KKR Enters India For Software Deal

When it comes to international investing, New York-based Kohlberg Kravis Roberts & Co. is not known as a first mover. The firm openly expressed its reluctance to move into Asia, and only announced plans to open offices in the region last September. But the thing about the iconic New York firm is that once it plans to do something, it usually does it in a big way.

Such is the case with the firm’s latest goal: to carve the software development and solutions business out of Flextronics International Ltd. (Nasdaq:FLEX), which has its operations based predominantly in India and operates under the name Flextronics Software Systems. With a price tag of $900 million, KKR believes this deal, for an 85% stake in FSS, will be the largest leveraged buyout in India to date. The remaining 15% of FSS will continue to be owned by Flextronics.

According to Thomas Dinges, chief financial analyst at JPMorgan, the deal weighs in at just under 4x the division’s revenue and “falls in the middle of the range for recent transactions as well as trading ranges.”

FSS provides software solutions to the global communications industry and offers both licensable technologies and outsourcing services to more than 300 customers globally. In addition to its operations in India and the U.S., FSS has locations in China, Germany, Italy, South Africa and Ukraine.

Once the deal is consummated, expected sometime this summer, FSS’s current CEO Ash Bhardwaj and President Arun Kumar will continue to head the company under a still-undetermined new name.

The deal with Flextronics comes just months after the New York firm hired former Flextronics CEO Michael Marks, who still sits on the board of directors at the company as the chairman.

The carveout of FSS will be KKR’s inaugural investment in India and its second in the Asian marketplace. The first was made last year when KKR teamed up with Silver Lake Partners to acquire the semiconductor business of Agilent Technologies Inc. (now known as Avago Technologies Ltd.). That deal, valued at about $2.8 billion, is said to have created the world’s largest privately-held semiconductor company.

KKR is currently investing out of its $6 billion KKR Millennium Fund, which was raised in 2003. It’s successor, KKR Millennium II, has been targeted to raise $10 billion in LP commitments.

About $600 million of the $900 million purchase price for FSS will be paid in cash while the remainder will be in the form of an eight-year, 10.5% paid-in-kind note. Citigroup Global Markets (Asia) and Merrill Lynch are acting as joint bookrunners and joint lead arrangers for the acquisition financing.

Including the consortium buyout of SunGard Data Systems and the aforementioned Agilent/Avago carveout, KKR has committed more than $1 billion of equity to the technology sector in the past year.

Calls placed to KKR were not returned by press time.

In other emerging market-related private equity news, William Owens, the former head of communications technology company Nortel Networks Corp., reportedly has agreed to join AEA Investors to assist the firm with its entry into India and China. Before beginning his business career—which also included a stint as president, COO and vice chairman of Science Applications International Corp (SIAC), and another at satellite communications company Teledesic LLC, where he reached the title of CEO—Owens was an admiral in the U.S. Navy and later became Vice Chairman of the Joint Chiefs of Staff under President Bill Clinton. —A.N.