Another market, another wave of multibillion-dollar M&A

by Brenon Daly

A half-decade ago, tech giants SAP, Oracle and IBM went on a $15bn shopping spree that essentially consolidated the upper end of the business intelligence (BI) market. Now, the trio has done the same thing in another slice of the application software space, human capital management (HCM). On Monday, Big Blue joined the other two vendors with a billion-dollar HCM purchase of its own, paying $1.3bn for Kenexa.

Formerly a company that didn’t acquire application software providers, IBM nonetheless is set to hand over $46 for each share of Kenexa. (IBM valued the transaction at $1.3bn on a ‘net’ basis, which would exclude the roughly $50m in net cash that Kenexa held.) With its HCM acquisition, IBM follows SAP’s $3.6bn purchase of SuccessFactors last December and Oracle’s $2bn reach for Taleo last February.

IBM’s acquisition brings the trio’s total HCM spending on the deals to about $6.9bn – less than half the amount the three vendors paid in the consolidation of the BI market. However, the valuations paid for the flurry of HCM transactions have been significantly richer, ranging from 4-11.7 times trailing sales. For comparison, the BI deals went off at range of 3.7-5x trailing sales. Interestingly, in each of the consolidation waves, the last of the three transactions in the sectors garnered the lowest multiple: Kenexa at 4x sales and Hyperion Solutions at 3.7x sales.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.