Private Equity Owners Not Ready to Punch Out of Kronos

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.

If you liked this article you might like

7 Essential Rules for Investing in Tech Stocks

Tax Reform Is Coming and That Means Trump Stock Rally Is Ready to Kill It Again

'Trump Stock' Rally Is Back on Track

Crazy Weak U.S. Dollar Will Make These 10 Companies Huge Winners

Dow, S&P 500 Set New Records as Fed Moves to Unwind Balance Sheet