In what could well be the largest leveraged buyout and technology investment in India, Kohlberg Kravis Roberts, the New York based firm, has agreed to pay about $ 900 million to acquire 85 percent of the Indian software maker Flextronics Software Systems.
Flextronics is expected to receive more than $ 600 million in cash from the sale of the software business, and hold a $ 250 million face-value note that matures in eight years as part of the deal. As per the details of the deal, it will also retain a 15 percent stake in the software business, which will operate as an independent company.
KKR will buy this stake from the software maker’s parent, Flextronics International, which is based in Singapore and is the world’s largest maker of electronics for other brands, including Microsoft Xbox video game consoles and Dell computers. It’s Indian counterpart which started out as an offshore software-development unit of Hughes Electronics, was sold to Flextronics International and will now function as a stand-alone company.
While explaining the rationale behind the move, Michael McNamara, chief executive officer, Flextronics, said, “This transaction is the continuation of our previously announced strategy of focusing our efforts and resources on the reacceleration of significant growth opportunities in our core EMS (Electronics Manufacturing Services) business.”
The official statement made by KKR said, “As a key research and development partner to top tier communications companies worldwide, the business has developed a sophisticated global delivery model. Being comprised of a software solutions group and a strategic design consulting group, the business is experiencing rapid growth and has approximately 6,100 employees worldwide. In addition to operations in the United States and India, it has a significant presence in eastern Europe.”
Portraying an extremely upbeat disposition, Adam H. Clammer, a KKR executive, said, “Our investment in Flextronics’ software development and solutions business is an outstanding opportunity to create value in a high-growth sector.”
Flextronics is expected to generate cash proceeds in excess of $ 1 billion through the divestitures of our software, network services and semiconductor businesses, assuming this transaction is consummated.
KKR’s financing is fully underwritten. Citigroup and Merrill Lynchare acting as joint bookrunners and joint lead arrangers for the acquisition financing.
In India, the Flextronics buyout is the latest and largest in a string of big private-equity deals. In 1999, Warburg Pincus began pouring $ 300 million into Bharti Tele-Ventures, a telecommunications company. By 2005, Warburg had sold two-thirds of its stake for $ 1.1 billion after Bharti had grown to more than 10 million subscribers from 100,000.