Francisco Partners to buy PayScale from Warburg

After five years, Warburg Pincus is exiting PayScale, the Seattle provider of compensation software.

Francisco Partners said April 25 it was buying a majority of PayScale. The enterprise value of the deal is $325 million, a statement said. The transaction was expected to close within 15 days.

“We’ve had a great partnership with Warburg over the last five years,” said PayScale CFO Mark Klebanoff. “We believe we’ll have just as good of a relationship with Francisco for the next phase.”

PayScale uses big data and matching algorithms to create a platform that helps employers and employees determine compensation.

Joe Giordano, a former Microsoft manager, founded PayScale in 2000. The company, which employs 450, collects crowdsourced compensation data from employees and job seekers who visit its website, a spokeswoman said.

PayScale uses its algorithms to scrub and analyze the data, which employers use to determine compensation, she said.

PayScale’s more than 8,000 customers include Macy’s, the Seattle Mariners and the New York Times.

Warburg invested in PayScale in 2014. The New York PE firm agreed to provide up to $100 million to recap the company, a statement at the time said. Mercer, a compensation consultant, invested in 2017.

Warburg put PayScale up for sale late last year in an auction process that failed to produce a buyer, sources said. Francisco then entered negotiations that resulted in the current sale.

Whether Mercer exited with the sale to Francisco is unclear. Mercer could not be reached. Klebanoff declined comment on whether Mercer exited. Warburg declined comment.

Pay transparency

PayScale’s software attempts to bring clarity to employee compensation, a field that traditionally has been opaque, said Peter Christodoulo, a Francisco partner. “People don’t know what they’re worth in the market,” he said.

Christodoulo pointed to real estate, where companies like Zillow and Trulia transformed that industry by providing estimates for residential properties. “PayScale is leading the way in bringing transparency” to employee compensation, he said.

Consumers visiting the PayScale website can fill out an online survey to determine how their compensation ranks against others in their field nationally and regionally.

A user provides information such as job title, years of experience, educational degrees and current salary. PayScale then produces a snapshot that explains how the user rates versus other people in their field.

PayScale’s database of more than 54 million salary profiles is updated nightly, the website says.

“Compensation data for employers has not traditionally been driven by a lot of technology or data,” said Adam Solomon, a principal at Francisco Partners.

By providing pay transparency, PayScale’s software can help create a richer working environment, Klebanoff said. Employees who believe they are fairly compensated are more motivated at work and more likely to stay at their jobs, he said.

“We help individuals understand what their worth is in the market,” Klebanoff said. “We use the data we collect from that website and combine it with our software to help our business customers understand compensation.”

Other activity

PayScale is the latest transaction for Francisco, which invests in technology and technology-enabled businesses. The San Francisco PE firm in April agreed to buy EG, a Scandinavian software provider, from Axcel. Francisco in February both invested in Civitas Learning and led Redis Labs’s $60 million Series E.

Francisco Partners in 2017 closed its fifth flagship on about $3.9 billion. In 2016 the firm raised $600 million for its Agility fund, which targets middle-market tech companies.

Raymond James advised Warburg on the sale, while Willkie Farr & Gallagher was legal adviser. Kirkland & Ellis advised Francisco.

Action Item: Contact Klebanoff at +1 206-223-7590