I’ve been saying it since the beginning of the year – 2010 is the year of the acquisition in the HR Technology space.  It started with a bang just a few short days after the start of the new year with Private Equity firm Bedford Funding acquiring PeopleClick and merging them with another of their assets – Authoria to create PeopleClick Authoria.  Shortly afterwards additional deals were announced which impacted Northgate Arinso, SuccessFactors, Inform, and the list goes on.  In short the HR Technology market has experienced more M&A activity than we’ve seen in quite some time.

Yesterday another deal was announced – European HR software vendor StepStone was acquired.  This was the second acquisition of StepStone in the last year, first an acquisition by Axel Springer a German media conglomerate and the the latest deal which was a spin-off of the software solution portions of the legacy StepStone organization comprised of the i-Grasp and Executrack products.  The solutions business of StepStone was purchased from Axel Springer by HG Capital LLC for 110m EUR, representing a respectable multiple of StepStone’s software revenue.

As much as this deal may cause some angst for some, I personally like this transaction.  StepStone has something that few talent management vendors offer – they will offer their software in both a hosted/subscription model or licensed/premise-based (or any combination in between).  Due to their European roots they handle the unique needs of complex global organizations better than many and have some deep functionality in multiple talent management domains.  Also, due to their delivery model, you can actually customize their software.  While this is not necessarily a plus, it does provides more flexibility than their SaaS counterparts – although it comes at a cost.

Why I like this deal:

1.  By untangling themselves from Axel Springer, they can focus on the core of their solutions business – software.  This will allow StepStone to continue to invest in their products as they have been rather than potentially using excess profit to subsidize other portions of Axel Springer’s business.

2.  Existing customers can be better protected by the management team in place and existing commitments.  With Matthew Parker continuing on as Managing Director, customers should expect to see little, if any impact of this deal.

3.  It will allow StepStone to continue to do what they have been doing for a few years in the US, fly under the radar and attract very little attention while serving the needs of large, complex, global organizations.  Focusing on the SAP install base has worked well for them and should continue to do so in the future.

What’s next?

For StepStone, the management team needs to now focus on two key areas – keeping existing customers happy and addressing any concerns that this transaction might provide, and continuing to invest in evolving their product line.  StepStone currently maintains two product lines, the i-Grasp product which is a SaaS-only recruitment product and the ETWeb product which is either a licensed or subscribed, premise-based or hosted talent management suite.

Maintaining multiple product lines can prove to be costly over time and to maximize StepStone needs to accelerate the transformation to a single technology platform.  Additionally, by working from a single technology platform, integrated reporting, integrated search, and other business process benefits will be available to customers, allowing StepStone to more strongly compete against the likes of Taleo, SuccessFactors, and others.

If nothing else, 2010 is living up to its name of The Year of the Acquisition.