Next Chapter for Kronos

Source: The Lowell Sun
Author: Dan O'Brien
Date: June 12, 2007

Labor-management software company goes private in $1.8 billion deal today

The more Aron Ain learned about private equity, the more intrigued he was about the possibility of taking his company that route.

Ain, chief executive officer of labor-management software maker Kronos Inc., had soured on the public market's perception of Kronos.

"I take very seriously my role to enhance shareholder value, and I didn't think the public markets were looking after our shareholders," Ain said in his first public comments -- other than a prepared statement -- since the deal was announced in late March.

On March 23, Kronos announced that it agreed to be acquired by a private equity firm, Hellman & Friedman LLC, for $1.8 billion, or $55 a share. Shareholders approved the deal Friday and it was scheduled to close today.

The price represents a big premium from where Kronos shares were trading -- in the $30s -- a short time before the annoucement.

"I thought we were undervalued, and there were plenty of people who were telling me the same thing," Ain said.

Undervalued because Kronos' products -- its software allows companies to track attendance data, scheduling, factory production and payroll processing -- are increasingly important to companies hoping to optimize their labor costs. "There's a real war for talent," Ain said. "Companies realize they need to develop the tools necessary to effectively recruit and manage employees, and we are uniquely qualified to help with our products and experience."

Dozens of companies have agreed to go private this year -- lawn-care giant ServiceMaster agreed to a $4.5 billion buyout just days before Kronos. Many have done so to relieve themselves of the pressures of "making the numbers" each quarter for Wall Street.

Another, more recent hindrance is the passing of the Sarbanes-Oxley Act in wake of the Enron financial scandal. The law calls for stricter -- and hence more expensive to compile -- financial reporting standards from public companies.

"I'm not going to say we were happy to go through with it (Sarbanes-Oxley) -- but that wasn't the reason (we sold)," Ain said. "Are the rules tough? They are, but they were put in for a reason. But I'm not sure they were worth an extra half a million dollars a year, money that can now be put back into the business."

Kronos was founded in 1977 by Ain's older brother, Mark, as a maker of time clocks. It first went public a few years later. Aron Ain took over as CEO in 2005.

The company has a streak of 109 consecutive quarters of year-over-year revenue growth. It has also posted a profit in 80 consecutive quarters.

Ain said that was good enough for Kronos to receive four separate offers above $50 a share from other "strategic buyers," but that Hellman & Friedman's "offered the highest value."

He said the company's financial reporting policy -- its streaks had developed a following -- going forward is yet to be determined.

Ain said there would be no personnel changes -- both he and his brother are staying on -- other than what one would expect "in the normal course of business."

"Look at it this way -- it's a new board of directors," Ain said. "The board of directors we had as a public company didn't let me do everything I wanted to do, and this board of directors won't let me do everything I want to do.

"That said, they are owners, not operators."

And Ain didn't want to hear anything about his "legacy" of selling the company.

"There's still a lot to do," he said. "We're all excited about the next chapter and we are grateful for the support we received from all our customers, employees and shareholders."

Dan O'Brien's email address is dobrien@lowellsun.com.