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David Ossip, CEO of Ceridian: ‘We fought as one before we became one.’ (Tim Fraser for The Globe and Mail)
David Ossip, CEO of Ceridian: ‘We fought as one before we became one.’ (Tim Fraser for The Globe and Mail)

Strategy

How to have a happy merger: Test the waters first Add to ...

When Minneapolis-based human resources service provider Ceridian HCM Inc. acquired a stake in Toronto-based Dayforce, it looked like a typical partnership – Ceridian had the infrastructure and customer base of a global organization, and Dayforce had a unique technology that could expand their reach in the marketplace. Given the checkered track record of acquisitions in general – studies consistently peg the failure rate between 70 and 90 per cent – few could have predicted the dramatic effect this would have on Ceridian’s growth.

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David Ossip, a Toronto-based entrepreneur and founder of Workbrain – which sold for $227-million in 2007 – founded Dayforce in 2009 with plans to bring a work-force management solution to small and mid-sized companies. The technology would help employers manage their workers by providing a suite of functions under one application, including time and attendance, task management, and scheduling.

This technology falls under the broader umbrella of human capital management, which is concerned with the management of people on a broader scale. Ceridian, which employs about 5,000 people internationally, operates in this space, providing payroll services, training, recruiting, talent management, and HR consulting.

To reach the mid-market, Dayforce needed a partner. Ceridian, with its global reach and existing customer base (130,000 as of 2012) seemed the ideal candidate, and the two firms began discussing partnership options in 2010.

In February, 2011, Ceridian purchased a 20-per-cent stake in Dayforce, and rebranded Dayforce’s product as InView. Forecasts predicted about 100 clients in the first year – they sold nearly five times that.

Buoyed by their success, the two companies signed a letter of intent for a complete acquisition, and began working as a team to expand the application to include payroll, followed by benefits and human resources.

In order to acquire the resources to build out payroll, Mr. Ossip turned to Ceridian, which initially provided a team of six developers. That number grew steadily to 50.

This pre-acquisition partnership set a strong precedent for the impending merger. “We fought as one before we became one,” says Mr. Ossip.

Pre-merger partnerships like this are becoming more common, says Tony Ianni, Canadian transactions advisory leader and CPA at Ernst & Young. “Traditionally, acquirers started their integration efforts the day they closed the transaction, and that was considered best practice. Today, firms are thinking about integration long before.”

For Ceridian’s customers, the combined application would offer functionality that, until recently, was only within reach of large companies with significant IT resources. The status quo for many is a patchwork of HR applications that aren’t designed to work together, resulting in frequent errors, weak reporting capabilities, and the need for manual intervention. Ceridian’s solution would leverage cloud computing to bypass the capital investment, development cycle and support costs associated with in-house solutions.

The teams worked so well together that the project was completed in just twelve months. Ceridian bought the remaining equity in Dayforce in April, 2012, and launched the product at the end of the year.

Thirty accounts went live at the start of 2013; to date, they have sold more than 1,000, about 900 of which are live, and continue to set up 50 to 60 new accounts every month.

“Our biggest challenge at the moment is that our product is selling tremendously well, selling way beyond our forecasts,” says Mr. Ossip. “We have to catch up on the delivery capability, which is a great, great problem to have.”

It was a dramatic reversal for Ceridian, who had previously faced work-force reductions. Today, the company is hiring five to 10 people a week to keep up with growth.

In January, 2013, in a rare move, Ceridian’s board appointed David Ossip as CEO.

According to Alexander Dyck, professor at the University of Toronto’s Rotman School of Management, between 2004 and 2012 the target CEO of acquired companies took the top job in just 2.4 per cent of cases.

Justine Kilby, director of strategy at Ceridian, gives full credit to Ceridian’s management, who recognized the value that Mr. Ossip’s team could bring. “They were able to look at what was going on within the Dayforce organization ... and their own organization, and say, ‘We can take the best of both worlds here.’”

Former Dayforce employees like her are now integrated at all levels of Ceridian.

“The way I view integration success is, typically, you look at the attrition rate of people,” says Mr. Ossip. “Our attrition rate is very, very low; we’ve lost almost no one from either the Ceridian organization or the Dayforce organization.”

He says the merger has helped reposition the company. “We used to not really be a thought leader in this space,” he says. “We have now become a very dominant voice in the human capital management industry.”

Ultimately, the merger has been treated as a partnership built on mutual need, with Dayforce bringing an entrepreneurial spirit and unique product idea, and Ceridian bringing the maturity of an established business with a large customer base.

“Could Dayforce have built the payroll product without Ceridian? No,” says Mr. Ossip. “Could Ceridian have delivered the technology platform without Dayforce? No.”

LESSONS LEARNED

The Ceridian/Dayforce merger is a textbook example of a successful partnership. Here are three key takeaways:

Synergy

The resources of both companies were essential and complementary to each other.

Opportunity

Cloud computing is changing the face of information management, and the merger jumped on the opportunity.

Teamwork

Both worked together from the get-go.

 

Editor's note: This is a corrected version of the story, noting that Ceridian HCM Inc. employs 5,000 people, rather than 9,000, as appeared in an earlier version of the story. The company provided updated figures.

 

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