Caracterización y estructura de la población

Source: Newspaper Association of America and Baird estimates.

Competitive Advantages

The most important success factor for e-Cruiting portals involves building critical mass between employers and job seekers in a manner that optimizes job matches. As a result, profitable e-Cruiting sites must drive both applicant and employer traffic, although network effects generally allow one party to drive the other in an ever-expanding cycle. Thus, to attract and retain site visits, the dominant players in the space generally make substantial investments in marketing and sales. The top three job portals (Monster, CareerBuilder and HotJobs!) attract the vast majority of all visitors. In our opinion, these firms have attained a “franchise value”, which is due to their transaction volume and reputation among existing and prospective clients. Having constructed some barriers to entry due to the franchise value, these more established firms then compete further on the basis of candidate quality, and product offerings, such as resume database. While the top three job portals continue to receive the majority of traffic, our sense is that more progressive job seekers and recruiters are beginning to utilize more specialized sites as well as networking sites such as LinkedIn. These geographically and verticallyfocused niche sites are able to compete with the larger, general job boards given that they tend to attract more relevant job seekers and job seekers are more likely to find jobs that interest them.

The ability to make a quality match between a candidate and an employee is the ultimate driver of returning traffic to a job site. Whether through technological leadership or global capabilities, portals that aggregate a larger and superior pool of candidates generally stand out among their competitors. As the virtuous cycle of job seeker/employer traffic takes off, greater leverage will be created and cost- advantaged companies can offer a lower price than other firms in the industry.

Sites that offer the most comprehensive services will be attractive for employee/employers that seek career content other than, or in addition to, job search. To that end, the internet has transferred many physically accessible services online, such as networking and career counseling, etc. Subsequently, brand recognition will become a strong catalyst for incremental revenues as a site’s reputation builds up. Finally, the quality of a job search experience for a recruiter is largely measured by how quickly talented candidates can be identified (to save time and avoid expenses). Consequently, supplying clients with an extensive database of resumes is a priority for e-Cruiting companies. Although many recruiters still receive resumes through job fairs or employee referrals, job boards provides a much more convenient way to source resumes. With many job sites offering automatic uploads of personal documents, employers can quickly locate millions of resumes with the click of a button. Moreover, if a general search returns an overwhelming number of entries, recruiters can screen them by keywords as well. Thus, the job boards can differentiate themselves further by customizing the search and screening functions for their clients, optimizing the results while eliminating non-matching returns.

Positioning for the Future

We believe that e-Cruiting is an attractive investment area, given the following: (1) Job classifieds is already a large and well-established market; (2) e-Cruiting is a superior solution to traditional advertising;

(3) Internet usage continues to increase and consumers/job seekers are connecting to the internet more often and for longer periods of time often using new devices;

(4) e-Cruiting has the potential for strong margin expansions due to scalability.

While we expect the online medium to make additional market share gains in recruiting technologies/online recruitment and eventually become the dominant medium, given that recruiting is still based on the paper-based resume, we expect recruiting technologies to continue to evolve. Niche sites will likely continue to gain share. In addition, networks such as LinkedIn will continue to gain in popularity. We also believe that web 2.0 trends which will make the web far more interactive will continue, particularly in the e-Cruiting field.

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Leading Companies

Notable companies in the Assessment and Verification sector include ChoicePoint, ADP Screening and Selection Services, First Advantage Corp., General Information Services, HireRight, TALX Corp., PreVisor, and U.S. Investigation Services (USIS).

Description

Arbitrarily combined into one sector for simplicity’s sake, assessment and verification encompasses two categories of companies. Assessment companies evaluate a candidate’s fit for a particular employer or position, while verification firms provide information services primarily designed to validate personnel background information.

Broadly speaking, assessment firms offer job candidate screening services. These services range from online assessment tests designed to test a candidate’s skill set necessary for an open position to psychoanalytic interviews that gauge a candidate’s match with a client company’s culture. The knowledge needed to devise these inquiries is based on years of research into the relationship between employee aptitude and performance outcome.

