KKR to get hold of Flextronics Software Business
Pioneer of private equity, U.S. based firm Kohlberg Kravis Roberts & Co. is all set to pay $900 million on its first investment in India. This is the biggest leveraged buyout in India and Singapore-based software development and solutions business of Flextronics International Ltd is the propitious firm in this transaction.
The deal also underlines India’s emergence as a destination of choice for private-equity firms, the investors that buy shares of private companies and routinely sell their investments at much higher returns than can be obtained ordinarily on stock markets.
The Singapore-based Flextronics, with operations spread out throughout the world, is by far the largest electronics and IT contract manufacturer which makes products such as Microsoft Corp. Xbox 360 video game consoles, Motorola Inc. mobile phones and Dell Inc. computers, said it would receive more than $600 million in cash and a $250 million face-value note for the asset. It said Flextronics Software Systems will operate as an independent company under a new name. The new name of the business is yet to be selected.
The existing management team along with CEO Ash Bhardwaj, FSS President Arun Kumar will continue to lead the software business after completion of the transaction.
Ash Bhardwaj, CEO of the software business, said, "This transaction is a positive development for our customers, employees and stakeholders. KKR is the world’s premier private equity investment firm, and its interest in our business validates what we have accomplished and our significant potential." Flextronics International, the parent, said it wanted to refocus on its core business of manufacturing. It plans to retain a 15 percent stake in Flextronics Software, which has 2,500 employees and continue as a partner and customer.
The deal marks KKR’s first purchase in India and second investment in Asia, following its 2005 investment in Avago Technologies, the former semiconductor-products group of Agilent Technologies Inc. Adam Clammer , a member of KKR, said, "Our investment in Flextronics’ software development and solutions business is an outstanding opportunity to create value in a high-growth sector. Led by a world-class management team, the software business has an unmatched record of success in the delivery of communications technology." ``KKR and the other buyout funds are looking for opportunities and are recruiting talent,’’ said Partners Group’s Chan. ``At the end of the day, you need people on the ground to look for the deals, complete them and manage their investments.’’
Flextronics had acquired the unit, formerly known as Hughes Software Systems, based in New Delhi. It is now headquartered in Palo Alto, California and its operations are spread over the U.S., India and Eastern Europe. It has some 6,100 employees on its roll around the world and its center in Bangalore focuses on development of software for the internet.
What Flextronics has done in focusing on its EMS business is positioning the software business as an entity that can control its own destiny
