High-Tech Promises Rich Deal Opps

High technology should be a rich source of deal flow in the coming year, judging from companies bought in 2005 through 2007 that are still owned by the same sponsors.

Buyouts took a look at 80 of the largest LBOs from the time period still owned by the same sponsors. Companies in high technology accounted for the highest percentage, with 16.25 percent, or 13 companies.

It’s likely many of these sponsors will be looking to exit these investments considering they typically hold a company for three to five years. An improving economy and lively deal market could also encourage them to think it’s a good time to generate returns. If the firms hope to raise another fund anytime soon, their limited partners will also want to see returns on their investments in previous funds.

Potential targets (and IPO candidates) include high-profile members of the buyout boom, such as Freescale Semiconductor, backed by a group of firms including The Blackstone Group and The Carlyle Group, which is expected to go public this year; and SunGard Data Systems, backed by another consortium that included TPG and Kohlberg Kravis & Roberts & Co.

But they also include other companies that don’t generate as many headlines but appear to be strong candidates for a sale or an initial public offering. One company that looks particularly primed is Kronos Inc., a Chelmsford, Mass.-based developer of labor management software systems.

Hellman & Friedman LLC took the company private in 2007 for $1.75 billion. Since then, the company has done at least two significant add-ons. In 2007 it bought Deploy Solutions, a company that provides software that helps large companies manage recruiting and hiring. And in 2009, Kronos bought Stromberg LLC, a developer of employee time and attendance management software.

Last year was particularly eventful year for Kronos: it announced that its revenues for the fiscal year rose 9 percent, to $741 million, while its EBITDA increased 30 percent to $190 million, from the same period the previous year; it signed service agreements with organizations such as the City of Houston, the In-N-Out Burger chain, Jos. A. Bank Clothiers, and Mylan Inc, the generic and specialty pharmaceutical company, among others; it announced it was expanding its business in Europe, Middle East, and Africa; and the U.S. Dept. of Veterans Affairs tapped Kronos to help it manage its 300,000 employees. Executives at Hellman & Friedman were not immediately available for comment.

Other interesting, lesser-known candidates include Open Solutions Inc., a company Carlyle and Providence Equity Partners LLC bought in 2007 for $1.2 billion that develops software for banks. Under Carlyle and Providence Equity, the company has made at least two acquisitions, most recently buying The Weiland Financial Group, a provider of financial account-management services for financial institutions and Fortune 1000 companies. It’s also entered into several partnership agreements that have expanded its business product line and global reach, including one in which a Thailand-based company will offer Open Solutions products to the Asian financial services marketplace. Executives at Carlyle declined to comment.

There’s also CDW Corp., a computer retailer Madison Dearborn Partners bought in 2007 for $6.8 billion. The company posted adjusted EBITDA of $163.6 million for the three months ended 2010, up from $134.8 million for the same period last year.

At least one of the high-tech companies from these vintage years is already on the market. Providence Equity and Warburg Pincus are shopping Telcordia Technologies Inc., a communications software developer the firms bought in 2005 for $1.35 billion, according to The Wall Street Journal. Other buyout shops are considered the most likely suitors, and the company could fetch as much as $1.5 billion, according to the Journal.