After reading speculation this week that Taleo is preparing for another acquisition, it got me thinking…“Who should they buy?”
The prospective acquisition options are all over the map. They could acquired another talent acquisition vendor to really expand their market share and leadership position. They could acquire another talent management suite provider. They could enter into new categories such as workforce planning or social collaboration. They could extend into new emergent “edge” technologies that surround the talent acquisition core.
Acquisitions are never easy. One must assess a company’s profitability or potential profitability. One must analyze how shareholders will response to the acquisition. One must complete significant due diligence in the technology and identify how it will fit into the acquirer product portfolio. The list goes on.
One could buy a company for the “now” which means it will likely be accretive and increase the acquiring company’s earning per share (EPS). These acquisitions tend to be favorable for the company’s share price because the price paid by the acquiring firm is lower than the boost the new acquisition will provide to the acquiring company’s EPS. The challenge is that their aren’t many company’s out there in our space that fit this bill and those that do typically have older technology that will require either retrofitting or sunsetting (such as what Taleo did with Vurv).
One could buy a company for the future. This means the company will likely be smaller and the technology less proven. In this scenario, the acquiree will often demand a price premium. The potential upside and market opportunity, though, could provide significant differentiation and innovation. This can be a riskier strategy since these acquisitions tend to be less favorable with shareholders since they do not generate immediate cash.
The last alternative is buying a distressed company where the assets or “pieces” are purchased at a fraction of what has been invested. These acquisitions tend to be cheap but often worthless at the end of the day because the technology and customers prove ultimately worthless.
If I was Taleo, I would chose Door #2, or look at acquiring some of the new emergent technology company’s out there. Jobs2Web comes to mind as a company with great momentum and a growing, market-accepted product In fact, the company was recently recognized as one of the fastest growing private companies by Inc. Magazine (#228 on the list to be exact). [Sidenote: Knowledge Infusion was also on the Inc 500/5000 list]. Of course, its easy for me to say this sitting from the sidelines without having to answer to shareholders.
With all of this said, Taleo is likely already staring their next acquisition in the face as they currently have a strategic investment in Worldwide Compensation (WWC) with the option to purchase the company outright in the near future. They did focus their last earnings call on how well the partnership with WWC was going. A signal?
Acquisitions are alway fun foder for folks like myself but I always caution customers to pay much attention because they can have many long-standing ramifications (both good and bad) to their client relationship.
If you were a Taleo customer, who would you like to see them buy next?