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Payscale could see new PE investment next year, eyeing more acquisitions – CEO

Payscale, a Francisco Partners-backed provider of compensation data, analytics and software, could see fresh investment soon as it looks to continue growing via acquisition, said CEO Alex Hart.

The Seattle-based company receives interest from potential strategic acquirers and private equity firms “all the time,” said Hart, who took the reins as CEO in November 2021.

“I think the likeliest path is that within the next year or so, another private equity firm would come along and would invest in the company and take some of Francisco's money off the table,” he said. He pointed to Francisco’s “large war chest” and said the firm likes to continue to invest in companies that are doing well.

Companies in the enterprise resource planning or human resources spaces that want to be big players in compensation would make logical strategic buyers, as would businesses with a lot of data that want to add compensation data to their offering, Hart said.

Payscale, which was founded in 2002, could also consider the public markets in the future, said Hart, who noted that he’s run a couple of public companies in the past. From a general and administrative perspective, the company already runs as if it were public, so the transition wouldn’t be difficult, he said.

Salary.com is Payscale’s next largest competitor, Hart said when asked about public company comps. Larger players in the HR space include Workday [NASDAQ:WDAY] and Glassdoor, which was acquired by Recruit Holdings [TYO:6098] for USD 1.2bn in 2018.

Payscale, a 750-person profitable company, expects to generate annual revenue in the USD 500m range in the next three to five years, Hart said, declining to comment on current revenue.

The Great Resignation, high inflation, high interest rates, and the remote and hybrid work environment have all led companies to assess how they’re treating employees and think about how to retain them, Hart said. Payscale’s software helps job seekers, employers and businesses ensure sustainable fair pay.

The company has executed three acquisitions since it was acquired by Francisco in April 2019 for an enterprise value of USD 325m. In March 2021, Payscale combined with Payfactors, a compensation data management company. 

It announced in August 2021 the purchase of Scotland-based CURO Compensation and last month announced it acquired San Francisco-based Agora Solutions.

Hart declined to comment on terms for the Agora deal. District Capital Partners advised Payscale on the acquisition, which came about via a direct approach, he said. Kirkland & Ellis served as legal advisor.

Payscale has “a fairly sizable” list of companies it tracks as potential acquisition targets, according to Hart.

Attractive targets operate in the compensation life cycle in an area that Payscale doesn’t yet play or doesn’t do well enough, he said. Oftentimes, those are smaller companies that could immediately benefit from Payscale’s reach to 10,000 customers, which includes more than half of Fortune 500 companies, Hart added.

The company has data on employees in 198 countries, but its historical focus has been on North America and the bulk of its customers are based in or have a significant presence in the region, Hart said. It has started to expand geographically in the last six to nine months and would consider making acquisitions outside the US. However, there are more companies today fitting what Payscale is trying to accomplish that are based in the US, perhaps because there is more of a push for pay transparency and equity, he explained.

In Europe, Payscale initially expects to focus on countries where companies do business in English at least part of the time because the company hasn’t yet expanded to other languages, the CEO said, pointing to countries in Scandinavia.

It can execute most smaller deals with its own cashflow, according to Hart. Payscale also has access to lines of credit and could issue additional equity if needed, he added.