Halogen lights up with JMI investment

The performance and talent management software market is taking off, and Ottawa vendor Halogen Software is reaping the benefits, courtesy of a growth investment from the Baltimore-based JMI Equity.

Halogen cited a Bersin & Associates study that pegged the human capital management space at $2 billion in 2007. Forrester Research senior analyst Zach Thomas has seen this as well, citing performance management as one of the fastest-growing software markets out there.

“There’s certainly a focus on people now, especially in an uncertain economy where companies want to retain the best and the brightest and need the tools to track that,” he said.

Thus, Halogen hasn’t been the only performance management company to shop around for capital recently to keep up with demand. Cornerstone, SuccessFactors, and Silkroad have all solicited funds recently, too.

Most companies will be using the funds to build on their products quicker, said Thomas, but are also looking to consolidate their suites, as customers are looking for the full-package deal when it comes to talent management. “The first wave was people who had four or five different applications. Now, in the second wave, they want a single solution,” said Thomas. To that end, one of the main drivers behind Halogen’s investment bid was the cash to work more on upcoming initiatives to round out their suite: recruiting will be added to the software by late 2009 or 2010, said vice-president of marketing and business development Donna Ronayne.

The company spent almost a year settling on the right investor, and plans, said CFO Pete Low, to use the funding for working capital (like sales and marketing costs), research and development, and general operations and internal growth. Acquisitions are not a part of the fund allocation, said Low.

They probably are for other companies, according to Thomas, with the recent Taleo/Verve deal leading the way. He said, “There’s going to be a lot of acquisitions in this space. There’s a whole slew of $10-million to $25-million companies to be snapped up.”

Differentiators in such a booming market are important, and Halogen has staked its claim on vertical market penetration, counting healthcare, and professional and financial services as its specialties. Future plans for Halogen include expanding on this vertical expertise, said Ronayne. It also offers both software-as-a-service and on-premise versions, while most of the market players offer one or the other.

Managing these software-as-a-service initiatives could, however, affect the IT manager. “The biggest issue here is integration, and how it could play into their ERP systems. It can be hard to handle when an IT manager really builds an application strategy, and then people go off and buy something at the business unit level,” Thomas said. “It’s important that the IT manager stay involved in the buying cycle, which can get circumvented by units just renting it on a month-to-month basis and taking it out of the operating expenses so no-one’s the wiser.”