The Big Implications of the CEB Strategy of Acquisition of Big Data Leader SHL
This past July 2nd (2012), the Corporate Executive Board (CEB) announced definitive plans to acquire London-based workforce assessment and “big data” leader SHL—a deal that looks to close just south of $700M. For those outside of the loop in terms of what the Corporate Executive Board does, think of them in these terms: CEB is a large-scale advisor, researcher, and provider of benchmarking analysis in the same vein as firms such as Gartner, Accenture, Forrester, the Hackett Group, and Bain & Co. Built off of a subscription model that takes information from its sizeable member base (225K professionals) and extrapolates that data to inform best practices and thought leadership, the Arlington-based CEB is widely utilized for the benchmarking intelligence that can be provided about a business’s competitors—a service that net $52.6M on revenue of $484.6M for FY2011. SHL on the other hand (much like Gallup, Kenexa, the Hay Group, etc.), has built their business around the decidedly scientific assessment world of assessment—a service that has allowed the company to gather (and more recently compare) predictive information on 25M employees (spread over 30 languages) for 40+% of the Fortune 500 to the tune of $7.8M on revenue of $209.8M for the same timeframe.
While those numbers don’t come close to the figures associated with Oracle’s and SAP’s acquisitions of SuccessFactors and Taleo, the fact of the matter is that CEB’s purchase is significant; not just because of the final bill, but because of what this acquisition means. Here’s our top 4 list of what we think you should know about this latest HCM software M&A activity.
The SHL Acquisition is Valued at Nearly 3.5 times Revenue
Unlike the recent, aforementioned purchases by the big boys of SAP and Oracle, what many folks don’t know is that SHL was shopping for a buyer. Although speculation abounds about whether the assessment company was seeking a future IPO, the end-game for SHL seems to have always been an outright acquisition from a larger, more established company—a goal that seems to have been reached by this latest deal. That said, this solicitation of sorts didn’t come across as desperate, and actually resulted in a number of bidders—all of which in the end were outmatched by CEB’s significant valuation (and subsequent offer). Why the big bid you ask? Well, as Josh Bersin (of CEB competitor Bersin & Associates) sees it, “SHL alone is a growing, highly profitable $209 million company which generates more than $50M of EBITA, contributing much higher earnings per dollar of revenue than CEB does from its core business”. That’s why CEB paid close to 3.5 times revenue.
This CEB Move is Just the Latest in M&A Activity for Both Firms
Neither SHL or CEB has been shy about entering into the M&A arena; and, considering what CEB has purchased over the last several years, it’s hard to imagine that this move isn’t setting the stage for something big (possibly FY 2013?) after this latest deal officially closes. Namely, 2010 saw CEB acquire the consumer research and advisory business Iconoculture; 2011 closed with the CEB purchase of Hamburg-based management consulting firm Baumgartner & Partner; and prior to the SHL buy, 2012’s CEB news revolved around the acquisition of Valtera Corporation—a provider of talent management consulting services. As for SHL (originally known as ePredix), acquisitions all but created the company; and most notably include that of 2011’s Previsor (a similarly-situated pre-hire assessment solution provider)—a move that catapulted SHL into the top market (valued at $2B+) spot for talent management assessments. Granted, this handful of acquisition movement doesn’t necessarily equate to a trend, but it does make it clear that the Corporate Executive Board had been ramping up its consulting capabilities before adding in the massive SHL database to the mix. This could well position the company to be the go-to source in workforce research, but ultimately depends on how CEB can integrate and leverage each of these investments to customers’ benefit.
Big Data for HR Analytics Continues to be Big Business
Few would disagree with the fact that HR analytics as a discipline, HCM software offering, and buzzword is experiencing its hey-day. From the increasingly-cited solutions from SAP’s HANA to Workday’s innovative in-memory business intelligence, the leveraging of data analytics (and the organizational insight that utilization can bring) is a feature set that more and more companies are seeking from their HR software applications. And the cloud has only furthered this desire and the capabilities to gather that requisite data. As Workforce.com’s Michelle Rafter puts it, “By offering cloud-based computing services, vendors as diverse as IBM Corp. and LinkedIn have gained the ability to aggregate unprecedented amounts of information from hundreds if not thousands of customers”.
What SHL brings to the table (aside from its simulation-based, mobile, and off-line assessments) is simply one of the best tools (and largest available data sets around) for talent acquisition. While there are certainly a large number of vendors that are well-established in this arena already (namely SAP, LinkedIn, and IBM), by allowing client companies to benchmark prospective and existing employees against competitors (via SHL’s Talent Analytics product) not only can gaps in talent be identified, but attraction and sourcing initiatives can be gauged as well.
Benchmarking is Just the Beginning for CEB’s Big Data Effort
Recent Aberdeen research (Human Capital Management Trends 2012: Managing Talent to Lead Organizational Growth) highlighted that companies identified as “Best-in-Class” were 79% more likely to “use pre-hire assessments than their Laggard counterparts”—a key indicator of the market that SHL plays so well with. What is not so clear is whether aggregate data from those assessments will yield a similar “best-in-class result. As is the case with any benchmarking endeavor, trends can only be identified after the fact—a problem that essentially means over-reliance on a particular data set could put a company behind their competitors rather than on the leading edge. Granted, understanding competitive talent differentiators can be useful diagnostic tool, but all too often it leads to the question of: what’s next? Indeed, in much the same vein as insight versus action, it’s what is done with that information that truly matters; and where this newly-formed relationship has the best chance of succeeding—in large part because of the tools and expertise that the Corporate Executive Board has already gathered. As Aberdeen’s Mollie Lombardi sees it, “Given CEB’s focus and experience on understanding, codifying, and sharing corporate best practices to address critical “recurring executive challenges”, their solutions may indeed be the right answer to what’s next”.
Concluding Thoughts on the CEB Acquisition of SHL
Writing for the Wall Street Journal about this latest move by CEB, Dow Jones’ Joseph Walker says, “The function of human resources is increasingly being tied to software and data analytics”. Indeed, the growing number of companies that are investing heavily in applications that can yield predictive intelligence about their workforces is testament to this fact. By acquiring SHL, the Corporate Executive Board may well be on their stated trajectory of creating “the world's foremost source of insight on the measurement and management of talent”, but the true impetus behind this purchase is clearly the leveraging of big data. After all, as Workforce.com’s Rafter muses, CEB is simply looking to be “mining that data and selling the results to customers who are using it to pinpoint trends, identify business opportunities, and in the case of HR, [understanding] how to hire and manage employees more effectively.”
From the increasingly-cited solutions from SAP’s HANA to Workday’s innovative in-memory business intelligence, the leveraging of data analytics (and the organizational insight that utilization can bring) is a feature set that more and more companies are seeking from their HR software applications.