Verification services are usually obtained prior to a candidate’s employment and consist of a review of criminal records, driving records, worker’s compensation histories, credit histories, prior names and residences, social security number validation, education and credentials, past employment, and personal references (among other things). Companies providing verification services use both external and internal information sources to screen candidates, including public filings, federal, state and other governmental authorities, information companies, online search systems, healthcare providers, credit card companies, and proprietary databases.

Firms in the assessment and verification space serve employers from many industries. Additionally, because many agencies and commercial entities are required by law to report independent authentication, verification companies often act as third-party verifiers for lenders, social service agencies, credit issuers, and pre-employment screeners as well. The fees generated from these activities are collected on a transaction basis.

Revenue Model

The method of payment for assessment services varies, but often involves a cost per head, a fee per assessment, or a flat fee per time period of access to a library of tests. Payment for verification services is usually based on a per-usage or per-report basis. The prices of background checks range from less than $20 to a few hundred dollars, depending on the depth and type of check, as well as the quantity purchased.

General Trends

The assessment and verification industry developed significantly during the most recent employment cycle. Despite the 2000-2003 recession, most of the leading companies in this industry managed double- digit revenue growth between 2000 and 2006, including TALX (36% CAGR for The Work Number Services), First Advantage (25% CAGR from 2003-2006), HireRight (73% CAGR from 2001-2006), and ChoicePoint (19% CAGR). The most recent expansion can be attributed to both a secular trend towards assessment and verification usage and the economic recovery.

Industry Drivers

Although there may be some consolidation of competitors, we believe that the assessment and verification market will continue to expand over the next few years. Demand will be driven by multiple factors, including:

• Increasingly litigious society; • Increased workforce mobility;

• Increased awareness of and the need to minimize the risks of poor hiring decisions;

• Legislation that necessitates the use of various verification services (Patriot Act, SOX, FDIC); • Long-term trend towards uniform usage of assessment and verification;

• Accelerating demand for ongoing screening;

• Accelerating demand for international screening as well as extended workforce screening.

The fundamental reason for screening and assessing applicants/employees is the desire to find the most productive employees and to eliminate the destructive ones. Although some companies may be unwilling to address the latter due to potentially negative perceptions, the rising costs of employee misbehavior provides compelling evidence to support the utilization of assessment and verification services. Some notable statistics are:

• SHRM estimates that 45% of all resumes contain major fabrications;

• 40% of all small business failure is caused by employee theft (U.S. Chamber of Commerce); • U.S. Department of Justice believes that 2 million incidents of workplace violence occur

annually; and

• On average, lawsuits filed against employers result in out-of-court settlements of $500,000 and jury verdicts of $3,000,000 (Workplace Violence Research Institute).

Faced with these serious consequences, firms are making greater use of assessment and verification services to minimize poor hiring decisions, and reduce turnover, poor fit, fraud, theft, and liability. Moreover, in some circumstances, prescreening is no longer an option, but a legal requirement. In light of the September 11 attack, the Federal Government has passed numerous laws (ie.g., the Patriot Act) that require employers to perform certain background checks on employees.

Assessment services offer an attractive value proposition to recruiting professionals by providing them a means to eliminate unqualified candidates early in the recruitment process. This proposition is extremely cost effective and value-added to overburdened HR and recruiting professionals, who can use consistent and proven methods to determine a candidate’s potential fit prior to devoting the time and money to interview unqualified candidates. Most assessment solutions are now web-based which results in 24-hour accessibility from anywhere in the world as well as instant feedback.

Additionally, the growth of the industry has benefited from several labor management cases against major employers. The most prominent lawsuit involved the nation’s largest private employer, Wal-Mart, which paid millions to settle class-action suits that alleged its employees assaulted, sexually harassed, and discriminated against many customers. Subsequent investigations revealed that many of these workers had checkered criminal histories, and could have been avoided through simple background checks. As a result, Wal-Mart, as well as other large corporations such as Home Depot, has adopted uniform screening and assessment procedures that are completely automated and integrated into one system.

