I’m a bit late with this one, but I wanted to provide some analysis as to what I think this means for Ceridian and their clients.
The Ceridian Corporation, a human resources company, said last night that it had sold itself to the private equity firm Thomas H. Lee Partners and the specialty insurer Fidelity National Financial for $5.3 billion in cash.
The deal values Ceridian at $36 a share, a 5.3 percent premium to its closing price of $34.19 yesterday. In after-hours trading, Ceridian rose $1.41, or 4 percent, to $35.60. ((Alex Berenson, May 31, 2007. “Ceridian to Be Taken Private in $5.3 Billion Deal” Retrieved from the NewYorkTimes.com))
Knowledge Infusion had these initial thoughts:
- Dont panic; these types of transactions rarely result in immediate and/or drastic change.
- Ceridian still has a very strong and large customer base that private equity firms will want to protect.
- Work on creating your overall HRMS strategy as soon as possible. Our bet is that Ceridian will continue to focus on the BPO space and not focus on the talent management space nearly as much as is needed by its customer base. We may be wrong about this, but just a bet. Plan on what talent management suites you can add on to Ceridian as soon as possible.
- Work with your Ceridian account leader and ask for briefings as soon as possible related to management changes and plans. ((Knowledge Infusion, May 31, 2007. “Ceridian – What to do today” Retrieved from http://knowledgeinfusion.typepad.com on June 10, 2007.))
Private equity seems to be the strategy of choice when it comes to raising capital these days. The assumption is that it’s less risky for the organization and since there are plenty of willing investors out there with pockets full of cash, it’s also an easier route. It also gets them out of the overabundant accounting requirements in effect these days. Companies are looking to private equity however because they may not be producing the stock returns they would like or more often than not, are not producing the revenues and profits necessary to keep the market happy. The root of this problem is often that they don’t really have enough liquid capital to invest in R&D or acquisitions to fund growth the way they’d like to.
In Ceridian’s case, I’m guessing that the lack of stock price growth hasn’t been great for the last 7-8 years and they are in need of additional funding for R&D. What’s frightening to me is that Ceridian R&D has traditionally been extremely poor. They have gone out and purchased applications or created market partnerships, but they have not really been able to stick with a suite of products until their current HR/Payroll Web (HPW) offering. Even that has seen multiple iterations, not of technology but of branding. Ceridian seems to like to confuse the marketplace with jargon when they should be focused more on their strategy. My hope is that private equity can put them back on track.
Knowledge Infusion is right though. These guys are still the second biggest player out there. Nobody is going to let them fail and strand millions of employees without paychecks. However, there might be a lag of 6 months to a year as the strategy is readjusted and we find out what the real priorities are going to be. Certainly developing HPW will be one of them, but I personally don’t know if KI is right that HRO is another. They have not had huge success competing in HRO, and the market is demanding talent right now.
The bottom line is that if you were pissed off at Ceridian already and were going to change, now you have another reason to. However, if you are pretty happy with them, sit tight and see what happens. The whole point of getting some more money is to make things better, so give them a chance.
