In the last month, we have seen two large HR suppliers (Kronos Software and Affiliated Computer Services Inc.) choose to be acquired by private equity firms and exit the public markets. Kronos announced they will be acquired by Hellman & Friedman Capital Partners under a deal worth $1.8 billion (a 17.9% premium on the closing price share price the day the deal was announced) and Affiliated Computer Services is to be acquired by Cerberus Capital Management for $5.9 billion. If approved, both firms will exit the public markets.
Kronos and ACS seem to have different reasons for going private. Kronos seems to be motivated by "strategic" reasons while ACS is reportedly trying to "escape the regulatory spotlight" (ACS has some backdated options issues).
Interestingly, Kronos CEO Aron Ain said the deal would "accelerate its expansion and enable it to reach its goal of becoming the first billion-dollar company exclusively focused on human capital management".
Although private equity firms are often accused of having a "slash and burn" mentality, more often than not, according to an interesting article on the UK web site management-issues, "they act as a catalyst to create jobs and improve efficiency".
Mr. Ain said in a letter to the company's 3,400 employees that the transaction "will give [Kronos] the operating flexibility to make the right long-term decisions without the quarter-to-quarter pressure to deliver near-term earnings.". Seems logical, and who can argue with this company's success (see historical stock prices on this page).
The best analysis of the Kronos deal comes from a Motley Fool blog posting Don't Cry for Kronos. The Fool states "It's clear why Hellman & Friedman wanted to buy the company. Kronos manages more than 30 million employees, increased trailing-12-month revenues for the past 107 consecutive quarters, and posted $100 million in cash flow last year." The Fool also states “the juiciest opportunity lies in leveraging Kronos' installed base with new product offerings. H&F's mergers & acquisitions expertise should be helpful in this regard. The private equity firm has $16 billion in funds, and it's already bought a variety of tech companies, including DoubleClick and Intergraph.”
Regardless of the motivation, these types of deals are all about the money. Most likely, both companies will re-enter the public market in the future - after a little reorganization.
Labels: Affiliated Computer Services, Kronos, private equity