This morning, new broke, originally over the Wall Street Journal, that Kronos and Ultimate Software are merging. Long rumored, asked for and denied, this merger is now happening. Time for a merged Market Move and News Analyis blog post.
So let's dissect the press release in our customary style, it can be found here:
Creating Company Valued at $22 Billion
Merger brings together world-renowned best places to work, with plans to add 3,000 employees over three years
LOWELL, Mass. and WESTON, Fla. , Feb 20, 2020
Kronos Incorporated and Ultimate Software today announced that they have entered into a definitive merger agreement to form one of the world's largest cloud companies. By bringing together two industry leaders, the transaction will create the world's most innovative human capital management (HCM) and workforce management company to help organizations across all industries manage their people more effectively with an unparalleled combination of cloud solutions. The combined company will have enhanced scale and an even stronger position in the fast-growing HCM marketplace.
MyPOV – Good headlines on what is happening and nice work to get in the hiring ambition, right away deflating the fire that a merger between two PE firm owned entities is all about cost cutting.
Kronos and Ultimate each have a proven track record of delivering the industry's most innovative solutions to help organizations around the world drive better business outcomes, achieve a competitive advantage and create engaged workforces. The new company will bring together the best of each company's award-winning solutions – Ultimate's UltiPro HCM and Employee Experience products with Workforce Dimensions from Kronos, Kronos Workforce Ready, and other solutions from Kronos – with an unwavering commitment to delighting customers and exceeding their expectations.
MyPOV – Good to bring in the products- that's what it's all about.
Combining two exceptional, highly compatible cultures will create a company that is People Inspired. Kronos and Ultimate have been consistently recognized around the world as great places to work – including both being multi-year winners of the prestigious Glassdoor Employees' Choice Best Places to Work and Fortune 100 Best Companies to Work For® honors. This reflects both companies' belief that people are at the core of an organization's success, and that prioritizing the employee experience is the most effective way to help customers succeed.
MyPOV – Culture merger will be hard – even though both vendors agree on people centricity. Ain and team will have to get this tricky one right to keep key talent. Good news for the competition – one spot less that is given out in the coveted workplace rewards game…
Upon closing, the combined company will have revenues of approximately $3 billion, more than 12,000 employees worldwide, and an enterprise value of $22 billion, with further plans for growth including the addition of 3,000 employees over the next three years.
MyPOV – That may make Kronos / Ultimate one of the top 3 – if not the largest HCM player (LinkedIn is #1 in my guestimates). Amazingly there is very little overlap in the customer base, the CMOs expressed their disbelief when the number was first shared (still NDA at the moment).
Aron Ain, longtime Kronos chief executive officer, will be the chief executive officer and Chairman of the combined company – guiding an experienced executive team comprised of leaders from both Ultimate and Kronos.
MyPOV – Congrats to Aron Ain, one of the longest serving and most accessible HCM CEOs out there. Most of all he tells things how they are and is honest. He now has the challenge of his management career ahead. Solve the integration and merger issues, keep the teams motivated, make a difference for customers and shape the HCM industry. The combined entity is tangling product revenue wise close to Oracle, SAP (both don't disclose HCM revenue) and Workday.
The new company will be jointly headquartered in Lowell, Mass. and Weston, Fla., with dozens of offices around the world.
MyPOV – Wise choice for continuity and culture. Merger watcher will count days spend by Ain where… Weston is a weather draw over Boston… but then dual HQ structures usually don't last. And we don't know which Ultimate executives are reporting to Ain.
Hellman & Friedman LLC (H&F), the controlling shareholder of both Kronos and Ultimate, will be the controlling shareholder of the newly formed company. Following H&F, private equity funds managed by Blackstone will be the largest minority investor, followed by GIC, Canada Pension Plan Investment Board (CPP Investments), and JMI Equity.
MyPOV – H&F in the lead, but a good selection of PE owners who will want to see value in 3-4 years. The question is if this reset the 'fabled' clock for Kronos / Ultimate – or not.
Aron Ain, chief executive officer, Kronos
"I have never been more excited in my 40 years at Kronos! Combining our passionate and extremely talented Kronos and Ultimate teams will create a company that is truly People Inspired. Together, we will expand the value we deliver to customers and create the industry's most comprehensive human capital management and workforce management solution for organizations around the world. With a combined 70 years in business, we are poised for tremendous success. For our employees, customers, and partners there is an even better future ahead. Our top priority as we complete this merger is to ensure a smooth transition for our people and continue to exceed our customers' expectations."
MyPOV – Good quote by Ain. Ultimate has what Kronos for the long time did not search – very good HR Core and Payroll offerings. That only changed recently. And the maturity of the Ultimate product is a key asset for the combined entity.
