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HR Technology Column

Workstream Goes on the Block

The strange, eight-year saga of Workstream may be coming to an end as exclusive negotiations with a potential buyer go into high gear. The original deadline of Jan. 25 has been extended for the first sale of a true North American talent-management vendor.

Monday, January 14, 2008
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The first sale of a true North American talent-management vendor looks imminent. On a Jan. 9 earnings call, Workstream founder and board chairman Michael Mullarkey announced the company had signed an exclusive but non-binding letter of intent to merge with the still unnamed "U.S.-based payroll business" whose offer was announced before New Year's.

His description of the intensity of mutual investigation so far -- the two companies' executives meeting together for a full week, the suitor's executives meeting with Workstream's board of directors for two days (starting on a Sunday!) -- indicates that both sides are serious.

And the original letter of intent, set to expire on Jan. 25, has been extended as negotiations continue.

Of course, speculation is rife about the acquiring company. Here's what Jason Corsello thinks, expanding the definition of a "payroll business." I think the company might actually be in another business entirely.

More importantly, while there has been much talk about consolidation in the talent-management arena, the recently acquired high-profile companies -- Virtual Edge, BrassRing, Unicru, Mindsolve, Nuovosoft -- have all been one- or two-application vendors. StepStone's acquisition of German company Executrack has been the only true TM acquisition so far. This will be the first in North America.

If the deal is made, it will bring to an end the unique eight-year history of Workstream. Mullarkey, a financial whiz and deal-maker extraordinaire from Chicago, began his odyssey in HR by buying Allen & Associates, a private outplacement services firm, with his own money. He got the financial leverage that made Workstream possible when he picked up ATS vendor eCruiter, a public Canadian company.

The stock's name was changed and moved to a U.S. exchange at the end of 1999, reaching $10.25 a share on opening day and closing at $8.56, a height it never saw again. As the dot-com bubble burst, Mullarkey used the stock to pick up some of its troubled companies -- including ProAct, Pure Carbon, rewards vendor Xylo and later Exxceed -- plus many others for a total of 16.

The most prominent acquisition was probably high-flying recruiting vendor Icarian, which he got for $10 million, or 10 cents on the investment dollar, since venture capital firms had sunk $100 million into the company. It was a financial ratio he tried to repeat in other acquisitions, combining stock and investors' cash, though ProAct cost much more. Workstream still supports the lone Icarian customer of the original 28: Kaiser Permanente.

Sometimes it seemed like Mullarkey was buying whatever company was available at the right price, particularly when acquiring functionality Workstream already owned. Then, three years ago, he bought a troubled winner -- Kadiri, a leading compensation vendor, which came with a gold-plated client list, including Motorola -- representing something of a turning point for the company.

Workstream was never meant to be an aggregator like Infor, which still separately supports all the old HR systems it owns. Instead, it is what Wall Street calls a "roll-up." For years, Workstream promised -- but until recently, failed to deliver -- that all its products would run on one technology platform. As a result, 80 percent of its customers were using only one of its many applications. But suite sales were just beginning last year.

Following the stages of my Cynic's Six Steps to Application Integration,I'd say that Workstream was long stuck at Portal Integration, where a user could get to all the apps in one place but they continued to look and act differently.

Happily for Workstream, Mullarkey brought on Mike Gioja, once the head of development at PeopleSoft. He has been busily integrating their acquired TM applications and standardizing their user interfaces: the well-regarded Exxceed for all the performance-management functions, ProAct for communications and knowledgebase, Kadiri for compensation and eCruiter for recruiting.

While some are still interfaced and use different databases, they seem fully integrated to the end-user, except maybe at reporting time. No worse than other TM vendors.

Workstream unveiled Gioja's work as TalentCenter Version 7.0 at an elegant party at the HR Technology Conference® last October. Most analysts were pretty impressed by what they saw. Unfortunately, I had to leave before the demo. This came just two months after Workstream raised another $19-million investment.

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Well before the party, Mullarkey had stepped aside as CEO, while remaining chairman, and brought in a seasoned software executive from PeopleSoft and Oracle, Deepak Gupta, to take his place. Gupta replaced or rejiggered the entire top of the pyramid, keeping Gioja and Kevin Dobbs, a former Kadiri executive. The widely known HR academic, Jeffrey Pfeffer from the Stanford B-School, was recruited to join the board of directors.

All great steps for the company. But also shined it up like a brand new penny for sale with its new product line, new executives and a prominent new board member.

Plus, as Mullarkey pointed out in the earnings call, Workstream is a very inexpensive TM company on a capital basis (shares have long sold for less than $1) -- certainly compared to the wild prices other TM vendors are asking in this over-heated space.

And its accumulated net operating losses over eight years might make it attractive to a profitable company that could potentially use them to offset profits.

Mullarkey emphasized that Workstream is looking for a profitable company to calm prospects' questions about its financial viability after years of losses -- and allow it to grow.

Over the last eight years, I often asked Mullarkey how he could possibly create a profitable company out of 16 mostly money-losing ones. After all, you can save only so much in operating costs by consolidating the back office, marketing, customer support and even the sales force of multiple companies.

Mullarkey always had the most brilliant and complex financial answer, which would fly out of my head the moment I was convinced and he stopped talking.

I guess the answer is: You can't.

HR Technology Columnist Bill Kutik is co-chairman of the 11th Annual HR Technology Conference & Exposition® in Chicago, from October 15 to 17. Speaking proposals are due Jan. 14, and can be submitted at http://www.HRTechnologyConference.com. E-mail tgarrison@lrp.com for extensions. Bill can be reached at bkutik@earthlink.net.

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