Apart from pushing the general trend towards the usage of verification and assessment services, the same well-known trials are also generating demand for the ongoing screening of existing employees. Studies have shown that employers may not be aware of illegal activity committed by employees during their employment as well as illegal acts committed prior to employment due to some convictions taking months or years to surface. As a result, a simple prescreen may be ineffective in detecting problem candidates. In addition to the increasing demand for ongoing screening, companies are also beginning to expand their screening requirements to include international employees as well as their extended workforces (e.g. consultants, temporary staff, maintenance crews, etc.) that often have access to areas of

the company containing sensitive information or data. We believe these relatively new developments should provide additional sources of top-line growth within the assessment and verification space.

Economics of Business

We believe assessment services companies have the potential for solid recurring revenue. The continued migration of recruiting functions to the web has quickened the maturation of this sector, as evidenced by the present growth rates of 5-10% (Baird estimates). Assessment services companies should generate solid incremental margins due to the inherent operating leverage in their business models. Similar to online training (which is not profiled in this report), online assessments are typically developed once and then used repeatedly resulting in highly scalable businesses. However, the assessment marketplace is still small, and we expect the consolidation and penetration rates to increase.

Some industries such as health care and transportation have historically benefited more from background screening than others; however, we expect the verification market to enjoy healthy growth over the next several years across many industries due to heightened risk awareness and a greater adoption of employee prescreening as part of the overall hiring process. Background screening has been around for quite some time, albeit in a much less streamlined form than today. Previously, most background screens were performed manually whereas today much more of the processes are automated. An increasing number of screening companies are providing their services via the web which facilitates quicker turnaround time for customers. In addition, more court documents are being made available online which is reducing the costs paid to individuals to search through records manually.

The scalability of assessment and verification services is evidenced by the high operating margins exhibited by mature companies in this space. Firms such as CPS Authentication Services and TALX- TWN generate margins of around 20-30%. We estimate that operating margins will stabilize to around 20% through the next few years.

Market Size and Structure

According to the National Association of Professional Background Screeners, the total screening market was estimated at approximately $4 billion in 2006 and consists of over 1,000 service providers. Although still fragmented, the market for verification services has consolidated over the past few years. Another visible trend gathering momentum is the international expansion of domestic companies. The prominent leader in that area is First Advantage Corp, which has reached into China, Japan, India, Australia, and New Zealand. We project that both consolidation and growth in emerging markets will continue to gain momentum.

Competitive Advantages

There are several general factors affecting share shift among assessment and verification providers: • The degree to which providers use technology is a source of competitive advantage as increased

use of advanced technology can increase the speed of delivery, improve accuracy due to the elimination of human error, and generally results in higher functionality and greater ease of use. • In a competitive hiring environment, employers may be unsuccessful in attracting top talent if they

are unable to make offers quickly. As a result, employers need a quick turnaround time from assessment and verification providers in order to move top candidates through the recruiting process as quickly as possible. The ability for service providers to offer clients turnaround times of three days versus one week can be an important differentiator.

• Most functions related to HR and recruiting continue to migrate to the web. Those providers that offer web-based services are likely to have an advantage over companies with traditional delivery methods.

• Many service providers have entered into alliances or partnerships with applicant tracking systems (ATS) and HR outsourcing providers. Under these arrangements, the assessment and

systems and become the preferred provider to the ATS/HRO companies. Partnerships and alliances such as these typically result in increased client wins due to referral and backing of the ATS/HRO provider.

• Many large companies are increasingly focusing on vendor consolidation. Therefore, assessment and verification providers that provide superior service and have greater global reach should have an advantage.

For assessment services providers, a key barrier to new entrants and source of competitive advantage is the knowledge and skill level of the specialists that design the assessments. A library of assessments is developed using the knowledge gained from years of research into the relationship between employee aptitude and performance outcome. This research cannot be easily replicated in a short amount of time without sacrificing quality and therefore acts as a barrier to entry. The knowledge and skills of those who design the assessments is naturally a key determinant of the quality of the assessments and therefore is a key differentiator between firms.

