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In $5.2B deal, Cornerstone OnDemand goes private

Cornerstone OnDemand has been acquired by Clearlake Capital Group, a move that will give it the financial support, flexibility and room to grow, experts said.

Cornerstone OnDemand Inc. has been acquired by a private equity firm in a deal estimated to be worth $5.2 billion.

Clearlake Capital Group in Santa Monica, Calif., has agreed to buy outstanding shares of Cornerstone OnDemand for $57.50 a share, a price that represents a 31% premium of the company's stock price as of June 1, according to a press release.

The deal, announced last week in parallel with Cornerstone OnDemand's second-quarter earnings results, is expected to close later this year. When it does, Cornerstone, an HR vendor known for its learning and talent management software, will become private, a strategic move that will benefit customers, according to industry analyst Josh Bersin.

This is private equity buyout to give a company the money and freedom to grow in more aggressive way.
Josh BersinIndustry analyst

"This is not a private equity buyout to break down company and take cash out of it," Bersin said. "This is private equity buyout to give a company the money and freedom to grow in a more aggressive way."

Aggressiveness and growth

Founded in 1999, Cornerstone OnDemand, also based in Santa Monica, is the No. 1 learning technology company, according to Bersin. During its second-quarter earnings call last week, Cornerstone reported Q2 revenue of $214.3 million, a 16.3% increase year over year. It currently serves 6,000 customers, supports 75 million users and employs 2,714 workers, according to the Q2 report. 

But its growth has likely been stifled by its more than 20 years in an aging learning management system (LMS) market, its size and the layers of oversight that come with being a publicly traded company, Bersin said.

"When a company is public, there is scrutiny of every investment," he said. "It would be difficult for Cornerstone to go out and acquire another company or change its business model in a significant way. And this is an aggressive leadership team."

That aggressiveness includes Cornerstone's acquisition of rival Saba Software Inc. in Feb. 2020 for about $1.4 billion. The move made Saba's Phil Saunders CEO of the newly combined firm and the privately owned Saba part of a publicly traded company.

Holger Mueller, vice president and principal analyst at Constellation Research, said the buyout coming 18 months after the Saba deal is not surprising.

"Integration is expensive, and Cornerstone was not moving too fast," Mueller said. "So throwing the cloth of privacy, from an investor perspective, over the operations makes sense."

Brian Sommer, founder of technology advisory firm TechVentive in Carmel, Ind., said the Saba acquisition refocused Cornerstone's efforts on LMS, where the company got its start and where its products have the most maturity.

"Prior to the Saba deal, Cornerstone had a full HRMS product line, even though learning and development is its core," Sommer said. "After the Saba acquisition, they clearly skimmed back to learning and development. Some other application areas got cut back quite a bit."

LMS market gets boost from COVID-19

Cornerstone's doubling down on LMS comes at an interesting time, according to Sommer. While interest fell off at the start of the COVID-19 pandemic, LMSes are experiencing a resurgence due to employee churn and the push by employers to upskill and reskill their existing workforces.

"It's a radically different economy right now, and it's getting torn by labor and supply chain issues," Sommer said. "As long as there continues to be volatility in the workplace, learning and development will continue to be a hot area."

Sommer, who described private equity investment as "a financial transaction and not a technology deal," said the move by Cornerstone to go private could raise questions about its future, especially for customers that have invested in products outside of learning and talent management. He recommended they watch for changes in company strategy and inquire about product roadmaps.

He also noted that ownership by a private equity firm inherently means Clearlake won't be the company's last owner, which could be a turnoff to new customers.

"When clients agree to buy or implement a new technology, they do so with expectation that there will be some certainty in the product's future," he said. "A change in ownership can alter that direction and, hence, the customer's desire to keep the product line."

Still, Mueller said he believes going private will give Cornerstone "the time to build a better, expanded and integrated offering for talent management."

Bersin said he also believes the company will do well, comparing it to Ultimate Software's acquisition by Hellman & Friedman in 2019, which resulted in the HR vendor going private.

"They went out and bought another company, Kronos, and they've been growing like crazy ever since," he said. "So, this is a positive move for customers -- and employees."

Going forward, Sommer said he expects Cornerstone to pursue and develop "tuck-in technologies" that use emerging and advanced technology such as artificial intelligence or chatbot technology, rather than buy additional HR functionality.

That may be the direction in which the company is already headed. In the fall, the company plans to launch a new platform that pushes deeper into learning content management systems, skills and skills engines, according to Bersin.

Nicole Laskowski is a news director at TechTarget. She was previously senior news writer for SearchCIO, where she covered CIO strategies for analytics, business intelligence and data management.

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