Cornerstone Goes Private in $5.2 Billion Deal

by Jim Lundy

On August 5, Cornerstone OnDemand will be sold to Clearlake capital group for $5.2 billion. This comes on the heels of the merger last year between Cornerstone and Saba, and represents another example of private equity taking public companies private.

Analysis—Why Did CSOD Go Private?

The deal, which is $5.2 Billion, represents a 7.2x multiple over CSOD’s 2020 revenues of $720M. This is slightly above the 2-6x revenue multiples that are common for software firms. In our opinion, the reason for the deal is that Clearlake, who did own 15% of the outstanding shares, sees even greater value for the firm over the long term.

While the spin is that more can be done as a private company, sometimes innovation suffers while costs are cut significantly. We’d point out that just a few years ago, Saba was taken private by Vector Capital, which grew Saba and then sold it to Cornerstone last year. Since this deal was just announced, we will have to wait to see how it unfolds when it is finalized. 

Enterprises can expect to see management changes but should look carefully at the product roadmap to understand the level of innovation. Cornerstone has been a leader in talent management and corporate learning—that will not change. However, it is always important to understand where the firm is headed and what level of innovation is actually occurring.

Being Like Skillsoft

Cornerstone OnDemand is now on a path similar to what Skillsoft has been through recently. Skillsoft declared bankruptcy in June 2020 and then IPO’d in July 2021. However, in its history, it too has been a public and a private company. Despite that, it has continued to grow.

More M&A Is Coming to HCM and Talent Management

Enterprises should expect to see more activity in the overall human capital management market, which we are now starting to refer to as employee engagement. There are too many firms in the overall HCM market and there is money to be made by investors.

Bottom Line

The bottom line is that the customer does not always win in these types of transactions. Enterprises need to understand the direction of the company and the roadmap for future services before making an investment in any software provider.