HR software is big business. Big business means big mergers. This week Kronos, 43-year old maker of on-premise workforce management (WFM) software navigating a transition to the cloud, and Ultimate Software, cloud-based human capital management software (HCM) provider for mostly mid-market customers, agreed to merge in a blockbuster deal. It's worth noting that private equity firm Hellman & Friedman owned both companies, having bought Kronos in 2007 and Ultimate in 2019. That this transaction would take place was a mostly a foregone conclusion. Now that it's been announced, there are some significant implications for customers, and the HCM/WFM space more broadly. 

The combined entity (which I am going to call UltiKro until the rebrand is complete) is valued at $22bn. With a reported $3bn in combined revenue, the UltiKro will have two headquarters, 12,000 employees, and has publicly announced  "further plans for growth including the addition of 3,000 employees over the next three years" (no word on how many employees will be let go during the consolidation). On paper, the combined business looks quite appealing - a full HCM and WFM suite with complementary products and limited overlap in the customer base (only 3% of the customers overlap). The deal has all the makings of an "acquire some SaaS revenue, lump both HCM and WFM SaaS revenue together, and prepare to tell a 'successful pivot to cloud' story when going public 2-3 years" strategy. However, UltiKro might not be a match made in heaven that the spreadsheets suggest. 

M&A of any kind is always challenging. This deal will be especially hard. It is a transaction between two companies that have very distinct cultures, already overlapping capabilities, different approaches to infrastructure, and distinct ways of dealing with customers. Add to the mix Kronos undergoing the painful process of shifting business models from on-prem to cloud, and you've got a combination that much harder to execute than your standard M&A transaction.

UltiKro is formidable in scale, and *theoretically* feature complete with its product suite. If the merger is executed well, the company will be well-positioned for the next 40 years of its history. However, it's not going to be a comfortable 18-36 months for the business that now needs to address hard customer questions and concerns to address. What is the new product offering, and how has the committed roadmap changed? Will there be a forced migration to a combined UltiKro WFM/HCM solution? What is new pricing going to look like?

With so much attention focused internally, there is undoubtedly opportunity for competitors to take advantage of the chaos, especially with focus is diverted away from developing product and keeping customers happy. Paraphrasing what one executive from a competitive HCM provider told me, the merger heartburn makes it open season on UltiKro customers, all whom are almost certainly going to be reevaluating their options across both HCM and WFM.

The last few months has seen all the legacy players in the WFM space make a move of some kind to bolster themselves against the changing market needs. JDA has rebranded to Blue Yonder with more 'AI' after acquiring the company in 2018. Infor was bought by it's largest investor instead of going public due to too much debt on the balance sheet and not enough cloud revenue. And now, a behemoth has been forged in the bowels of a spreadsheet with the scale to truly disrupt. Whether there is appetite at the enterprise level to buy HCM and WFM from a single provider remains to be seen, but either way it makes for exciting times ahead!

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