WHEELING & DEALING
Year In Review
By Jean-Marc Levy

First published in HRO Today (January-February 2005)
 

2004 Notable Human Capital Management Investments
 

The holidays are behind us. Private equity and venture capital investors are preparing to close their books and report on 2004 performance to their limited partners. You know what this means: it’s also time for this business columnist to look back on 2004, and to put together a highly subjective list of the notable deals of the year. Since this issue of HRO Today already includes a list of the top HRO transactions of the year, I will focus once again on private equity and VCs, and present a list of the most notable private investments of 2004 in the Human Capital Management (HCM) segment.

As in prior years, my list is not based on deal size or likelihood of success. Instead, it reflects my personal assessment of whether a particular deal or series of deals may be signaling the emergence (or in some cases, the resurgence) of a particular industry segment, of a new technology worth noting, or of a new investor in the field.

Interestingly enough, two of the three segments that placed in the top three last year (consumer-directed health plans – or CDHPs – and education) are deserving of placement on the list again this year. After an absence of a few years, and spurred by a warming job market, recruiting and staffing deals are back on the list as well.
 

• Lumenos – provider of CDHPs and  related services.

According to the results of a survey published by Deloitte Consulting, 19% of the companies surveyed offered some sort of DCHP to their employees in 2004, up from 11% in 2003. And with a roster of blue-chip investors that continues to expand and now includes the likes of General Atlantic Partners, Whitney & Co., Mellon Ventures, Liberty Partners, Draper Fisher Jurvetson, and Allianz Group’s Fireman’s Fund (just to name a few), I will go on a limb and predict that CDHPs are highly likely to earn a top-three spot on my list again in 2005.

2.  Creative staffing and hiring practices are back.

• Eliyon – developer of proprietary database of current and historical career and employment information on executive and middle managers.
• Bidshift – provider of registry and shift-bidding systems for qualified nurses and other clinical staff.
• Hire.com – developer of a suite of employee sourcing, screening, and hiring software applications.

The rapidly improving economy brought some luster back to staffing-related investments in 2004. Companies that applied new technology solutions to inefficient staffing processes were particularly attractive to investors such as Flagship Ventures, Ascent Venture Partners and Austin Ventures.

3.  Once they are hired, they need to be trained.

• TechSkills – provider of IT certification, medical education and general business skills training.
• Intrepid Learning Solutions – provider of outsourced training services.

According to a recent forecast of research firm IDC, all three key segments of the corporate training market (e-learning, business skills training, and IT education services) should see substantial growth over the next five years. E-learning spending is actually expected to outpace the already robust growth expected for the broader training market. Investors such as Great Hill Partners and Rustic Canyon Partners are continuing to bet that their educational investments will allow them to capitalize on the expected shortage of skilled labor predicted for the U.S. over the next decade, and will translate into blue-ribbon returns for them.

As predicted in last year’s annual review, the list of HCM runner-up companies who successfully raised capital in 2004 is too long to be presented here. The number and variety of investments is, however, representative of a continuing steady improvement in the HCM segment that should make for a very active investment climate in 2005.

Happy New Year!