Within the verification market, we note that some verification services are aggregators of publicly available information while others are resellers of other screening firms’ information. As a result, a company’s positioning within the industry can depend on the extent of its databases and the value it adds to candidate screening and evaluation.

Positioning for the Future

We believe the online assessment and verification marketplace will achieve healthy revenue growth (15- 20% CAGR) over the next 3-5 years as recruiting continues to move online and employers increasingly use assessment and pre-screening products. These businesses are highly scalable, which should lead to continued strong margins.

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Leading Companies

Notable companies within the talent management segment include ADP VirtualEdge, Authoria, Kenexa, Kronos (through Unicru and Deploy Solutions acquisitions), Oracle/Peoplesoft, SAP, SuccessFactors, Taleo, Vurv, and Workstream.

Description

The talent management industry has its roots in helping companies automate the historically manual processes surrounding human resources such as approving requisitions for open positions, receiving resumes from candidates, filling out paperwork for recent hires, providing performance appraisals to employees and designing compensation policies and packages. Talent management products have evolved from being focused primarily on expense reduction via automation to helping companies improve recruiting effectiveness, employee development and retention.

Historically, talent management firms tended to focus on one aspect of the employee lifecycle such as recruiting. For example, some of the early players in what was initially known as the recruitment automation systems (RAS) marketplace were Restrac (now Webhire/Kenexa) and Resumix (now part of HotJobs.com). These companies focused on providing hiring solutions that handled aspects of the sourcing and processing of job candidates such as:

• Creating and managing job requisitions;

• Posting job requirements to internal and external job boards; • Tracking resumes;

• Selection and assessment analytics

• Sharing detailed candidate information (for example, interview notes); • Organizing interviews;

• Managing candidate correspondence and relationships; and

• Providing detailed reports tracking the effectiveness of employed recruiting mediums.

However, the market has begun to mature with some leading providers offering more comprehensive solutions. For example, RAS providers began branching into other areas of the talent management suite while some legacy providers of learning management and compensation management have begun offering recruitment management systems. Many talent management solutions now address the complete life cycle of an employee from recruitment to termination. As talent management providers are now competing on a broader basis, the functionalities that are included in many talent management suites include the following:

• Workforce planning; • Sourcing and recruitment; • On-boarding; • Workforce optimization; • Performance management; • 360° multi-rater surveys; • Career management; • Compensation management; • Succession planning; • Leadership development; • Talent analytics; and

The rapid evolution of technology has transformed the talent management industry. Presently, many leading talent management solutions are offered through a Software-as-a-Service (SaaS) platform, and many industry experts believe that SaaS is becoming the preferred delivery platform.

Revenue Model

Talent management providers charge clients in a variety of ways. Some companies charge a flat fee per month, while others charge annual licensing fees. With the increased use of SaaS models, subscription- based software packages are now commonplace. In those cases, the customer does not purchase a software product, but instead rents it for a defined period (upgrades during the subscription period are often free). In addition, talent management providers may charge on the basis of the volume of resumes processed or transactions completed within the application. Also associated with resume processing may be fees associated with the type of resume processed (faxed, scanned, e-mailed, etc). In addition, talent management providers charge fees associated with the hosting environment. For example, a SaaS solution may charge a fee for each user that has access to the application. For hosted solutions, clients usually pay ongoing hosting and maintenance fees. An initial setup fee is common to all these methodologies; the fee may range from a few thousand dollars to tens of thousands of dollars, depending on the size and complexity of the organization.

General Trends

Talent management suites have evolved from being focused primarily on expense reduction via automation to helping companies improve recruiting effectiveness and employee retention. An increased emphasis on effectiveness metrics (in addition to the historical focus on efficiency metrics) such as time- to-productivity, quality of hire, and employee contribution measures has coincided with the increasing importance of human capital in a services-based economy and the tightening of labor markets (especially