On February 21, Kronos Incorporated and Ultimate Software announced the merger of the two entities. Both entities’ controlling stockholder is the private equity firm Hellman & Friedman (H&F). The merger was approved by both boards and is expected to be completed by the end of March.
Kronos may start to jettison its legacy HCM technology and leverage Ultimate’s cloud-based SaaS solution. There are likely synergies to be realized in bringing Kronos’ best-in-class employee time-tracking technology to bear within the Ultimate Software stack as well. It is projected that an additional 3,000 jobs will be created as result of the newly merged companies.A common strategy for private equity firms is to take an underperforming company and optimize the operating performance such that the company can be brought public via an IPO stock offering. Thus, combining the two companies within a private equity firm’s portfolio will increase market share, reduce the internal fighting and competition, and reduce the waste and expenses of each organization by combining their synergies while making the combined balance sheet more attractive to investors and Wall Street.
From a customer perspective of either company, nothing is going to change in the immediate future as the new entity prepares to move into executing its post-merger strategy. This will most likely result in combining the market share of the two companies, which are currently competing against each other in the same portfolio, and take the best-in-show offerings from each company to the newly merged company. This combination will also take the quarterly measuring stick off the table and allow the company to operate unencumbered. However, we are bullish on the notion that 3,000 new employees will be required to support the new entity.
It will be interesting to observe the effect of the merger on the pressure to reduce expenses and subsequently on any degradation of services. If you are a current customer of either Kronos or Ultimate Software, ensure you have an effective scorecard and periodic business review meetings to monitor service levels and their performance in preparation for your renewal.