Insights into HR Tech M&A and VC Trends with Jens Bender

Thomas Kohler:
Today’s guest Jens Bender. What is your outlook for this year in M&A deals and also VC?

Jens Bender:
Yeah, I believe we are definitely it’s still uncertain times, but we are going to see quite a lot of M&A activity and consolidation in the market. I expect the HR suite vendors to be especially active in there. But also there are several, for example workforce management solutions in the market that are looking for the right investor to continue growing their business. So definitely a lot of M&A activity and in the venture space, I expect some of those companies that really have great traction in the market, I know they are looking for or they are planning to go to look for VC funding mid of this year and later this year. So I am expecting also some larger funding rounds than the ones we have seen in January and February later this year in HR Tech in the german speaking market as well.

Thomas Kohler:
Jens and I talked about the state of M&A deals in Q one mainly in January and February, and also about the state of venture in HR tech plus also an outlook of his perspective on which companies might go public and also how the VC environment will develop in 2024. Plus also the M&A environment.

Today we have Jens again. And Jens, we already know you from our podcast, I think it was number 23. And maybe you just give us a brief introduction of what you are currently doing and then we dive into the topic of M&A in HR tech.

Jens Bender:
Thanks Thomas. Great to be here again on your podcast. Looking forward to today’s conversation. So just what I’m up to at the moment, same as the last two years, I’m advising especially investors and HR tech vendors on go to market and product strategy and product portfolio topics. And that’s also why I’m closely following M&A deals, but also venture capital investments and also business angel investments into HR tech and worktech companies. So looking forward to the conversation today.

Thomas Kohler:
Yes, and I also saw on LinkedIn that you’re quite active now with M&A reports and also what’s happening in the HR tech field, also with funding acquisition and so on and so forth. So maybe you can give us a bit of an idea on the climate and how you currently see it.

Jens Bender:
Yes. Yeah, so I’ve of course kept track of investments over the past two years and even before that, I’ve always been very interested in how vendors create their portfolio and which vendors grow. And I’ve started to do that very systematically now from the beginning of the year, really publishing M&A investments in Europe, in the HR tech space every month, and also looking at VC investments and in general, you can say also looking at the specific deals, that the environment is still challenging, the market is still challenging for a lot of vendors at the moment, where potential clients still are very active in looking at productivity increase, but also restructuring of their businesses, which of course triggers more challenging environments for the vendors themselves and also then more challenging environments for investments. In our HR angel network that I’m part of, we look at very early stage deals. We still see several convertible loan agreements, which basically means no VC investment round right now, but rather waiting until the right timing is here. But at the same time, we also see several startups that have very good traction in their respective markets grow quite significantly. So I’m also expecting larger investment rounds and funding in VC later this year. Instafo was one company that already received quite a significant funding this month.

So I believe also venture funding rounds will go up again. At the same time, M&A has continued to be there over the last years. Of course it didn’t significantly change. Evaluations were impacted a bit, but also not as significantly as in the early stage, venture stage. So yeah, compared to last year’s, maybe also M&A is a special year this year because there are some previously venture funded companies that are asking themselves what’s the right strategy to grow? And potentially also looking at M&A in this context, I believe there are more companies besides just the ones looking for predecessors of their business and just an exit who are now looking for potential M&A activities.

Thomas Kohler:
Isn’t it also a good timing now maybe to make some good deals when the valuations are not blown up?

Jens Bender:
Yeah, exactly. That’s exactly the environment, especially for investors. Those are interesting times right now because some valuations may be lower, especially than of course two years ago, where valuations have been also too high in the market. But at the same time, those challenging environments for more early stage companies means that on one side, strategic vendors that are looking for opportunities have more possibilities potentially now than they had when venture funding was still great. And also I believe founders are asking themselves, is there a faster way to grow in a larger environment than waiting for the right timing to also get additional vc funding? So definitely a bit of a different environment than it was two years ago.

Thomas Kohler:
Definitely. And I think maybe let’s look a bit into the M&A acquisitions. What you just highlighted in your post, I have it next to me. So for instance, Highbob acquired, acquired Pento. And I think there are many of them. But maybe you can give us a bit, some insights and your perspective on the most significant and most relevant for you.

