Last week, private equity-backed promotional products leader, HALO Branded Solutions, announced its acquisition of third generation, family-owned rewards and recognition (R&R) provider, Michael C. Fina Recognition (MC Fina). Together, HALO’s promotional product distribution capabilities will complement MC Fina’s established brand and R&R programs.
These are interesting times in the R&R, employee incentive, brand promotion and HR Tech worlds. Why would a promotional products supply company acquire an enterprise R&R company? Is the distribution access to MC Fina’s clients a big enough opportunity once the products are sourced through HALO? We’ve seen other interesting combinations including:
1. Sodexo (EPA:SW), a facilities management company acquiring Inspirus, an employee engagement firm
2. CallidusCloud (NASDAQ:CALD), a compensation management firm acquiring Badgeville, a salesperson gamification company
The R&R sector is part of the large and dynamic employee incentives and recognition market – a market that spans from traditional rewards to employee eCommerce and sales incentives. This estimated $30B-40B segment of the HR Tech industry is undergoing a sort of renaissance, as family owned legacies face the challenges of rapid changes in technology and the convergent interests of traditional HR, SaaS delivery models and new entrants from sectors like wellness and more traditional HR.
The HALO and MC Fina transaction is particularly notable, as its touches on three dominant themes we see playing out in the R&R space:
1. Long held multi-generational family businesses striving to adapt or exit
2. Traditional point platforms evolving to tech-driven engagement solutions
3. Interest from investors and adjacent industries
MC Fina’s combination with HALO comes at a favorable time for both companies, as longstanding R&R incumbents face a challenging outlook due to evolving employee preferences and a capital influx chasing more comprehensive and innovative engagement solutions. Larger players from adjacent industries with technology and service offering mandates are finding acquisition opportunities in the R&R space. Some R&R developments in the last 24 months exhibiting these themes include:
From a valuation perspective, we’ve seen creative structures in the middle market with EV/“net revenue” and EV/EBITDA multiples as high as 2X and 8X, respectively.
An underlying driver of the broader HR Tech industry is a push for more innovative “employee experience” portals, complete with engaging recruiting, HR, learning, R&R and wellness solutions. Further catalyzing the transformation are the fast-growing new entrants from adjacent fields, which have garnered more than $3B in venture funding, including Glint, HighGround and LifeDojo. Conversely, failure to innovate can result in the same fate as USMotivation, a 75 employee R&R company which shut its doors this month after 55 years in business.
We expect consolidation to continue with similar MC Fina-type developments unfolding in the coming months, as R&R providers seek partnerships or exit opportunities, while outside investors, both private equity and larger strategic buyers, pursue market roll-ups, digitization overhauls and service offering expansion.