Hellman & Friedman completed one of the first, large single-asset processes when it did so with Kronos, an older portfolio company, in 2018.
At the time, a few similar investments helped open the market to what today is a growing part of GP-led secondary deals, which traditionally involved broader fund restructurings with multiple assets. The idea of focusing on a single asset, like Kronos, is a relatively new phenomenon.
Hellman & Friedman showed this week what can happen when a GP gives itself more time to manage an asset.
The firm announced Thursday it would merge Kronos, a cloud-based human resources software provider, with another portfolio company, Ultimate Software. The newly merged company would be valued at $22 billion. A Hellman-led investment group acquired Ultimate Software last May at a valuation of $11 billion.
Hellman will be the controlling shareholder of the merged company, followed by Blackstone Group as the largest minority shareholder. GIC, Canada Pension Plan Investment Board and JMI Equity also have minority interests in the company.
Hellman moved Kronos out of its sixth fund, which closed on $8.4 billion in 2007, in the single-asset process back in 2018. At the time, Kronos, which Hellman believed had more growth ahead of it, was part of an older fund with only a few assets left, sources told Buyouts at the time.
The firm acquired Kronos in a $1.8 billion take-private transaction in 2007, investing with JMI Equity in the company. The single-asset process included an investor group led by Blackstone Group and Hellman’s Fund VIII, a $10.9 billion pool closed in 2014. Blackstone had a stake in Kronos, which it acquired alongside GIC in a $750 million deal in 2014.
The same Hellman-led investment group, with the addition of CPPIB, acquired Ultimate Software in May 2019 – a sign that the owner group had this merger in mind from the beginning.
Hellman tried to sell Kronos in 2014, but rejected bids from Advent International, Blackstone and Bain Capital that valued the company at more than $4.5 billion, Reuters reported. Blackstone ended up acquiring a minority stake.
It doesn’t appear Hellman & Friedman used an adviser on the single-asset process, which is unusual but makes sense if the firm was not interested in bringing in outside investors into the process. Secondary advisers help bring external investors into processes, as well as assist with LP communications about complex deals.
With more time to manage the asset, Hellman was able to complete the merger, creating a much larger company.
Growing part of the market
Single asset deals usually give a manager three-to-five years to own the company, outside the confines of the traditional private equity structure. Traditional funds compel a firm to sell investments inside the 10-to-12-year life of the pool.
More single-asset deals are expected to hit the market this year as GPs look for options to hang on to treasured assets with room to grow. “The comment I hear regularly is ‘I’d much rather buy my own portfolio … rather than go out to the market and pay up for an asset I don’t know that well,’” a secondary buyer said.
Three factors help drive the popularity of single-asset deals: GPs want to deliver proceeds back to investors and drive internal rates of return; the high-priced environment is causing sponsors to put more money into assets they know well; and the competitive M&A environment is contracting time banks allow for due diligence in auctions, the buyer said.
Other single-asset processes in the market now are Providence Equity’s process for German TV shopping network HSE24, which the firm wants to move out of its sixth fund. Providence is working with Evercore on the deal. And TPG, with the help of Park Hill Group, is running a process for Creative Artists Agency, held in the firm’s sixth fund.
Single-asset deals grew to 26 percent of GP-led transaction volume last year, according to Greenhill Cogent’s full-year volume survey. That’s up from 4 percent of GP-led deals in 2018, the survey said. GP-led deals represented about $26 billion of $88 billion of total volume last year, the survey said.
Action Item: Check out Hellman’s Form ADV here: https://bit.ly/2v4VYjn