Head-hunting firm Taleo is a rumored takeover target

Certain characteristics of the company may make it attractive to buyers.

By Benzinga Oct 25, 2011 12:59PM

By Abe Raymond, Benzinga Staff Writer


Taleo Corporation (TLEO) is a head-hunting company that uses computer programs to streamline the recruitment process. Recently, rumors have circulated that Taleo might be acquired by another company, which led its stock to rally of more than 7.5% on Monday. However, is there any truth to these rumors?


The first thing that people need to understand with mergers and acquisitions rumors is that there are two types of buyers. Strategic buyers are primarily looking for companies that significantly add value to their operations. They want to acquire a company to gain market share in a geographic region or an untapped market. They may also consider purchasing a company so it can streamline operations and save costs. Ultimately, the potential synergies from a merger is what strategic buyers are concerned with.


Financial buyers are not so much concerned with the qualitative aspects of a company. Essentially, they want to purchase a company and use its cash flows to make money during the holding period or even after. If a financial buyer pursues a leveraged buyout, it can use the cash flows to pay down the debt during the holding period and then resell the company after a while. Private equity firms commonly use this strategy. Frequently, financial buyers will make changes to their portfolio companies, whether its changing up management, cutting costs, or exploring business ventures that they consider worthy.


Rumors did not specify if the potential Taleo acquisition would be from a strategic or financial buyer.


Taleo's cash flows have been volatile over the last few quarters. Mostly as a result of acquisitions and capital expenditures, net cash has increased from $4 million to $20 million, quarter-over-quarter, except in Q4 2010. Then, due to a large acquisition of Learn.com, cash flows were down $138 million. Regardless, cash flows from operations have been increasing in 2011, despite negative net income numbers.

 

A variable cash flow statement may not be the best thing for buyers when considering acquisition targets. While the volatile cash flow is of concern to both financial and strategic buyers, financial buyers would be much more concerned with it. Strategic buyers, such as competitive head hunting firms, may still consider Taleo a worthy target because of its unique, computerized approach to talent acquisition.


An extremely important metric that buyers are aware of is the company's capital structure. Taleo does not appear to have any debt on its books. A complex capital structure including multiple debt tranches is not a good sign. Essentially, companies want to be able to manage and take care of debt as easily as possible and having multiple revolving credit lines along with various other obligations is tough to take care of.


Taleo can also be applied nationally. It predominantly operates on the West coast, but the presence of algorithms to streamline the head hunting process does not appear to be prevalent in other areas of the nation. Considering this aspect, a strategic buyer could apply Taleo's techniques on a national and even international basis. This could increase efficiency and ultimately save costs and time.


Lastly, Taleo's revenues have been increasing over the years. Its primary problem comes with managing costs, and it is possible that either strategic or financial buyers could take care of this problem. Financial buyers specialize in cutting costs, and could definitely improve the company's return on equity over time. Nonetheless, it appears that Taleo has been able to slowly increase market share and its overall impact on the market.


Taleo is a unique company. It is possible that a strategic or financial buyer is considering taking it over. A buyer could probably increase its outreach and cut costs. If both strategies are implemented, Taleo could be a lean, extremely effective company. An acquisition stands to add a lot of value to its shareholders, and may be a good idea for everyone involved.


Taleo is closed Monday at $31.61, up about 14.3% for the year.


More from Benzinga:

Tags: TLEO
4Comments
Oct 26, 2011 9:26AM
avatar
Head-hunting firm?   That is not Taleo's business at all...  It makes the rest of the article dubious if you are not even sure what business Taleo is in.    Bluelaser's post shows a better understanding of the space.

- Taleo User

Oct 26, 2011 11:13PM
avatar
To Someone - You are absolutely correct - Taleo is a Software as a Service company that provides an entire suite of HR Software Solutions. The only "head hunting" done at Taleo is to bring talent into the company.

To Bluelaser2 - Linkend import is a feature available in Taleo. Not sure where your information comes from but the Taleo Recruiting application provides the ability to hire contingent employees, work with and post to staffing agents/agencies, and a few third party recruiters are customers of Taleo and use the Recruiting application to do their business. Also no technical advantage, you say? No other competitor in the space has a full suite of HR applications that integrate with each other nor the global footprint of Taleo nor an option for a universal candidate profile.
Oct 27, 2011 1:05PM
avatar

Taleo is NOT a Head hunting firm...period...Before you write articles make sure you got all the facts correct.

 

This article is bad and not sure how the content is legit if the writer doesnt even know about the Company he is writing about.

 

Please go and do sports writing in Yahoo...best place for your ya-ba-da-ba-doo

Oct 25, 2011 3:55PM
avatar

This article is absurd.  Taleo has no technical advantage unique to them.  LinkedIn's latest moves are direct attacks on Taleo's business model of hosting databases for customers, which it does a pretty good job of (but only for coporate direct hiring- ignoring the huge staffing and influential third-party recruitng businesses).  Taleo needs to find and buy as many smaller tech firms with many customers as possible to they can balance LinkedIn's assault on the space with as much inside industry weight as can be found..... otherwise could be the trash bin of history for them soon enough... 

  

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125
125 rated 1
267
267 rated 2
455
455 rated 3
612
612 rated 4
682
682 rated 5
695
695 rated 6
632
632 rated 7
472
472 rated 8
279
279 rated 9
147
147 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
VZVERIZON COMMUNICATIONS9
TAT&T Inc9
CTLCENTURYLINK Inc8
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.