Commentary Watch:
Reflex Watch:
I may have too strong a contrary gene, but I just don’t get this deal for Taleo.
Why now?
I don’t know the real story at Vurv. I know they were nowhere near the delusion of a pure mind play like Jobster; Vurv had a real product to market in pitched battles against direct competitors, bringing real value to the effort. The costs of getting there and the strategy embarked on by Vurv had put them into a position where action was required. I read that Vurv was looking at three options: sell, IPO, or borrow, as there were capital needs related to gaining share in talent management, to say the least. Since IPO and borrowing are hard money angles as of today’s newspapers, it appears that the options were not optional: one could assume a negative burn at the time of the sale. The low cash content and TTM top line revenue multiple of around 6 also says Taleo was in the driver’s seat and free cashflow was not bountiful. Yet a 20% dilution for TLEO shareholders is not a light snack. The shares have not re-priced either way around the move, so the shareholders are taking a wait and see attitude as of now.
Analysts, on the other hand, may see the same thing many of us do:
a substantial amount of execution risk
leading to a downgrade of TLEO.
There are some reasons that I do get it. The combined sales team will no doubt be highly improved – the financial value of good salesperson is often not understood- creating expert salespeople in highly technical niche markets is a large cost of doing business.
Taleo gets to make a usual suspect in lost deals go away, and that will pump sales a little bit (but the void will fill right back up). Taleo bought a lot of customers, but what did they buy? Where in which lifecycle of which product are they ? Satisfaction/Credibility in each case? Migration Costs? Retention rates? There is already talk about Vurv recruiting platform going away….First Advantage did the same thing to the late Projectix- when putting its end-users out of their misery.
If you see it as a pure vulture play it may make some sense; SaaS firms are good generators of cash because it takes time and costs money to switch applications. I would expect a steep decline of new Vurv orders(!) against the risk that the current client base becomes a prey source of ROI for Taleo. How the consumed customers fare in a merger is not usually a measure much dwelled on, but it should be a polled measure used as a payout metric on deals like this- the better the customers do, the LESS they should cost the buyer.
I always perceived that Vurv, formerly Recruitmax, formerly Vurv wanted to be something they were not. No doubt ambition is important (see my mirror for results of too little), but overweening ambition can lead to a lack of focus on mastery of the current challenges and discounting risks, eventually undermining both performance and the trust of markets, customers, and stakeholders.
I have no idea what the investors, founders, and employees were paid on the deal. Many of those folks have over a decade of hard work into the ability of Vurv to make the deal in the first place, so I hope that they were paid and paid well. My gut says that if the second and third rows at Vurv, formerly Recruitmax, formerly Vurv were well paid, it would be a good sign that the deal was not marginal from Vurv, formerly Recruitmax, formerly Vurv’s standpoint, and that the new combination will start in a positive way personally for the people doing the real work tommorow.
The main problem for them (and us) as I see it is the race between so called Talent Management Systems and the total separation of data assets and user interfaces by sophisticated (read as high-end, high margin) information users, like the larger corporate customers Taleo targets. That simply means that when customers are looking for functionality, their end-users can select from a large set of tools, so long as the tool inputs and outputs using webservices (XML) in a reasonable way. The TM vendors themselves are doing their share of driving this change because they are bumping right up to ERP and HRIS system functionality. The master records have to live somewhere in larger firms- the odds of that place being a full boat TM system, in my view, are not overwhelming: thus one of the main benefits of using a single vendor for application services is liquidating daily. All of these TM cheerleaders are betting on a yet to be proven premise. This is not to mention the major organizational changes needed to put disparte groups of decsion makers into alignment- or that being healthy or possible.
On the other hand, if you are smaller or less sophisticated end-user, you need a tight, focused, deliverable, scalable and inexpensive application + data solution. SMB in other words.
Vurv, formerly Recruitmax, formerly Vurv was a strong player among SMB for awhile and they know how to make that market jingle. I think Taleo will likely find both Business Edition and the many custom permutations of Vurv pretty sticky among both sets of current customers, so they will be looking at phased migration, at best, if they don’t want giant change costs.
A good way to estimate what is going to happen is to take a look at what has happened in the past; How have Vurv or Taleo retired solutions in the past? How did the change go? Were the customers treated well? Did the new solution work as well or better than the old solution? If I were a Vurv, formerly Recruitmax, formerly Vurv customer, I would be shopping right now, just in case.
For us, this is great news for now. Taleo had its own concerns and now has something else to occupy it for the next year or three.
We have a feeling that most of Taleo’s customer growth is for Business Edition, which implies lower margins and lower total profits than enterprise sales of large custom systems, as well as being ‘only’ a recruiting solution right now. The combined entity is going to have some large costs to deal with; not only change costs and operating costs, but for the big bet on Talent Management.
I don’t know if they could survive for long in their current form if they are going to be doing most of their real business in the SMB space. If they do, that’s bad for us but only if they do it right- by developing killer software at tiny prices for SMB end-users and delivering it with full service. Oh yea, against expert competitors with all the time in the world to draw a direct bead on their weaknesses in any given functional domain. These are hard waters to navigate: not fun and not really Talent Management centric. TLEO shareholders look like a patient lot- so there may remain robust capital raising potential, which is not good for competitors.
That’s why the best part for us is that the their targeted opportunity is directly away from our market: large firms seeking full boat TM systems vs. SMB and some large firms seeking tactical recruiting tools.
The CEO of Authoria made some astonishing claims (among others):
“talent management will prove to be the largest software category ever”.
“pure-play recruiting software vendors will not survive”
If he is right, this is the best deal ever!
On the other hand, lets remember that Taleo’s entire treasury barely buys a corporate jet. This industry remains a small lake.
We small fish will be watching.
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