Sector Tightens Again as Kenexa Acquires Webhire

January 18, 2006
With Kenexa’s plan to buy Webhire, the consolidation push continues in recruiting technology--a trend that ultimately could pay off for customers.

In December, Wayne, Pennsylvania-based Kenexa announced plans to buy Lexington, Massachusetts-based Webhire for about $34 million. Overall, the number of hiring software companies is likely to dwindle from about 10 to five or six in the next several years, says Lou Adler, chief executive of the Adler Group, a consulting firm focused on recruiting and training. The surviving vendors are likely to be stronger and better able to help organizations do more than simply manage mounds of résumés, Adler says.

"I talk to clients, and none of them are satisfied that their recruiting software vendors do a good job," says Adler, who has consulted with dozens of Fortune 500 companies. "Industry consolidation is a good thing."

Kenexa, which raised about $21 million for itself in an initial public offering last year, offers products including applicant tracking and skills assessments. Webhire, formerly known as Restrac, provides recruiting and onboarding software designed to prepare for a new hire’s first day. The sale was expected to close this month.

Rudy Karsan, Kenexa’s chief executive, says Webhire’s technology and products are excellent, but that its sales and marketing operations fell on hard times in the economic downturn of 2000. Webhire was the equivalent of a two-carat diamond "sitting in a pawn shop," Karsan says.

Katherine Jones, research director of human capital management at research firm Aberdeen Group, says Kenexa’s health care industry customers stand to benefit from Webhire’s focus on that sector. She also says the "prize in the Cracker Jack" for Kenexa has to be Webhire’s onboarding product. "It is a key functionality that Kenexa lacked, and it would take them at least a year to develop," she says.

The Kenexa-Webhire news comes on the heels of First Advantage’s acquisition of Recruiternet, announced in September. Such consolidations are generally good because the beefed-up firms will be more economically viable and able to focus on helping clients get better at recruiting, Adler says. His firm is working with some applicant tracking system vendors on matters such as improved job descriptions and interview tactics that would indicate whether someone is truly suited for a job.

Karsan says Kenexa already does more than keep tabs on résumés for companies. The company’s products lead to lower cost per hire, better-quality hires and quicker results, he says.

The Kenexa-Webhire deal is another sign that recruiting technology companies want to make this sort of pitch to a broader market, says Jim Holin­check, analyst with research firm Gart­ner. Kenexa has focused on big companies, while Webhire’s products are targeted at midsize customers, he says. "Many large enterprises have solutions" already, Holin­check says.

Ed Frauenheim