech startups to be funded by venture capital or private equity, with a view to preparing the company for a sale as it matures down the track.

Interest explodes

Some of these deal sizes are becoming very significant.

In the 24 months to December 2019, venture capital and private equity investors poured close to USD 14 billion into the HRTech sector. Activity sped up in the second half of 2019, with 66 recorded transactions and higher multiples paid.

The biggest deal so far was the USD 11 billion acquisition of human capital management solutions provider Ultimate Software Group by private equity firm Hellman & Friedman.

Strategic acquirers are in the market too, with Salesforce acquiring field service management company ClickSoftware for USD 1.4 billion.

Asure Software has been the most aggressive aggregator, pursuing a roll-up strategy with 10 acquisitions, while applicant tracking company Bullhorn made five.

Other private equity has also been busy. In the U.K., startup SalaryFits recently raised USD 5 million from Brazilian VC fund Confrapar and—in a sign of the globalization of technology—will use the funds to expand into the Indian market.

Prior to this funding the company, which is active in Latin America, European and Asian markets, has raised USD 1.3 million from Portugal 2020 and Level39.

New HR arms race

It is a global trend. Strategic buyers are in the market for HRTech companies as they look to expand their product scope horizontally and fill out their digital transformation.

This is because HRTech delivers so much of what some organizations do not have, and that is up-to-date analytics, payments processing, resource planning and AI driven recruitment.

Watch this space, at least when the pandemic is over, because the HRTech arms race has only just begun.

Photo credit: iStockphoto/oxinoxi