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HR Software Firm Kronos Is Going Private

Under the terms of the deal, shareholders of the HR software firm will receive $55 in cash for each share of Kronos common stock, a 34 percent premium over Kronos' recent closing share price

March 23, 2007
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Related Topics: HR Services and Administration, Human Resources Management Systems (HRMS/HRIS), Mergers and Acquisitions, Latest News
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HR software firm Kronos plans to pursue its ambitious expansion as a privately owned company.

Chelmsford, Massachusetts-based Kronos said Friday, March 23, that it has agreed to be acquired by private equity investors for about $1.8 billion. The lead investor in the deal is Hellman & Friedman, a private equity investment firm with offices in San Francisco, New York and London. JMI Equity, a private equity firm focused on the software and business services industries, also is slated to invest in the takeover.

“Our board of directors believes this transaction is in the best interests of our shareholders and affirms Kronos' tremendous value, market leadership and the exciting growth opportunities in front of us," Kronos executive chairman Mark Ain said in a statement.

Under the terms of the deal, Kronos shareholders will receive $55 in cash for each share of Kronos common stock, representing a 34 percent premium over Kronos' closing share price from 20 trading days ago.

Kronos’ board has resolved to recommend that shareholders adopt the agreement. The deal is subject to regulatory approvals.

Founded in 1977, Kronos for years specialized in time-and-attendance tools. But in the past five years, the company has been pushing beyond those roots. A milestone in that effort was Kronos’ acquisition last year of hiring technology firm Unicru. Kronos has signaled its interest in making more strides in the hot field of “talent management” applications, and has stated that it wants to be the first software firm dedicated solely to HR matters to rake in $1 billion in annual revenue.

For the year ended September 30, 2006, Kronos brought in revenue of $578 million. A report last summer from AMR Research ranked Kronos third in revenue for human capital management applications in 2005. Only Oracle and SAP, which both offer a range of business software besides HR applications, ranked ahead of Kronos. AMR’s figures include revenue from professional services.

Naomi Bloom, managing partner at Bloom & Wallace, a consulting firm in Fort Myers, Florida, says the Hellman & Friedman buyout could help Kronos invest in a needed software upgrade, broader functionality and expanded geographic reach, all without investors pouncing on the company for not maximizing short-term profits. Customers are likely to benefit from the resulting stronger products, she says.

On the other hand, Bloom says, it’s always possible that private owners will choose to squeeze all the profits they can out of a software company and neglect product enhancements. If that scenario were to occur, she says, a sure sign will be defections from Kronos.

“It will be easy to spot,” Bloom says. “Talented people will simply not stay in a company that’s being milked.”

The Kronos buyout plan, combined with an effort to take HR outsourcer Affiliated Computer Services private and talk of a possible Hewitt Associates buyout, suggest that the HR software and services field may be ripe for more private equity acquisitions. Bloom says a number of companies in the industry may have gone public sooner than they were ready for, and may welcome the change. “I think we’re going to see a deluge,” she says.

Ed Frauenheim

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