Cornerstone OnDemand Hopes $1.4 Billion Acquisition Helps Beat Back...

Mergers and Acquisitions

Cornerstone OnDemand Hopes $1.4 Billion Acquisition Helps Beat Back Competition

By Wade Tyler Millward and Tony Wan     Feb 25, 2020

Cornerstone OnDemand Hopes $1.4 Billion Acquisition Helps Beat Back Competition

If you can’t beat ‘em, join ‘em—or at least acquire them. That's apparently the prevailing wisdom of Cornerstone OnDemand, a publicly traded provider of employee management and professional development software, which hopes to beat back recent competition by acquiring former competitor Saba.

In a recent earnings call, Cornerstone CEO and founder Adam Miller named a trio of upstarts—Degreed, EdCast and Fuse—that have blocked Cornerstone from up-selling learning services to existing clients.

“We think that has taken away wallet share from us,” Miller said, according to a transcript. But, he added, the planned purchase of Dublin, Calif.-based Saba should give Cornerstone a boost in data, machine learning and other engineering resources.

“Our clients have made it very clear to us that if we build something competitive, they would much rather just use our product,” he continued.

Cornerstone will spend about $1.4 billion on the deal—95 percent cash, 5 percent stock—which has been approved by the boards of both companies, according to a statement Monday. The transaction is expected to close sometime in the second quarter of 2020.

This Cornerstone OnDemand promo video shows some of its learning product features.

Saba in Better Shape

Founded in 1997, Saba went public in 2000. In 2015, it was acquired by Vector Capital for about $300 million, taking the company private. The private equity firm then put the company up for sale last September, when it was reportedly generating about $300 million in revenue. Saba has about 1,400 employees serving more than 4,000 corporate customers, according to its website, offering software that helps with recruitment, professional development, coaching and feedback.

On the earnings call, Miller tried to assuage concerns that Saba would cause problems for Cornerstone in the short term. Saba had trouble moving clients to its cloud computing product, which initially drove customers away. The company was unprofitable and had accounting issues—problems, he said, that have since been solved, with about 98 percent of clients on its internet-based product.

“Saba today, is very, very different than the Saba five years ago,” he said. “Saba five years ago was a mess.”

Saba's course library and interface appear in this promo video.

The combined company will boast a footprint of more than 75 million users across 7,000 organizations across the world. Cornerstone had about 3,700 at the end of 2019.

This deal marks the second acquisition this year for Cornerstone OnDemand, which purchased French skill development platform Clustree for $18.5 million in cash in January. The Santa Monica, Calif.-based Cornerstone also provides its recruiting and talent management tools to K-12 and higher-ed institutions, including Arizona State University and the KIPP Houston charter school.

Saba itself has bought similar companies over the years, including U.K.-based Lumesse and the Canadian company Halogen. Saba CEO Phil Saunders will join the combined company as an interim chief operations officer, Miller said.

A report from investment bank First Analysis spoke positively of the Saba deal and suggested that Saba customers might “gradually migrate” to Cornerstone’s platform in time.

Cornerstone founder and CEO Adam Miller discusses workforce initiatives at his company's 2019 annual conference.

Stock Down

Cornerstone’s stock traded at $39.42 at close of business Tuesday, down about 40 percent from a six-month high of $64.45 in January.

The decrease could be due in part to less-than-expected year-end annual recurring revenue of $575 million—an increase of 12.7 percent year over year but short the $581 million to $590 million Cornerstone projected. The company put part of the blame on increased competition and understaffed customer support teams.

Cornerstone has said it will give expectations for 2020 revenue after it closes the Saba deal. Saba saw annual recurring revenue of $243 million in 2019.

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