In an early morning announcement today, Blackhawk Network, a prepaid and payments network, announced that it has entered into a definitive agreement to acquire Achievers. Terms were not disclosed, but Blackhawk expects the deal to close by June 30. Because Blackhawk is a publicly traded company, SEC filings will be available at that time.
Earlier this year, Blackhawk launched a new incentives division, Blackhawk Engagement Solutions, which is a leading global provider of customized incentive and engagement solutions for consumer promotions, direct and indirect sales channel incentive programs, and employee rewards.
“We continuously monitor the marketplace for opportunities that can enhance our position as a leader in the prepaid and incentive industries,” said Bill Tauscher, CEO of Blackhawk Network. “Achievers fits extremely well with our overall direction and vision, and we are excited to welcome the organization to Blackhawk Network.”
“As the first-ever employee engagement company to be acquired, we’re confident this move will give us the momentum we need to make the rewards and recognition category a household name,” said Razor Suleman, founder of Achievers.
So why Blackhawk? There are a number of reasons that it made the Achievers acquisition:
- Achievers delivers a crucial missing piece of its platform. Blackhawk is clearly trying to build an end-to-end incentive platform that adds employee recognition to consumer rebates, pre-paid fulfillment for resellers of incentives and rewards, e-commerce-based incentives and rewards, and prepaid content. Achievers provides Blackhawk with not only the strong SaaS platform it was missing, it gets them into the employee recognition market. Why is this important?
- Blackhawk considers employee recognition a growth engine. IDC expects the market size for recognition solutions alone to reach $32 billion by 2016. TSCIU actually believes the total addressable market is much higher. Blackhawk believes that employee recognition could be one-third to one-half of revenue in the near future and earning accretive by next year.
- Blackhawk gains a number of attractive financial synergies. Currently only a minor Achievers partner in its gift card business, Blackhawk just became the exclusive provider. Combined with the cash tax savings from net operating losses (NOLs) estimated at $24 million over eight years and cost savings from bundling, cross-selling, and fulfillment efficiencies, this was clearly a move that made sense. There’s also a lot of overlap in the retail market that is a big part of Blackhawk’s business.
Our first-take reaction on the deal:
- What about the terms of the deal? Blackhawk placed Achievers’ current net annual revenue at $50 million. When asked about pricing and multiples on the call, Blackhawk said that it paid a “market rate.” We’ve heard multiples mentioned between 1x and 6x. In our opinion, any multiple of 3x or better is a win for Achievers. Wherever the terms end, it will set the benchmark for future transactions in the category.
- What does this mean for the rewards and recognition category? As a portfolio company of Sequoia, Achievers has to be considered a disappointment, even if they end up with a 5x or 6x multiple. Sequoia is in for a much larger payday. In terms of being a market play, recognition is challenging because of the rewards component. You can read the lengthy detail in our industry bulletin about the withdrawn Globoforce IPO from last year. Simply put, these companies have complex revenue models that aren’t easy to understand. As a result, they are not as attractive as investments for many people. The unredeemed value of rewards creates a large apparent unfunded liability on the balance sheet that can only be offset with lots of cash on hand (which Blackhawk has). Don’t get us wrong, we think rewards and recognition is a great business. It’s just not a business that fits the typical SaaS IPO model. In our opinion, there will be two major outcomes for the category:
o One door closes: We believe that an IPO in this category isn’t possible in the near term with the current fundamentals in place. For Globoforce, the most likely path to an IPO will require a longer time horizon or a significant change in business model. An acquisition seems to be a more likely exit. Smaller players will be looking for a pivot.
o Another door opens: The more likely path forward is the expansion of rewards and recognition into a broader employee engagement category that also includes wellness, learning, and engagement measurement. TSCIU will be publishing a Brandscape report that explains our perspective later in the year. We see a much larger vision, and we see many companies already moving in that direction.
What was stunningly clear on yesterday’s conference call announcing the acquistion that financial analysts from large investment banks and institutional investors by and large don’t recognize the size and scale of the opportunity in rewards and recognition. That’s what’s really interesting about this move – Blackhawk’s status as a publicly traded company. At $2 billion, they are roughly the same size at Maritz, one of the largest companies in recognition. Currently, there is no source of valid financial data because all of the major players are private companies. Demonstrating growth over the next two to three years could significantly change the way financial analysts look at recognition, employee engagement, and HR technology as a whole.
- What does this mean for Blackhawk? The acquisition will broaden the reach of Blackhawk’s already extensive incentive and engagement business. It is in a little bit of a stealth category with a huge total addressable market. Fortune 1000 companies spend billions every year on incentives and recognition. Most of these budgets are widely fragmented and decentralized, so there’s tons of inefficiency. The ability for a company like Blackhawk to come in and drive efficiencies through economies of scale, then demonstrate ROI through big data and analytics, is a significant market opportunity. Although this is a tailor-made enterprise play, Blackhawk and Achievers representatives said yesterday that they are committed to the mid-market buyers and building out software revenue as significant component of their business. The biggest challenge that Blackhawk faces is change management. Can it effectively absorb and seamlessly integrate the acquisitions of Achievers, Parago, InteliSpend, and CardLab?
- What does this mean for Achievers? It’s too early to tell. Conventional wisdom says that recognition isn’t a software play, it’s a rewards play. If we take Blackhawk at their word, they are going to take a shot at proving that point of view wrong. As one of the early pioneers in and leaders of the employee recognition and rewards solutions, Achievers really defined the category and educated the market with aggressive thought leadership and research, especially its work with Bersin & Associates and later on, Bersin by Deloitte. This work is (in our opinion) a case-study example of how to establish a market and move it from early adopter to early mainstream. As a former client of The Starr Conspiracy, we’ve always had a soft spot for this company and offer our heartfelt congratulations. Suleman was a passionate founder and charismatic visionary who really changed how the market viewed recognition, rewards, and employee engagement. Above all, he knew how to build a great workplace culture. We believe his impact will be felt in the industry well into the future because of the large number of talented product, sales, and marketing people he developed.