David Ossip, chief executive of Ceridian HCM, is seen at the company's Toronto offices in 2013.The Globe and Mail
One of the United States’ oldest tech firms, Ceridian HCM Holding Inc., has filed to raise up to US$200-million in a dual U.S.-Canadian-listed IPO as it continues its rapid transformation into a hot cloud-software company under the leadership of Toronto-based entrepreneur David Ossip.
Goldman Sachs & Co. LLC and JPMorgan will lead the offering of the company, which is officially based in Minneapolis, but largely managed out of Toronto, where Mr. Ossip and much of the senior leadership team are based. Twelve other investment banks are part of the underwriting syndicate to take the company public on the New York and Toronto Stock Exchanges, including two based in Canada: CIBC Capital Markets and Canaccord Genuity.
Ceridian started as a unit of IBM in 1932, handling tabulating and computing tasks, and was an all-but-forgotten technology has-been when it took over Mr. Ossip’s Toronto-based software firm Dayforce Inc. six years ago for more than US$100-million.
As part of his deal with Ceridian’s controlling shareholders, Thomas H. Lee Partners and Cannae Holdings Inc., Mr. Ossip became chief executive officer. The deal was the culmination of a carefully orchestrated plan by the veteran South African-born tech entrepreneur to plot and execute what effectively became a reverse takeover of the faded U.S. corporate icon.
Mr. Ossip had started Dayforce two years after selling his previous HR software firm, Toronto-based Workbrain Corp., to Infor Global Solutions for $227-million in 2007. In the Ceridian registration statement, Mr. Ossip said when he started Dayforce he was determined to bring improved, cloud-based software solutions to the “human capital management” market, starting with time and payroll management, before expanding into other areas. “To enter the market, we partnered with Ceridian – an established payroll provider with a great reputation for service and substantial distribution capabilities. I was impressed with Ceridian’s deep experience and customer focus, but it was apparent that Ceridian lacked [a] solution for the modern workforce.”
He then began transforming Ceridian from a slowly declining payroll processor whose dated software ran primarily on mainframes to a savvy, web-based provider of subscription-software services not just in payroll, but in other areas of human resource management, as well. The Dayforce platform now has 3,000 customers and has grown at a compound rate of more than 60 per cent since 2012. It is also considered one of the key disruptive forces in the HR services industry: Last year, activist investor Bill Ackman publicly pushed for industry giant Automatic Data Processing, Inc. to buy Ceridian after it gained traction and began winning payroll accounts, including ADP investor BlackRock Inc., away from its rival.
Revenue in 2017 was US$751-million, up from US$694-million two years earlier, as the company’s net losses fell to US$10.5-million from US$105-million. However, the increase has been more pronounced in its cloud-based business, which has almost doubled its annualized recurring revenue to US$391-million from 2015 levels, while increasing its operating profit to US$33-million from a US$1.1-million loss in 2015. Dayforce alone accounted for US$320-million in revenue last year, which would make it one of Canada’s largest software startups if it was still a stand-alone business.
For Ceridian’s private-equity owners, who took over the company in a US$5.3-billion leveraged buyout in the latter days of the LBO boom in 2007, the Dayforce deal has proven a huge relief. Thomas H. Lee managing director Thomas Hagerty last year acknowledged “we weren’t feeling so good about this [LBO] deal” by 2009 as the company struggled to turn around its low morale and develop new software offerings for customers. In addition to bringing a startup-oriented culture and better software to the company, Mr. Ossip has also scored highly as a boss, earning some of the highest scores of all Canadian CEOs on third-party website Glassdoor. He has been richly rewarded as a result, earning US$17.7-million in compensation last year, predominantly in option and share awards.
As part of the transaction, Ceridian said it will spin out to existing shareholders its interest in an online-software platform called LifeWorks that employers use to offer assistance and wellness programs – as well as perks and discounts – to employees. LifeWorks accounted for US$80-million of Ceridian revenue last year – down slightly from the year before – but eked out a modest operating profit of US$3.7-million. As a result, Ceridian expects consolidated revenues and operating profit to decline “in the near-term.”
The company also said it plans to use an unspecified portion of the offering proceeds to repay part of its US$1.1-billion in debt and will refinance its remaining indebtedness.
While Ceridian is a U.S.-domiciled company, the IPO is a win for the Canadian tech scene, as much of Ceridian’s turnaround and success leading up to the IPO is attributable to developments that happened in Canada and were led by Mr. Ossip, one of Canada’s most successful and admired tech entrepreneurs. Ceridian is one of the few tech companies with strong Canadian ties to go public in recent years, following the 2015 offering by Shopify and last year’s IPO by Real Matters.
Sean Silcoff