Hellman & Friedman’s decision to merge its portfolio companies Kronos and Ultimate Software shows the benefit of a GP finding a way to extend its hold on an asset beyond the confines of a traditional private equity fund.
In 2018, H&F pulled Kronos, a cloud-based human resources software provider, out of its 2007 fund and into a continuation vehicle for more time to manage the asset. LPs in the old fund had the option to cash out of their exposure to the company, or roll their interests into the continuation fund that would hold Kronos.
This type of process is called a single-asset secondary. The 2007 fund was winding down and H&F wanted more time to manage Kronos, which it saw as having more growth ahead.
At the time, H&F’s $10.9 billion Fund VIII, along with Blackstone, GIC and JMI Equity, participated in the transaction to transfer Kronos into a continuation vehicle. These pools usually have terms of three-to-five years, giving the GP cushion to continue growing the company. Check it out.
Fast forward to Thursday: H&F announced it would merge Kronos with its recently acquired portfolio company Ultimate Software to create a combined company valued at around $22 billion. This is robust growth for both companies: An H&F investor group bought Ultimate Software last year at an $11 billion valuation. And H&F tried to sell Kronos in 2014 at a $4.5 billion valuation, but rejected all bids. Blackstone and GIC ended up buying minority stakes in the business instead.
The same investors that backed Kronos, H&F, Blackstone, GIC and JMI Equity, also acquired Ultimate Software last year, with the addition of Canada Pension Plan Investment Board. Which leaves the impression that this merger was envisioned from the beginning.
Stuck in the 2007 fund H&F didn’t have many options — as the pool lived beyond its 10 year fund life, the firm was faced with a tough decision to sell a company it may have been reluctant to cut loose.
Either way, now, H&F just greatly expanded Kronos into a huge organization. It was able to do this only after the use of a continuation vehicle, with buy-in from LPs in the 2007 fund, as well as its 2008 fund and co-investors in the deal.
It’s a great example of what can happen when the tools of the secondary market are leveraged to extend hold periods for the long-term.
Did you catch this one? Two former Credit Suisse fundraising veterans have formed their own firm, which could shake up the highly competitive private equity fundraising market. Aviditi Advisors was launched by Ryan Schlitt and John Robertshaw, both formerly senior executives with Credit Suisse’s private capital advisory group. Aviditi is out competing for mandates, sources tell me. No word yet from the boys themselves though. I imagine we’ll be hearing from them soon. Check it out here on Buyouts.
Diversity is an idea on everyone’s mind in private equity and venture capital. Robert Smith, founder and CEO of Vista Equity, runs an organization that is committed to building and retaining a diverse workforce. Some top-line stats: women make up 43 percent of Vista’s workforce and about 30 percent of the workforce are people of color. About 23 percent of Vista senior staff are female leaders, while 20 percent are people of color. Nearly 40 percent of Vista’s external board members are women. Read Milana Vinn’s story here on PE Hub.
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