Workforce management software provider Kronos, Inc. announced late last week that it is going private after accepting an acquisition offer worth nearly $1.8 billion from equity firm Hellman & Friedman Capital Partners VI, LP. Founded in 1977, Kronos makes software that helps companies in manufacturing, retail, and transportation manage their workforces through tools such as payroll, time and attendance tracking, scheduling, and talent assessment. The company's flagship product line is known as the Workforce Central suite. Kronos also has a version of the suite for the IBM System i computer. In its fiscal year ended Sept. 30, 2006, Kronos had $578 million in revenue and GAAP net income of $41.4 million. Kronos was relatively mum about the acquisition today, offering little comment besides a prepared statement from its CEO Aron Ain. Referring to Hellman & Friedman, Ain said, "They have tremendous capital resources, significant expertise in software and technology, and a proven track record of building leading global companies." Since its founding in 1984, Hellman & Friedman has invested in companies across a range of industries, including energy, financial services, insurance, and software and information services. Based on information on the firm's Web site, its investments tend to be between $200 million and $750 million. The Kronos deal also involves a second private investor, JMI Equity, which has backed companies such as supply chain software provider ClearOrbit and PROS Revenue Management. Apart from stating that Hellman & Friedman is the lead investor, the two companies did not reveal their shares of the investment. In his statement, Ain said that "Kronos remains deeply committed to the markets we serve, and we now expect to have even greater flexibility to invest in our customers, technology, and people." Judy Sweeney, senior vice president of AMR Research, supported Ain's claims, saying that in the case of private equity buys, the acquiring company tends to leave the vendor to service its customers as it has been doing. "I don't see any downside to customers at this point, and a lot of potential upside in the long term," Sweeney said. As for why Kronos, a publicly traded company that had enjoyed double-digit revenue growth in recent years, would want to leave the public realm, Sweeney speculated that the access to capital for further investment and the ability to plan long term instead of quarter to quarter were likely to have been strong drivers. Kronos wants to be the number-one provider of HCM applications in the mid-market, she explained. "You have one or two choices to be that full suite provider. You either have to build it all yourself or you have to acquire companies," she told Managing Automation, noting that purchasing the capability is a quicker path to market. "I think this gives them the capital to do that." On the flipside, Hellman & Friedman's interest probably derives from the recent performance of the sector. "The HCM space is pretty hot right now," Sweeney said. An AMR research note published in September 2006 shows that in the second quarter of 2006, HCM firms received $87 million in venture capital investment, enough to put it in fourth place, outpacing industries such as PLM, ERP, and RFID, among more than a dozen others. For Hellman & Friedman, she said, "It was an opportunity to get in with a pretty well-established company," noting that Hellman & Friedman may find synergies between Kronos and its other companies under management. As part of its focus on developing vertical-specific products, Kronos in January announced Kronos for Manufacturing, a hybrid software/services product that includes a variety of workforce management applications as well as plant floor intelligence such as material constraints, machine uptime, and employee productivity. Kronos is only the latest pearl in a string of equity transactions that have seen many software providers go private. In September 2006, diversified manufacturer Illinois Tool Works acquired supply chain management vendor Click Commerce, purchasing all of the company's public shares for a $292 million price tag. In the spring of 2005, supply chain software provider Red Prairie came under the control of Francisco Partners, saying it would use the equity infusion to make further investments in its product line. Early in 2006, ERP vendor Made2Manage sold a sizable minority stake — "less than 50% but greater than 25%," in the words of CEO Jeff Tognoni — to Thoma Cressey Equity Partners. The deal was said to give the ERP provider more capital to pursue its growth-by-acquisition strategy. Made2Manage, which today operates under the name Consona Corp., had been taken private in August 2003 by equity financer Battery Ventures. And perhaps the crown jewel of private equity in the enterprise software marketplace is Infor, which, with the backing of private equity firm Golden Gate Capital, has acquired its way to a competitive position amid industry heavyweights SAP and Oracle. Kronos's decision to go private may help it in its quest to compete against those vendors' HCM offerings, Sweeney noted. With greater access to funding, Kronos could focus on augmenting its performance management efforts; rounding out its HR offerings; broadening its push into recruiting applications, for which its 2006 acquisition of Unicru is the basis; and rounding out its workforce management product with more learning and training tools, among other additions.