Chalk another one up for M&A. Early last week Workday, the company that offers HR and other back-office apps for businesses, acquired Adaptive Insights, a provider of business planning and financial modelling tools, to the tune of $1.55B. Adaptive Insights has filed for their IPO on May 17th and were set to become public at some point later this year. Adaptive Insights’ niche business planning software fits in nicely with Workday’s suite of products for corporate accounting and tax departments. Adaptive Insights’ has begun rolling out newer use cases which focus on support planning and resource management for operations and procurement teams. This should make a nice compliment to the modules that Workday has released for purchasing and inventory management. The acquisition follows quickly on the heels of two smaller acquisition of Rallyteam and SkipFlag by Workday. The recent Workday acquisitions fall in line with CEO Aneel Bhusri’s plan to transform Workday from a SaaS company into a PaaS (platform-as-a-service).
The recent Workday acquisitions have centered around broadening their reach to new organizations within companies and expanding their technological capabilities especially around AI-based use cases. We see three things from these recent Workday acquisitions:
1. Workday Is Feeling The Pressure From Investors. These recent Workday acquisitions are atypical for the company. Though not new to the M&A world, Workday tends to be much more passive than its SaaS counterparts (e.g. Oracle, Salesforce, SAP, etc.). Though Workday beat top line and bottom line expectations on their Q1 earnings report, their stock has been down since it was announced on June 1st. Many analysts have speculated that investors don’t believe Workday has the type of growth ahead of them that some of the other SaaS companies do. Whether true or not, Workday seems to have taken notices with two acquisitions within 10 days of the Q1 earnings report.
2. Workday “Working” To Become The Leader In Human Capital Management. In July 2017, CEO Aneel Bhusri announced that Workday would be transitioning away from a SaaS business to a PaaS business, one that could leverage its multiple product offerings and data to provide a full platform that included both Human Resource Management (HRM) and Enterprise Resource Management (ERF). Workday has long been the dominant player in HRM software, with some smaller endeavors into ERF software. Whilst heir ERF software, which launched in 2016, had underwhelming traction, the acquisition of Adaptive Insights will hurdle Workday to a leader in ERF software. In addition, Workday and Adaptive share many customers, making adoption of their new platform relatively effortless.
3. Workday’s Collection Of Company Data Is Growing. While Workday and Adaptive Insights overlap a large amount on their customer base, Adaptive Insights’ total customer base (3400+ customers) trumps Workday’s customer base (450+ customers). Workday’s ability to provide tailored products and recommendation to companies based on their data will expand immensely as the new Workday platform expands to new customers and increase its involvement of company data. The acquisition of RallyTeam provides a glimpse into Workday’s thought process around company data. RallyTeam has been focusing on helping companies keep talented employees by matching them with more challenging opportunities in-house. As Workday grows its collection of human capital data, it can expand into providing recommendation on hiring and worker allocation.
When we started Bowery Capital in 2013, we did it under the thesis than businesses would spend $400B+ on updating their infrastructure. The recent M&A activity by Workday further validates this thesis. We expect to see more investment by companies as they work to modernize their internal operations.
If you liked “Our Thoughts On The Recent Workday Acquisitions” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog. Special thanks to Eric Herzfeld for his contribution and work on this post.