HR and payroll application vendor Kronos Inc has been bought by the private equity firm Hellman & Friedman Capital Partners (H&F) for $1.8bn in a deal which CEO Aron Ain said would accelerate its expansion and enable it to reach its goal of becoming the first billion-dollar company exclusively focused on human capital management.
The $55 a share cash bid is a 17.9% premium on the closing price Thursday and an indicator that a software company such as Kronos, with solid recurring revenue, is increasingly attractive to a private equity sector awash with cash.
While the acquisitive activities of private equity has aroused suspicion in many parts of the world, it is increasingly attractive option to directors of public companies. They tend to moan privately about the ‘tyranny’ of quarterly reporting, and an emphasis on achieving short-term objectives that can be at the expense of long-term aims.
Ain was open about the benefit this would bring to Kronos. In a letter to the company’s 3,400 employees, he said: This transaction will give us the operating flexibility to make the right long-term decisions without the quarter-to-quarter pressure to deliver near-term earnings.
He was also anxious to reassure them that their jobs were safe. The terms of the merger agreement do not call for the elimination of any positions. Other than creating efficiencies in certain functional areas, staffing will remain generally the same, he said.
Chelmsford, Massachusetts-based Kronos has been extremely acquisitive and Ain saw the deal as giving them an increased war chest. We believe our new partnership with H&F will provide us with the financial freedom to realize our vision for the future of our company, he said.
H&F will encourage the company to continue pursuing strategic acquisitions, grow as a global company, and expand in the area of talent management.
Aided by constant acquisitions, Kronos has been growing rapidly. In the year to September 30, while net income fell 23% to $41.4m, revenue rose 11.4% to $578.2m.
According to its latest quarterly filing, product sales only account for 35% of revenue. Maintenance provides a further 35%, professional services 22.8% and subscriptions the final 7.3%.
While Kronos is the biggest standalone vendor on HR software, its main opposition is the big application software players Oracle and SAP, who see HR as almost as important as their core financial software. Oracle has absorbed PeopleSoft, who reputedly had developed the best HR suite and SAP has been working hard at developing its own application in this area.
H&F is currently investing its sixth fund, which has over $8bn of committed capital. It is no stranger to IT companies, having acquired retail software vendor Activant Solutions Inc, digital advertising company DoubleClick Inc and technical systems vendor Intergraph Corp It is supported by JMI Equity, a private equity firm focused exclusively on the software and business services industries.