Just recently, Ultimate Software in Weston, Florida released a major, though not surprising, announcement that they will be merging with Kronos, Inc of Lowell, Massachusetts. Both businesses offer cloud-based human capital management (HCM) software, and both are owned by the private equity firm Hellman & Friedman. This merger is of particular interest to us at Nunn Better Consulting –coincidentally based in the same city as Ultimate– because of our acquisition integration expertise.
The Human Capital Management (HCM) software market is large and growing. It is crowded and full of legacy products that are deeply embedded, competing with high quality cloud-based products that are increasing their market share. Kronos-Ultimate (our title, not theirs) seems to be aiming beyond their established mid-market clientele toward large corporate clients, so Workday should be watching carefully, and ADT might be a little twitchy. In the long term, Kronos-Ultimate and similarly offered platforms are the way of the future.
The Integration Ahead
The announcement implied that this is to be a merger of equals, although that phrase wasn’t present in the press release. Kronos and Ultimate customers are often young, growing businesses that acquire to grow. After having seen many of their clients go through acquisition integrations, the irony is that the newly combined business is about to go through the same.
As acquisition integration experts, we look at the integration ahead to gauge their compatibility and foresee potentially serious issues that would need a concerted effort. We are not involved in the Kronos-Ultimate merger but here are some examples of what their bigger integration challenges could be:
Pricing differences. These will need to be reconciled. It is common that the compensation for Sales staff is based upon product pricing, so the sales compensation and sales territories plans would need to be reconciled too.
Different levels and types of customer support. It is likely that the contractual way in which Kronos and Ultimate support their customers is similar. However, the teams behind this support are different and need to be merged – especially where the products overlap. If a customer has long-term relationship with a Kronos-Ultimate member of staff, any transitions would need to be managed carefully.
Different client contract terms. This is particularly sticky if some of the contracts are old and have clauses, or a lack of clauses, which restrict migration without customer approval.
Organizational changes. Kronos-Ultimate will have to decide if they will need all the staff in their Back Office, in particular Legal, Finance, HR and Invoicing teams. The stated intention is to add around 3000 staff to the combined business, but it is not clear if the growth of the business will require the current numbers of Back Office staff.
Office Space. Where will the additional 3000 staff be hired? Ultimate had committed to constructing a large HQ in Weston, FL that would consolidate their disparate offices around the city. If the business is to grow in Weston, will this new facility also have additional capacity for new staff?
Product and services consolidation/rationalization. This is one that most people will scrutinize the most. However, despite the job being large and possibly complex, we don’t consider it to be insurmountable. The R&D and Marketing teams will work out the product future, the steps to get there, and the timeline to achieve it. Perhaps the biggest issue will be sharing with the public any major changes in workflow and when those changes will happen. Clients who are about to implement Kronos or Ultimate or those who are in the middle of an implementation will need some reassurance that their investment will not need re-working soon.
Leadership
Aron Ain of Kronos will be the CEO of the combined business. They’ve opted to have two headquarters, which sounds like a bit of political compromise. However, the new board will be a combination of leadership from both businesses, and moving all leadership to Lowell, MA would affect staff morale and productivity in Weston, FL.
Communication
One of the keys to integration success is communicating as much as you can. Clients, the market press and staff will all be looking for a clear vision for the combined company, the new products and a roadmap on how they’ll be getting there.
Pointers from Workday
Ironically, on the same day that Kronos and Ultimate announced their merger, Workday blogged about how successful they were with their recent acquisition integrations. They highlighted just three points:
- Data integration is easier when you have cloud-based data
- It is important to have clear information about progress with the integration
- People are the key
All of these are relevant to Kronos-Ultimate.
Change
Kronos and Ultimate have been growing constantly and growing quickly. Change is an element of both of their business cultures, so most staff are likely to embrace the effects of the merger. However, for some teams in the Back Office there will be uncertainty. The integration and change management teams will need to be aware of this and address any uncertainty with honest communication.
There is no doubt that both companies look after their staff, as both are well known for being highly ranked as Best Places to Work in the USA. However, some tough decisions will have to be made in a few areas. As with all integrations there will be some turbulence, but as long as Kronos-Ultimate communicates with staff, clients and investors, its potential is as high as the clouds
Nunn Better Consulting is based in Weston, Florida, coincidentally the home of Ultimate Software.
Image credit: Lucas Marcomini