Workstream said Monday, December 31, that it had received an “an unsolicited offer from a U.S.-based payroll business to determine the viability of a merger between the two entities.” Shares of the Burlingame, California-based firm jumped from 65 cents a share Friday, December 28, to 91 cents Monday, December 31. The stock closed at 87 cents a share Wednesday, January 2.

Workstream’s stock jump prompted a blog entry January 1 by Jason Corsello, vice president at HR technology consulting firm Knowledge Infusion, in which he speculated that the potential suitor is ADP, Ultimate Software or Paychex.

None of those three companies, nor Workstream, immediately responded to calls seeking comment.

“With Workstream,” Corsello wrote, “the buyer gets a sub-par recruitment solution, average performance and succession management functionality, above-average compensation, incentive and recognition capabilities, a portal and communications product that received over $100 million in venture capital, a decent competency library (acquired last year from Exxceed), and nice reporting and analytics capabilities.”

Workstream is one of many players in the red-hot talent management software market. That market refers to applications for key HR tasks such as recruiting and performance management. Talent management applications are among the fastest-growing products within the HR software arena, which is itself the fastest-growing category of business software.

Thanks to factors including fear of talent shortages, revenue from the programs referred to as human capital management applications is slated to rise 11 percent annually between 2006 and 2011, to $10.6 billion, according to AMR Research.

Workstream in November announced the release of TalentCenter 7.0, a suite of talent management products for large and global organizations.

The company boasts such prominent customers as Chevron and Wells Fargo. But it also has been bleeding red ink. For the quarter ended August 31, Workstream posted a net loss of $5.5 million.

In November, the company said it had received a letter from the Nasdaq stock market “indicating that Workstream fails to comply with the minimum price bid requirement for continued listing set forth in Marketplace Rule 4803(a).” Workstream said it has until May 19 to comply with the Nasdaq minimum trading price requirement.

Corsello predicted a deal would occur. “[A]n acquisition from a better-funded, better-branded company would be a good thing for Workstream,” he wrote. “If 2008 is to be the year of consolidation for the talent management market, we are off to a quick start!”

—Ed Frauenheim