Jens Bender:
Yeah, so if we only look at the past two months, I believe M&A has been quite active in the HR tech space, especially his vendors. So the HR core and HR suite solution vendors, which have added specific additional categories to their portfolio. And Hibob is a good example as they acquired Pento in the UK on the one side, a market expansion to the UK being stronger there. But also the most relevant topic is of course adding payroll as an additional category to their product portfolio, which can also be seen as maybe a strategic move after Personio launched its payroll last year to also have a strategy in place at Hibob, how to, how to provide payroll solutions to their customers. Because Personio is also planning to launch their own payroll in the UK after they’ve just launched it last year here in Germany. That’s one very interesting deal. I believe the entire payroll space is interesting in general. One additional deal that we saw was the one of the company called deal as well, DL from the US, an employee of record company originally.

So allowing companies to more easily employ talent also globally in a legally compliant way. And they acquired a company called Zavi here in Germany that does performance management. So really going in the direction of offering a more holistic HR suite portfolio than just focusing on payroll and employer record topics, that’s super interesting as well.

Thomas Kohler:
I can add something to that because I’m a user of deal for my company because we’re remote and I’m also a partner of deal because we sometimes together also work on some customers. And by just using the product over time, I think over the past three years, I really could see the growth in terms of markets they added, but also features they added continuously. And I think sometimes even on a monthly basis, something changed and some updates came in there and I think they’re also the fastest growing unicorn and even Decacorn now, right? For quite some time.

Jens Bender:
Yeah. And have received several hundreds of millions in funding as well. And compared to other vendors, especially international vendors, they are also really active here in the german speaking market, as you mentioned, as well. So definitely a company to watch with very ambitious plans and also very strong growth. But this consolidation of or also embedding performance management into HR suite solutions is also one topic that is relevant in the context of HR works. They added Bon Republic to their portfolio or acquired Bon Republic, an austrian company focused on performance management, allowing to set goals for employees, but also tracking success and communicating amongst the employees of the organization, celebrating that successful so also going in a similar direction and adding a tool set that allows customers to also strive for more productivity internally but also potentially more retention as typically also engaging the organization in a stronger way and making success visible and valued within the organization is something that bond Republic focuses on. And HRworks is also a very strong HR suite solution here in the german speaking market, focused on SMB customers. So also a very interesting acquisition.

Thomas Kohler:
And do you have any insights on the valuations? I know it’s always a bit hard to share and maybe you can also explain why, but maybe you have some what you can share.

Jens Bender:
So the valuations of those transactions are not public, which is typically the case for companies that get acquired, especially if they are not, especially if they are not publicly listed, and therefore are required to also publish some valuations. It’s a completely different game than the VC game, where typically in VC the investment amount is being published and valuations are, especially if it goes into the direction of unicorns or decacorns, also often communicated. We see investments are bet into future growth and scale, whilst M&A, especially with private equity investors, but also strategics, is typically a very rational way of trying to understand what is the current valuation of the company, typically based on the revenue, its growth and also the profitability. And also what value levers do we have if we combine those two businesses with each other, and especially if investors are involved, they of course have a goal of, on the one side, getting into those companies, combining the values of both, and then increasing value within a few years and exiting that business again. And transparency about each and every step in those M&A processes is something that typically those investors do not communicate and therefore those numbers are not public.

Thomas Kohler:
Yeah, totally makes sense. In case you like my show, please subscribe. I would really appreciate it. And when you think about the market, I think in the whole HR field there is a lot of things happening right now. But do you also see certain areas where we are also at an s curve, where maybe there is no real upside anymore when building new companies in a certain field, for instance?

Jens Bender:
It’s a very good question. I would say also the economic cycles that we see at the moment, of course contribute to the fact that some of the HR tech categories are more active than others and also grow more strongly than others. I believe in all areas we see innovation and also all areas allow for some kind of disruption just because technology advances so fast that those new technologies can also really change how processes are done in the future. So if you think about markets that are basically fully covered, like a payroll market here, throughout all sizes of businesses, from enterprise to SMB, all companies use software for that, or typically use software for that. Therefore, you could say the market is covered, it doesn’t grow anymore, it’s saturated. But at the same time, generative AI and new technologies will allow for much more productivity than the current systems allow for. On top of that, not only generated AI, but also bringing those solutions from on premise solutions to the cloud, allowing for benchmarking, allowing for comparison between companies. So I really believe disruption and technological change will create opportunities in all areas.

