Why Workstream wanted to be tied to Empagio in the first place never quite made sense to me. When their merger was announced several months ago, everyone knew Workstream needed some cash to continue with their R&D and sales goals. But let’s get this straight once and for all. Empagio is just the rebranded name for the old Tesseract payroll system (primarily). Tesseract might have some large clients still out there, but it’s a sinking ship of a legacy system. Sure, it might take another 10 years to sink that ship, but it’s sinking nonetheless. Workstream having a pretty good product, a good client list, and a not too bad financial position (there are talent players with much more debt and less cash out there), should not have felt the desperation to link up with the likes of Empagio. After all, why merge with a sinking ship?
To some relief, the deal fell apart. Apparently, Empagio’s financial position in their recurring revenue model for payroll was not quite as robust as they had initially lead Workstream to believe. Perhaps the ship is sinking faster than anyone realizes. But aside from Empagio commentary, this should have been a good thing for Workstream. If that is true, how does one explain the immediate drop in stock price, now hovering easily below $0.50? After all, Workstream had a good sales quarter recently, depending on how you look at the books, they could be said to be profitable, and they have an OK cash position (some seven figures in cash and no/low debt reportedly).
The problem I see is that the flailing stock price and the low cash reserves doesn’t amount to much in terms of further R&D investment that is needed in this marketplace. They laid off some R&D along with sales, and these are the 2 engines a software company needs. To their credit, they kept the customer service organziations intact. But back to the point, Workstream should clearly be valued at higher than the stock price indicates, but they do need a cash infusion to get back on track. What was once an industry leader is having some hard times, partly because of a deal that was weak to begin with. Perhaps they are now an acquisition target, I mean this is absurdly cheap for what they have in terms of functionality and breadth of their suite. We’ll have to wait and see what happens.
3 responses to “Engagement Over: Workstream-Empagio”
Dubs-
With all due respect, I don’t think Workstream was ever considered “market leader”. They have not really been competitive in the market in years, the products are lagging the market, and they have been in financial dire straits for some time. The company has been cut to the bone and without some commitment to product innovation and healthy, profitable growth, it will be challenging for them to remain independent.
I concur with Mr. Corsello on this. Workstream has long been on a track of “balance sheet integration” more than providing an actual unified product suite. Talent Manager 7 was interesting, but the true innovators for the past few years have been the financiers and their moves reek of positioning themselves as an acquisition target. The fact that Empagio was the best they could do is a testament their market position.
Leader? No offense meant Dubs, but I’d be hard pressed to find another vote to carry that proposal. WSTM has always been a roll-up. Unfortunately, the strategy never involved adding any company to the roll-up that was healthy. Therefore, you get a very large, unhealthy, money-bleeding company with suspicious financials and a poor track record of consistent performance. Trust is an issue on Wall Street and that comes by way of demonstrated predictability (no surprises up or down) and that has not been a defining characteristic of WSTM since I’ve known of them for nearly a decade.
If anything, I have to scratch my head and wonder how it is they still conduct any business at any stock price.