Adam Rogers, chief executive officer, Ultimate
"The combination of Ultimate and Kronos paves the way to deliver the next generation of employee-facing solutions that will set the standard for the workforce of the future. This merger will enable our more than 12,000 inspired people around the world to deliver innovation in human capital management faster than ever before. Both companies remain fully committed to their core strengths as well as to the combined benefits that the new company will bring to employees and customers."
MyPOV – Good quote by Rogers, looking at the future… but he has decided to leave the company.
David Tunnell, partner, Hellman & Friedman, lead director, Kronos, and chairman, Ultimate
"The merger of Kronos and Ultimate brings together two exceptional, industry-leading companies that are dedicated to delivering great technology services and – just as importantly – creating outstanding employee cultures of their own. After many years of a growth-oriented partnership with Kronos, and a more recent, successful relationship with Ultimate, we have strong conviction in the deep compatibility of these two companies and the unlimited growth potential of this sector. We know that by creating an inspiring place to work and putting people first, this combined company will thrive for years to come."
MyPOV – It's the H&F serenade of love to the HCM investments. Payroll continuity and workforce management stickiness make HCM vendors steady and predictable investments.
Martin Brand, senior managing director, Blackstone
"We believe the combination of Kronos and Ultimate will create a cloud industry leader in human capital management and workforce management software, and one of the best companies to work for in technology globally."
MyPOV – Short and sweet – and the mission as well.
1 Slide Summary
As usual for key events - here is the 1 Slide summary:
Implications for Kronos customer
Nothing changes in the short term here. As usual, customers should seek reassurance on roadmap commitments critical to them. Expect a new roadmap at KronosWorks in fall. If you get a new executive contact or sales rep, build the relationship asap. Relationships matter.
Implications for Ultimate customers
Nothing changes short term as well. Secure the executive relationship with Kronos. If your Ultimate executive sponsor is no longer there, see replacement immediately. Reach out to them today. If you have more than 5k employees, reach out to Ain. Relationships always matter…. But even more in mergers. If implementing and depending on Infor's Workbrain product then actively look for implementing / using Kronos Dimensions – which will be the long-term solution. Proactively plan the switch, it will be painful but worth it.
Implications for partners
While it may look like less vendors to partner, in the short run this is a massive opportunity. Migrations all over the place in the future. There will be a new product. There is the immediate need for putting in Kronos Dimensions in Ultimate customers using Infor Workbrain. If you are an Ultimate partner with no Kronos skills, time to get them and become a partner – or you will wither down in the combined ecosystems.
Implications for competitors
One less competitor… yes – but in the longer run a combination that will be stronger than Kronos and Ultimate could have been standalone in North America. At the moment a combined product strategy will be announced (earliest KronosWorks 2020), Ceridian will feel validated with its single suite. Practically, Ceridian has where Kronos and Ultimate combined want to be – one single architecture based HCM suite that spans from Benefits to Payroll. It will also give more space to the SMB ambitions of Oracle, SAP and Workday – and also will get ADP more often to the table, by sheer elimination of one slot. Enterprises shortlist 2-3 vendors and even though executives of Kronos and Ultimate maintain they did compete much… they will and would have more and more.
The writing was on the wall… Someone at H&F calculated growth vs R&D and other costs and reached the conclusion that the combined entity will be more successful. Size matters in enterprise software and Kronos / Ultimate have it now – effectively we estimate they are a top 3 vendor. A lot of work ahead for Ain and his team, clearing product direction is very high. So far, a good job on that and Ultimate Connections is coming up in … 10 days. The joint CMOs on today's call were quick to point out that execs from both vendors will be there. This will help also the internationalization ambitions of both vendors, who individually have moves relatively slowly, with a preference of English-speaking countries… the PeopleDoc being the notable exception. One sales office and one sales team are more efficient, and I expect Kronos / Ultimate to speed up its internationalization efforts.
On the concern side, even though both vendor are very people focused, there is a culture merger to be solved. Ultimate had stellar benefits (100% employer paid) and who would not like that at Kronos. just to start the challenges. A roadmap must be there soon, though I would not exclude a secrecy project on products as Kronos pulled with Falcon aka Dimensions. Both vendor have no experience in high talent / low cost locations and need that to be long term competitive. And Kronos / Ultimate will have to convince customers to move from a very mature UltiPro product to a nascent Kronos / Ultimate (likely Dimensions based) HR core suite. For the payroll fans – Ultimate's payroll with its atomic collection of payments / services that made it the market leader in pro sport franchises – will be a cliff for any new payroll. But maybe its time to build a new payroll for the combined entity?
But overall congrats and exciting times ahead – the HCM market is getting more competitive. Players become more viable. All good news for enterprises who in the era of enterprise acceleration need to move faster than ever before and need better people software than what they have today.
Find more coverage on the Constellation Research website here, find tweet collections of events here and checkout my magazine on Flipboard and my YouTube channel here.