I believe the huge white spots are challenging to find. The SMB space still allows for some of those. Like there are some super fast growing workforce management vendors in that space next to a personio that basically in highborb and HRworks and all those others that cover the HR suite market, they are also very focused vendors on workforce management, on time and attendance, and these kinds of topics that grow strongly in the SMB space. But yeah, long answer to a short question. So I strongly believe that it’s still possible to build new solutions and disrupt the market.

Thomas Kohler:
And would you also then categorize the M&A deals in this category, or how would you categorize them?

Jens Bender:
Yeah, so I believe in today’s times, especially businesses that are less vulnerable to economic cycles, are more attractive just because the risk is lower in those categories, you could call them the ag tech categories, must have solutions so solutions that customers will not disable in harder economic times, which are of course payroll solutions, workforce management solutions, time and attendance solutions, but also the HR core solutions that allow for more digital processes and therefore more productivity in the companies. Those are the ones where I see quite a lot of focus next to of course, some kind of consolidation where vendors are building suites and adding additional portfolio to the business, like the few deals that we have talked about, but also teaserware, adding Parisis as a talent management solution and Quipli as a frontline worker communications tool to its solution scope, so that they basically have a broader portfolio to offer to their customers, which of course also adds productivity. But those are the kinds of deals that we are mostly seeing at the moment. Whilst some of the categories that were growing strongly two years ago have, yeah, fallen a bit back in investments like health and wellbeing segment, but also diversity and inclusion segments. Those are the segments that see less funding.

Thomas Kohler:
Yeah. And also, to be honest, in talent acquisition, when I saw talent acquisition as well. Yeah, yeah. But also when I saw, for instance, greenhouse lever and so on, smart recruiters maybe being like top choices of tools then also personio, maybe for smaller companies. Suddenly Ashby came up and they started with a reporting tool, because a lot of ATS did not have enough granularity in the reporting. And then they just started with this layer, built this out, I think for two years, got excellent in it. And what was the interface, right. What everybody then saw as a manager or as a non user in the system, but just the end user to see the results or the dashboards.

They saw Ashby and not the Ats, right? And suddenly they already had brand reputation, brand advertising, and maybe also a bit of trust for the users that why not switching to the ATS? But actually it did not exist yet. Right. So I think smart move as well. So I’m really curious of what we will see with Ashby, because with them you can also use it without needing a scheduling tool and sourcing tool and whatever and so forth, right. Which was always in when companies grew that you really need to spend a lot on recruiting tech needed to get fragmented. And I think this is also now starting to change. And initially it was always like go fragmented, because if you have a general solution, you are stuck and you cannot do what you need to do at scale and also keep up with the quality. And now we see a shift back that why consolidating? Why not consolidating again? Because there is a solution that is specialized in oil fields.

So I think that’s an interesting movement in markets and also on the regional piece, right. With payroll, I think deal gives the opportunity to have a global payroll or you have accessibility to global payroll with just one provider, I think that’s something that is really cool and that can scale fast. And I just found the report. I think dealer was the fastest growing company to go from 1 million to 100 million arrows in slightly less than a year. It’s crazy. And then the next company that is then also achieving something similar like this was slack. Faster than slack. Okay, but maybe let’s talk a bit more about the vc side. So do you have any insights there? What’s the situation with the startup VC investments at the moment?

Jens Bender:
Yeah, if we purely look at HR tech, we’ve also seen some investments in January and February of this year. Maybe also trying to pick out some examples here in Europe, Nabu was one funding that we saw in the corporate seminar market. It’s a french company that received 7.5 million investment. That was this month in February. So last month there were also other investments like Peopleforce, which is an HRs from the Ukraine receiving 2 million in funding from a polish venture company. But overall not huge funding rounds in February that we saw in the HR tech space in Europe, I believe the most significant funding was 300 million funding into Rain. Rain is a us based vendor for early wage access. So allowing employees to get access to their wage already during the month or during the week instead of at the end of the month, which is a movement in the US that already saw quite some traction last year.

And we saw several vendors that received quite some significant funding in that space. But at the same time, it’s not typical venture funding, but also, I believe also in the case of rain now some debt financing because they are basically pre financing the salaries to pay them earlier. So those were the most significant fundings that we saw in February. In January we saw also travel perk from with a 104 million investment in January. They are a spanish company and BDS also from Spain with an 8 million funding round. So in Germany we have been, or in the german speaking market there have been a few investments, but not that huge, and especially in the very early stage funding like way in January and Vandal in January as well, with some very early stage funding. And besides that, not a lot of movement in the german speaking market so far. But I believe it changes in March, where I’ve at least been made aware of a few funding rounds.

