Vurv Lays Off 79

Thursday, June 19, 2008 . 10:54 AM by Brian De Groodt

As has been widely reported Taleo entered into an agreement to acquire one of their primary competitors in Vurv earlier this quarter.  While analysts have their different opinions about this acquisition (“It’s great!  It’s not going to work! etc) one metric stands out as a significant red flag in need of immediate attention.  In order for Taleo to book this transaction as accretive as soon as possible (something they will not be able to do under GAAAP standards for some time) they must find a way to make up the difference in revenue per employee (R/E) at the two companies.  To the best of my calculcations (and my numbers may be off slightly) there exists almost a 40% delta in R/E at Taleo over Vurv.

It appears Vurv has taken the first step in trying to boost the R/E by making some layoffs before the close of the deal.  This was an obvious need and, of course, straight out of the M&A playbook. This makes up for roughly half the difference between the R/Es, but still leaves a significant gap.  Certain employee assets of Vurv must stay aboard in the near term in order to mitigate the risk of an exodus from Vurv’s customer list.

This, of course, leaves Taleo with a noteworthy operational issue as a first order of business when it closes the transaction this month.  They can either accept a reduced R/E—something Wall Street surely won’t take kindly. Alternatively, they can continue to reduce headcount while quickly moving as many existing Vurv customers off the near-customized platform to which they subscribe today.  These are not necessarily mutually exclusive options and the options above hardly exhaustive, but directionally these seem to be the only real options available to Taleo.  How this manifests itself and over what period of time seem to be the only open questions.

I believe the Taleo sale was the best move available to Vurv and may produce significant benefits to Taleo in 18-36 months.  Vurv customers may be a separate kettle of fish all together.  The business of mergers tends to turn vendor attention internally to focus on operational and financial issues.  Just as Oracle pitched a “you won’t believe what we have up our sleeves for you—just wait” offering to PeopleSoft customers (nearly 5 years ago), Vurv customers will find themselves in an equally confusing courtship. 

More to come on this final thought, but it’s worth a quick mention here given the above. I fundamentally disagree with the analysts that would have customers and investors in the talent management marketplace believe this is the ultimate consolidation in the space.  For every merger we have seen over the last 10 years, 10 new “up and comers” have been started, funded and made a grab for the land of Customer Churn.  But that’s for another post, for now there’s no shortage of good options in the talent management space.