When payroll processor Ceridian Corp. bought a young Toronto software firm in 2012, it looked like a familiar story: Promising Canadian startup sells out too soon to big U.S. buyer.
The real story, however, flipped that narrative on its head: This time, the Canadians took control. The founders of the target company, Dayforce Corp., plotted and executed what effectively became a reverse takeover of a faded U.S. corporate icon that may now be on the verge of going public. "It wasn't a random series of events," said David Ossip, a Dayforce founder who became Ceridian's CEO in 2013. "It was designed."
Five years on, his team has transformed Minneapolis-based Ceridian from a technology has-been into one of North America's hottest cloud-software firms, providing core human-resources functions such as payroll processing to customers over the Web. Most senior executives and developers and one-fifth of its 4,200-odd employees work in Toronto
"It's one of the best transformations, turnarounds of a business I've seen," said Thomas Hagerty, chairman of the investment committee of Thomas H. Lee Partners, which led a $5.3-billion (U.S.) leveraged buyout of Ceridian in 2007.
Ceridian's renaissance offers two lessons: Antiquated tech firms, with the right strategy and leadership, can roar back to life – and they can be led from Canada.
The company is now the HR-software sector's trend setter and is stealing customers from rivals.
"If I was a competitor of theirs I'd be very concerned," said Roshelle Campbell, vice-president of human resources with Berkshire Hathaway unit BH Media Group, which switched its HR-software account to Ceridian from Automatic Data Processing, Inc. (ADP) in 2015.
Ceridian's revival has even caught the eye of activist investor Bill Ackman, who is campaigning to shake up ADP. "You have a [Ceridian] product that has gotten huge traction, it's winning business away from ADP," he said last month on CNBC, referring to ADP investor BlackRock Inc., which also moved its payroll business to Ceridian. Mr. Ackman urged ADP to buy Ceridian.
That's one option for Ceridian. The other is an initial public offering.
During a conversation with The Globe and Mail in early 2016, Mr. Ossip anticipated Ceridian would be ready to raise $500-million (U.S.) on a U.S. exchange by 2018. By then, he said, it would likely meet the "rule of 40" test applied to IPO-ready cloud software firms by having a revenue growth rate and operating profit margin that added up to 40. Ceridian's cloud revenue is increasing by 30-plus per cent annually and will account for most of its $700-million-plus 2017 revenue. If Dayforce was independent, it would be Canada's second-largest cloud-software startup behind Shopify Inc.
Asked recently if a 2018 IPO could still happen, Mr. Ossip said, "We have considered an IPO. However, at this point, we haven't made any decisions." Industry analyst Brian Sommer said: "I expect them to do something bigger [such as an IPO] very soon."
South African-born David Ossip, now 51, was already one of Canada's most high-profile software entrepreneurs when he launched Dayforce in 2009: His last startup, time-and-attendance management-software provider Workbrain Corp., was bought by Infor Global Solutions for $227-million (Canadian) in 2007. Many employees went on to lead their own startups.
With Workbrain, Mr. Ossip had targeted what turned out to be a small market: firms with 100,000 employees. This time, he would attack a much larger market – medium-sized enterprises with 1000s of employees – offering a cloud-based time-and-attendance product.
Mr. Ossip and a team of ex-Workbrain executives set out to partner with a big payroll processor that served that market. ADP and Ultimate Software already had such partners. That left Ceridian.
Ceridian started in 1932 as an IBM unit handling tabulating and computing tasks for clients at a time "when technology was incredibly expensive and constrained," Mr. Sommer said. The business was transferred to supercomputer maker Control Data Corp. in 1973 as settlement in an anti-trust lawsuit. As computers evolved in the 1980s, Control Data declined. It shed its hardware unit, changed its name to Ceridian and focused on payroll and credit-card payment processing. It sold out during the pre-credit crisis LBO craze.
Ceridian had a problem: It still did payroll processing on aging mainframes. Clients were hesitant to move the complex, critical function to new technology, and Ceridian's track record for innovation was poor. Revenue declined. The company's new owners worried they'd bought a dud. "We thought [Ceridian] had developed some next-generation products that would help bring us into the 21st century," Mr. Hagerty said. "The reality is they really weren't up to the task … in 2009, we weren't feeling so good about this deal."
Ceridian's dated culture was an issue. When he arrived at headquarters in a T-shirt and jeans to discuss partnership possibilities, Mr. Ossip was greeted by lobby screens announcing its business dress code. On the cloistered executive floor, secretaries guarded huge offices. "It was like Mad Men," he said.
He convinced Ceridian to offer his software to clients, and to buy a 20-per-cent stake in Dayforce. Ceridian forecast it could get 100 Dayforce customers in the first year. Five times as many signed up. Ceridian executive Chris Armstrong recalled a meeting with Mr. Ossip late 2010 "that left me feeling that the pace at which we [made] decisions would have to escalate." Mr. Ossip, too, realized Ceridian lacked the ability to fix itself; it "needed a Hail Mary strategy," he said.
He saw a big opportunity. Firms typically bought a suite of programs for their various HR functions. There was no single platform for everything. Payroll-system vendors didn't address a chronic complaint: payroll managers only got their data near the end of pay cycles and scrambled to fix disparities, resulting in pay errors. "It was the perfect industry for building a scalable cloud company," Mr. Ossip said.
So he approached Ceridian's owners with a proposal: Dayforce could build Ceridian a cloud-based payroll offering that would give customers ongoing access to data they needed, making their jobs easier. It would build other HR functions such as scheduling into the platform as well. They could have that – and all of Dayforce – on condition he become CEO. The sponsors bit, buying the rest of Dayforce in 2012 for more than $100-million (U.S.) and promoting him soon after.
Mr. Ossip moved his lieutenants into senior roles but kept them in Toronto, where he expanded his developer team. He tapped Ceridian's cash-rich mainframe payroll business to finance Dayforce's growth and divested non-core units, repaying $2.6-billion of debt and returning $1-billion to shareholders. Low morale scores recorded by third-party website Glassdoor before he joined steadily rose, and the site now ranks Mr. Ossip as one of Canada's highest employee-rated CEOs.
Employees in Minneapolis were initially unsettled, but Mr. Ossip took steps to assuage concerns with regular visits and new programs to fix problems unearthed in employee surveys. Mr. Ossip's moves paid off. Ceridian's revenue in the year ended June 30 topped $720-million, with $350-million from cloud software, now used by 2,690 customers and generating more in revenue gains than the declines from mainframe. Because Dayforce works on one modern platform, Ceridian adapted better than its rivals to recent U.S. legislative changes that added complexity to payroll administration. "That triggered a bunch of companies to switch their payroll systems to Dayforce because it could handle that environment," Mr. Sommer said. Hundreds of Ceridian mainframe clients have moved to cloud.
Thomas Hagerty, whose firm, Thomas H. Lee, is poised to exit Ceridian profitably after 10 years, said Mr. Ossip's team has "exceeded our wildest expectations in every aspect … I'd love to watch what David can do over the next 10 years."