BX Blackstone Inc

By Miriam Gottfried and Cara Lombardo 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 21, 2020).

Ultimate Software and Kronos Inc. are merging in a deal creating a big new player in workplace-software products.

The all-stock deal will create a company worth roughly $22 billion including debt, the companies said Thursday, confirming an earlier Wall Street Journal report.

Hellman & Friedman, the private-equity firm that controls both closely held companies, will remain the controlling shareholder, while Blackstone Group Inc., which owns stakes in both, will be the largest minority investor in the combined company.

Kronos CEO Aron Ain will lead the combined company, which will have more than 12,000 employees and dual headquarters in Lowell, Mass., and Weston, Fla.

Ultimate Software develops cloud-based subscription software aimed at corporate human-resources departments. Its offerings include the UltiPro suite of products that allow employees to access tax documents and pay stubs. Kronos software helps companies with absence and performance management.

The combined company would have about $3 billion in annual revenue.

Hellman & Friedman paid about $11 billion last year to take Ultimate Software private and bought Kronos in 2007 in a transaction valued at roughly $1.8 billion.

"We have two remarkable leaders in the human-capital-management space that are so complementary to each other, it's almost scary," Mr. Ain said in an interview. He said the two businesses have only 3% overlap in their customer base, creating an opportunity for them to cross-market their products.

He said there will also be a significant new opportunity for the businesses to grow together into new geographies and offerings and that the combined company plans to add over 3,000 employees in the next three years.

The merged company's size and growth profile make it a candidate for an initial public offering down the road.

With offices in San Francisco, New York and London, Hellman & Friedman has a strategy of making large-scale, concentrated bets on a relatively small set of companies in areas in which it has expertise. It has a long history of investing in software-related businesses, including DoubleClick Inc., which it sold to Google in 2008, and Nasdaq Stock Market LLC, which it exited in 2007.

Kronos has been a successful investment for Hellman & Friedman, delivering returns of 13 times over the 13 years it has been in the firm's portfolio, according to David Tunnell, a partner at the buyout firm who leads its software investments.

"This is an example of how we try to offer long-term support to high-quality growth companies," Mr. Tunnell said in an interview.

For Blackstone, the investment in Ultimate was part of its recent focus on putting money into fast-growing companies -- a strategy that the private-equity giant's President Jonathan Gray has embraced as a way to navigate an expensive market. Other recent so-called growth investments include Blackstone's 2019 deals for a majority stake in MagicLab, which owns dating app Bumble, and mobile performance marketing platform Vungle.

Write to Miriam Gottfried at Miriam.Gottfried@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

February 21, 2020 02:47 ET (07:47 GMT)

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