(L-R) Mark and Aron Ain / Kronos
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Last week human resources software and services company Kronos Incorporated announced a recapitalization under which private equity companies have agreed to buy new shares in the company for US$750 million, at a total enterprise valuation of US$4.5 billion including existing Kronos corporate debt. The deal should close during 2014 the company said.
The Blackstone Group and Singapore’s Government Investment Corp (GIC) are investing the new money alongside existing private equity investors, who bought the company in 2007 from its founders, brothers Mark and Aron Ain for almost US$1.8 billion. After the buyout the two remained with the business, and annual revenues have grown strongly since from about US$680 million to close to US$1 billion today.
Blackstone Group is the Washington based private equity firm led by Stephen Schwarzman, and GIC is the very prestigious Government Investment Corporation – i.e. the Singapore Sovereign Wealth Fund. These are both impeccable new shareholders to have therefore.
The two brothers who created Kronos, elder brother Mark and his younger brother Aron are clearly master builders. Only not with bricks and mortar, but rather in deploying human capital to create a remarkable personnel resources software company, which is based in the suburbs of Boston in Chelmsford Massachusetts. Today the company employs over 3, 000 people worldwide.
Founded in 1975 by MIT engineering alumnus Mark Ain, younger brother Aron joined him in 1979 after graduating from college himself, and they built up the company together from there. Originally it made the first programmable time clocks for payroll management, and then diversified both organically and by acquisition into providing many additional forms of human resources software and services solutions as well, which today they market worldwide. Since the privatization in 2007 the company has invested heavily in cloud offerings as well, which are now an integral part of their suites of services. Today more than half the top Fortune 1, 000 companies use their products and solutions.
Kronos went public in 1992 with annual revenues at the time of around US$60 million. Mark Ain eventually retired as CEO in 2005 after thirty years running the business, in favor of his brother Aron, who is still CEO today at the age of 55. Mark remains Chairman of the Board of Directors, however, and as a guiding hand.
When the brothers privatized the company for almost US$1.8 billion in cash in 2007, it demonstrated some impeccable timing from both a return and a risk management viewpoint as this was just before the financial crash of 2008. The buyers were two private equity firms, Hellman & Friedman of California, co-founded by Tully Friedman and Warren Hellman (who died in 2011), and JMI a private equity firm based in Baltimore. After this new transaction Hellman & Friedman will remain majority owners of the business.
As an aside, Warren Hellman’s great-grand father Isaias Hellman became the President of the Wells Fargo Bank at the start of the twentieth century. After the 1906 earthquake reduced it to rubble he ran the bank from his son in law’s dining room table until they rebuilt it.
As another aside, last year, Tully Friedman, who had left Hellman & Friedman to found Friedman Fleischer & Lowe in 1997, sold his estate in Woodside in northern California for US$117 million – it is a simply beautiful house.
For their US$750 million Blackstone and GIC are believed to now be gaining about a 44% interest in the company, which Fortune Magazine estimates values the whole company, including its corporate debt, at about US$4.5 billion.
Also, according to Fortune, Hellman & Friedman had apparently been thinking of selling the whole company, but with bids not yet high enough were content with this intermediate step. Out of the US$750 million coming into the treasury of the company, about US$450 million will now be dividended back to Hellman & Friedman and JMI so their potential needs for liquidity are satisfied for the moment.
Under the new financing arrangements Aron Ain will continue to manage the company as the company’s CEO. His comment after the announcement was ”We are thrilled to have Blackstone and GIC join the Kronos team. Their significant investments validate our company’s strategy and growth potential and support us as we rapidly extend our Kronos Cloud offerings; expedite our pace of product innovation; continue to broaden our vertical expertise; and accelerate our global expansion strategy.”
About Hellman & Friedman
Hellman & Friedman LLC is a leading private equity investment firm with offices in San Francisco, New York, and London. Since its founding in 1984, H&F has raised and, through its affiliated funds, managed over $25 billion of committed capital.
The firm focuses on investing in superior business franchises and serving as a value‐added partner to management in select industries including software, financial services, insurance, business and marketing services, internet and digital media, media, healthcare, and energy and industrials.
The GIC of Singapore are also investors in existing Hellman & Friedman funds, so this new co-investment is a natural one for them.
Blackstone was founded by Stephen A. Schwarzman and Peter G. Peterson, who had been colleagues at Lehman Brothers. In 1985 Schwarzman and Peterson left Lehmans, going into partnership to form the Blackstone Company which initially focused on brokering large-scale mergers and acquisitions, before moving into property ownership and investment management.
Today Blackstone is one of the world’s leading private equity investment and advisory firms. Blackstone’s alternative asset management businesses include the management of corporate private equity funds, real estate funds, hedge fund solutions, credit-oriented funds and closed-end mutual funds.
Blackstone also provides various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services. Through its different investment businesses, as of September 30th, 2013, Blackstone had assets under management of approximately US$248 billion.