NEW YORK (TheStreet) - Private equity firms Hellman & Friedman and JMI Equity aren't ready to punch out of Kronos Incorporated, a fast-growing cloud HR specialist that patented the first microprocessor-based time clock to record employee hours in 1979. Instead of selling the company, the PE firms announced on Thursday that they had agreed to a recapitalization of the company through a $750 million equity investment by Blackstone Group (BX) and Singaporean sovereign wealth fund GIC.
The minority equity investment by Blackstone and GIC will allow Hellman & Friedman and JMI to maintain a controlling interest in Kronos as it pushes towards $1 billion in annual revenue and continues to see growth in its cloud-based human resources solutions. The move also indicates that Hellman & Friedman and JMI Equity are targeting additional gains from Kronos, after both PE firms bought the company in a $1.8 billion leveraged buyout in 2007.
Inclusive of Thursday's deal valuation and an expected $450 million special dividend paid by Kronos to its investors, Hellman & Friedman and JMI Equity have made over five times their initial equity investment. After Kronos's new equity investment and its expected special dividend, the company is expected to have over $2.7 billion in debt and an equity value of around $1.8 billion. Blackstone and GIC will hold about 42% stake in the company, while Hellman & Friedman and JMI Equity will control Kronos's remaining equity.
Chelmsford, Mass.-based Kronos, during its time in private equity hands, has effectuated a shift in its business towards cloud-based solutions. That transformation is driving top-line growth at Kronos and strong operating margins for the company at a time when business software giants such as Oracle (ORCL), IBM (IBM) and Hewlett-Packard (HPQ) struggle to transition their business towards cloud solutions.
Revenues have increased 45%and earnings before interest, tax, depreciation, and amortization (EBITDA) increased 114% during Kronos time in private hands.