(Reuters) – The private equity owners of Kronos Inc have rejected bids that valued the human resources software company at more than $4.5 billion, according to people familiar with the matter, leaving in limbo what would have been one of the largest technology leveraged buyouts of the last 12 months.
Buyout firms Advent International Corp, Blackstone Group LP (BX.N: Quote, Profile, Research, Stock Buzz) and Bain Capital LLC submitted binding offers last week for Kronos, a competitor of Workday Inc (WDAY.N: Quote, Profile, Research, Stock Buzz), the people said on Wednesday.
After reviewing bids that were as high as $4.6 billion, Kronos’ owners, Hellman & Friedman LLC and JMI Equity, have told suitors the prices are too low to proceed with a sale, the people said.
They have instead proposed to sell just a minority stake in the company at this time, an idea that has been turned down by the potential buyers, three of the people said.
It remained unclear whether a deal could still be reached at a higher price with one of the bidders, or whether Kronos’ owners will abandon the sale for now to try again in the future.
Buyout firms presented their offers last week as best and final, said the people, who asked not to be identified because the talks are private.
Representatives for Kronos, Hellman & Friedman, Blackstone and Bain did not immediately respond to requests for comment, while JMI Equity and Advent declined to comment.
The standstill in the auction underscores the sellers’ high hopes for Chelmsford, Massachusetts-based Kronos, which 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, a Silicon Valley startup that offers Web-based human resources software, had a blockbuster initial public offering in October 2012 and its shares have risen 88 percent in the last 12 months amid strong earnings.
Although Oracle Corp (ORCL.N: Quote, Profile, Research, Stock Buzz), IBM Corp (IBM.N: Quote, Profile, Research, Stock Buzz) and SAP AG (SAPG.DE: Quote, Profile, Research, Stock Buzz) did not approach Kronos this time, private equity firms are hoping they one day might be willing to pay top dollar for the company.
In the last two years, the three technology conglomerates have acquired other companies in the human resources technology sector. Oracle bought Taleo Corp for $1.9 billion, IBM acquired Kenexa Corp for $1.3 billion and SAP took over SuccessFactors Inc for $3.4 billion.
STRONG CASH FLOW
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 have already earned twice the $752.9 million they committed as equity when they agreed to acquire the company in 2007.
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 estimated EBITDA of around $350 million and is being advised by Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) 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 for $1.8 billion. In 2010, they sold insurance software firm Vertafore to TPG Capital LP for $1.4 billion.
Last year’s biggest leveraged buyout in technology ce was the $6.9 billion acquisition in September of BMC Software Inc by a private equity consortium comprising Bain Capital LLC, Golden Gate Capital LLC, Insight Venture Partners LLC, GIC Special Investments and Elliott Management Corp