U.S. RPO Leader to Pay $115 million for ATS Developer in Hopes of Expanding Global Reach. CEO Says Market Will Decide Whether All Three Solutions Will Remain in the Company's Portfolio.

by Andy Teng

Say you’re a developer of really great technology for the HRO market. It’s widely acknowledged that your rapidly growing business is based on that technology. Would it make sense, then, to go and buy another great technology?

That’s exactly what Wayne, PA-based Kenexa did when it recently announced its intentions to acquire for $115 million software developer BrassRing, a developer of applicant tracking software (ATS). BrassRing is one of the leaders in the burgeoning ATS marketplace and boasts installations around the world, and Kenexa has invested heavily in its own software platform over the past few years, which has helped the recruitment process outsourcing (RPO) company win numerous large contracts. So it was no surprise that more than a few industry observers were left scratching their heads when the announcement was made.

“When you look at a company with as rich a heritage as BrassRing … you can see the potential in 2008, 2009, and 2010,” explained Rudy Karsan, the CEO of Kenexa. “It [the acquisition] makes us twice the size of our next largest competitor, and five to seven times bigger than the average-size competitor.”

Karsan, who helped oversee Kenexa’s growth into one of the largest RPO providers in the U.S., said the acquisition makes sense on a number of fronts. In addition to accretive earnings (revenues are expected to top out at $180 million in 2007), BrassRing also provides a more global reach. With installations at approximately 180 customer sites (for Kenexa, it adds more than 150 new customers), BrassRing was a household name in HR departments at such well-known brands as Time Warner, IKEA, ConAgra Foods, Inc., RR Donnelly, and Nissan Motor Company. While Kenexa had built a strong U.S. presence, its presence in Europe was small. Now with BrassRing’s network, Kenexa will instantly have a true global reach.

Sure it might expand its global reach, but won’t Kenexa’s multiple technology offering confuse the marketplace? Currently, BrassRing, which also has a budding RPO services business, is one of the most popular ATS solutions on the market. Kenexa, which has developed two applicant tracking software packages—Kenexa Storefront and Kenexa Recruiter—achieves the same goal as BrassRing’s Enterprise package. So does the acquisition really make sense?

“Our response is we are going to let customers decide,” he said. “We will let them decide if we should come down from three to two applications.”

He added that each tracking system has its own standout qualities, but the company may be able to consolidate the number in the future. BrassRing, he acknowledged, is a favorite application among customers because of its flexibility and ease of use. Additionally, customers have reached a comfort level with the software. Still, he said it’s not clear how the market will decide.

Karsan did confirm Kenexa’s decision to support client’s preference for other ATS platform. Calling it “co-optetion,” he said Kenexa will cooperate with some companies at times and compete other times. His company will not, however, provide services only on its own platforms.

BrassRing president and CEO Deborah Besemer, said the decision to sell the company to Kenexa was based on common goals.

“Kenexa and BrassRing share the same vision of providing total solutions to customers, including world-class software applications, professional services, and outsourcing,”she said. “We believe the combination of BrassRing with Kenexa creates a strong leader in the talent management industry, which is crucial given the early stage and highly fragmented nature of the market.”

Unquestionably the recruitment process outsourcing market remains highly fragmented, with software solutions alone numbering in the dozens. Probably an even higher number of service providers are jostling for a position in this highly lucrative segment of the market. While RPO is just starting to make greater inroads into the European market, it has established definite footholds in the U.S. So does the BrassRing acquisition mark a turning point in the business, a point in which consolidation is finally setting in on the industry? Karsan said it appears that way.

“I think what will happen is the definition of RPO will tighten. BPO (business process outsourcing) took seven to eight years to tighten. RPO will tighten around metrics, scope, and technology,” he said. “When that happens, there will only be a limited number of companies who can play the game. You will only have global and regional companies. Kenexa is playing for the global segment.”