UPDATE 1-Blackstone, GIC nearing Kronos minority stake deal - sources

Thu Feb 20, 2014 1:11am EST

By Nadia Damouni and Greg Roumeliotis

New York Feb 20 (Reuters) - Private equity firm Blackstone Group LP and Singapore sovereign wealth fund GIC are in advanced talks to buy minority stakes in Kronos Inc that could value the human resources software company at around $4.5 billion, including debt, three people familiar with the matter said.

Blackstone and GIC plan to collectively invest $750 million for just over 40 percent of the equity in Kronos, one of the sources said. A deal could be announced as early as this week, that person added, cautioning that some details were still being negotiated.

Private equity firms Hellman & Friedman LLC and JMI Equity explored an outright sale of Kronos but rejected takeover bids as high as $4.6 billion earlier this month due to disagreements over valuation, people familiar with the matter said last week.

By not giving up control of the company, Hellman & Friedman was willing to accept a lower valuation for Kronos because the new investors no longer had to pay a "control" premium, the sources said.

The sources asked not to be identified because the negotiations are confidential. Kronos declined to comment while Hellman & Friedman, JMI Equity, Blackstone and GIC could not be immediately reached for comment.

Chelmsford, Massachusetts-based Kronos provides workforce management for companies and organizations in more than 100 countries.

Human resources technology is in strong demand among businesses, which are increasingly turning to cloud computing, which allows them to access data from remote servers that are faster and cheaper than traditional in-house infrastructure.

Workday Inc, a Silicon Valley startup that offers Web-based human resources software, had a blockbuster initial public offering in October 2012 and its shares have almost doubled in value the last 12 months amid strong earnings.

Hellman & Friedman and JMI Equity, which took Kronos private for $1.8 billion in 2007, have taken advantage of Kronos' strong cash flow to draw more than $1.5 billion in dividends from the company.

They committed $698 million as equity to the 2007 deal along with the company's management. Including the dividends they have taken out, the potential deal with Blackstone and GIC values Kronos at around 5 times their original investment, one of the sources said.

Most recently in November, they had the company borrow to pay themselves a $490 million dividend, according to Moody's Investors Service Inc.

Kronos has a large and diversified base of enterprise clients and its recurring maintenance and subscription model has contributed to sustained growth in its revenue and earnings before interest, tax, depreciation and amortization (EBITDA), Moody's commented in November.

Kronos has EBITDA of around $350 million and is being advised by Morgan Stanley on the potential sale, people familiar with the matter said in December.

Hellman & Friedman and smaller buyout firm JMI Equity also teamed up late last year to buy insurance software provider Applied Systems from Bain Capital LLC for $1.8 billion. In 2010, they sold insurance software firm Vertafore to TPG Capital LP for $1.4 billion.

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