IBM Targets Talent Management at the C-Suite with Kenexa Acquisition

IBM’s acquisition of Kenexa places it in pole position as a Recruiting BPO services provider. The big question now is whether it will next acquire a cloud talent platform, or invest in developing the existing Kenexa software.

IBM announced on August 27th its intention to buy Kenexa for $46/share or almost $1.3 billion in a deal slated to close before the end of the year. That represents a 42% premium over Kenexa’s share price at the time and sets a high barrier for IBM to realize the potential of its investment.

We believe this acquisition clearly fits with IBM’s targeted $20 billion in acquisition investments with its cloud growth initiatives by 2015, however, its impact on IBM’s value proposition as an HR services and solutions partner should not be understated.While there clearly is work to do in developing a talent management Cloud platform, we believe it is the business outcomes of the integration of social, analytics, talent software and BPO services which clients really care about most – not solely the tactical elements of a software product. HfS believes IBM is likely to be eyeing a further acquisition in the talent management software space as Kenexa brings very strong Recruitment Process Outsourcing competency and IP in employee engagement and compensation, but was still developing out its cloud platform. HfS estimates that two-thirds of Kenexa’s revenues are Recruiting BPO services and about a third directly related to cloud revenues. With a $20 billion cloud budget to spend, talent cloud suites such as Cornerstone OnDemand and SilkRoad are surely being evaluated as potential targets.