Also in Germany, again, like in Stafford, you mean like in staffo, but in Stafford is not really venture funding, but rather growth funding if you want. So they are already a company with quite a significant revenue and also very significant growth growth, and they received this funding to further scale. I believe it’s super cool to also see talent acquisition companies, as you said, what are new businesses, what are new possibilities? And also in the talent acquisition space, there’s always new companies coming up and it’s super cool to see that Instafo basically goes into that market and grows strongly with creating a talent pool in specific categories of talent, keeping the talents engaged, and therefore to a certain extent also changing this talent acquisition game from an employer market to a talent centric market, and offering talents, a good opportunity and employers as well to connect with each other. That seems to be a product that really resonates with both sides of the market. So it’s super cool to see that.

Thomas Kohler:
Yeah, definitely. I think when you think talent acquisition, very fragmented and also very niche in terms of per location, a job, family that you have a pool or specialized in, that’s relevant. Yeah. And I think this is also why a lot of headhunters out there with very small company sizes, like less than five or ten people are out there and also doing quite well, but cannot grow further. Right. I think that’s because of that.

Jens Bender:
Yeah. And maybe at the same time, in the very early stages, maybe one aspect to add from the angels perspective, from the Angels network, we’ve seen quite a lot of startups now using artificial intelligence to really support the sourcing approach. So as you are talking about headhunters in outreach and so on, how can you really create not only more productivity in this? Because it has been a super manual process also in the past, but also creating more relevance towards talents with a more individual and targeted approach. That’s also something where we see several new startups coming up looking for funding and also seeing quite some significant growth in their businesses. So those are the kinds of companies where I expect also some, some new funding rounds in the course of the year being communicated.

Thomas Kohler:
In case you have any feedback or anything you want to share with me, please send me an email on thomasoplewise.com or hit me up on LinkedIn. And in case you really enjoy the show, please subscribe. I would really appreciate it. And how many angel investments did you do now in the Hrtech field? And also maybe the whole angel club?

Jens Bender:
The entire angel club. Within the last year we invested in 13 startups in the HR tech space, all of those from the german speaking region. At the same time, it doesn’t mean that all of the angels that are part of the hi angel network, which is currently around 60, then invest into those startups. But it’s individual angels investing, so we are only sharing deals amongst each other. Looking at those, and then individual members of the angel club decide on investing and that’s been 13 investments. They are also transparent on our website, some super cool companies in that some already received follow on funding like for example combo, who are an integration as a service vendor that allows point solutions like ATS or like performance management solutions to integrate with all relevant hi solutions at scale. They already received the follow on funding end of last year from Acadian Ventures to grow additionally into european markets but.

Thomas Kohler:
Also into the US and to finish off. So what is your outlook for this year in M&A deals and also VC?

Jens Bender:
Yeah, I believe we are definitely it’s still uncertain times, but we are going to see quite a lot of M&A activity and consolidation in the market. I expect the HR suite vendors to be especially active in there. But also there are several, for example, workforce management solutions in the market that are looking for the right investor to continue growing their business. So definitely a lot of M&A activity and in the venture space, I expect some of those companies that really have great traction in the market, I know they are looking for or they are planning to go to look for VC funding mid of this year and later this year. So I am expecting also some larger funding rounds than the ones we have seen in January and February later this year in HR tech in the german speaking market as well.

Thomas Kohler:
Cool. And do you see also a company like personio going public at some point?

Jens Bender:
Yeah, I believe the IPo possibilities are better than they were the last years and they have pushed that back for some time. So I’m expecting they will go public either end of this year or next year. Most of the people I believe are expecting next year, so they are definitely preparing that. The proposition to serve a market that’s much larger than the HR core market itself, like the payroll market, is one of the steps that they have taken in preparation of that. But of course it’s also important they show growth and that not only in the german speaking market but also internationally. So very curious to see how that develops.

Thomas Kohler:
Jens, thank you so much. And I think we’re already done. We are through now. Anything you want to add?

Jens Bender:
Nothing from my side was great fun. Again, Thomas, thanks a lot for the invitation and looking forward to the next time.

Thomas Kohler:
Me too.