Software provider Kronos (NASDAQ:KRON) and the public markets will soon be parting company. Still, shareholders shouldn't feel cheated; private equity firms Hellman & Friedman and JMI Equity agreed Friday to pay a hefty $1.8 billion for Kronos -- about an 18% premium over the previous day's closing price.
Kronos develops software to help manage payroll, labor schedules, and timekeeping. With last year's $150 million acquisition of Unicru, the company added Web-based software to help with recruitment and employee management.
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. Its customer list includes marquee names like Dell (NASDAQ:DELL) and Caterpillar (NYSE:CAT).
Industry trends are also lining up nicely in Kronos' favor, including tight labor markets, globalization, and the increasing outsourcing of non-core functions.
Perhaps 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.
The deal may be a bummer for long-term investors. Is management being greedy, taking the company private just before things really get good? At 14 times EBITDA, the buyout valuation trumps the 12 times ratios for rivals Automatic Data Processing (NYSE:ADP) and Ceridian (NYSE:CEN), but remains far below Paychex (NASDAQ:PAYX) and its 19 times ratio.
Wall Street seems to agree with the buyout valuation, pricing Kronos' shares just a couple of bucks below the private equity price tag. That suggests no other bidders are likely to come to the table. Given that Kronos' stock price has surged 55% since January, investors would seem to have little to complain about.
Further Foolishness:
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is ranked 1,590 out of 24,619 in Motley Fool CAPS. Dell is both anInside Value and aStock Advisor pick.
