Kronos Inc. and The Ultimate Software Group Inc., two of the industry’s biggest providers of human resources software, today said they plan to merge into a single company that will be valued at $22 billion including debt.

The deal is an all-stock transaction that’s expected to close at the end of March.

Lowell, Massachusetts-based Kronos, whose Chief Executive Officer Aron Ain will head the combined company, started out as a maker of time clocks in 1977 before switching to software. It now has three software-as-a-service suites that cover all the core aspects of managing a company’s workforce from hiring to payroll management. Kronos says its products are used by tens of thousands of organizations, including half the Fortune 1000.

Weston, Florida-based Ultimate Software competes in the same niche with a suite of cloud-based HR services known as UltiPro. The offering covers many of the same areas as Kronos’ products and is used to manage the personnel records of some 51 million workers worldwide.

Kronos and Ultimate’s relationship goes much further than just their status as competitors. Kronos, once a publicly traded company, was taken off the stock market in 2007 by private equity firm Hellman & Friedman LLC, which as of last year is also the controlling shareholder of Ultimate. And Blackstone Group LP is a minority investor in both companies. 

Kronos’ and Ultimate’s common ownership means that an acquisition was likely a matter of when rather than if. It’s relatively common for private equity firms to merge portfolio companies that can complement each other’s strengths, as was the case with Thoma Bravo’s integration of J.D. Power and Autodata Solutions this past December.

Hellman & Friedman will remain the controlling shareholder of the combined company. Blackstone will be the largest minority investor, followed by GIC, the Canada Pension Plan Investment Board and JMI Equity.

The firm that is set to emerge from the Kronos-Ultimate merger will have annual revenues of about $3 billion and 12,000 employees worldwide. The firm will be led by Ain and a management team comprised of executives from both companies. 

What’s less clear is what will happen with Kronos and Ultimate’s products. The acquisition announcement today stated that the new firm will bring together “the best” of each company’s solutions, but didn’t provide any further detail. 

“If you lined up Kronos and Ultimate up like race cars starting five years ago — competing on who rebuilds products faster — Kronos has clearly won, ” Constellation Research Inc. analyst Holger Mueller told SiliconANGLE. “With Kronos Workforce Dimensions, Kronos has delivered a masterpiece of product development work. Ultimate, on the other hand, has delivered good but industry-average progress.”

Nucleus Research Inc. analyst Trevor White, meanwhile, believes that it’s Ultimate Software’s UltiPro rather than Kronos’ solutions which will be the main focus going forward.

“This merger is a play for Kronos’s user-base,” White told SiliconANGLE. “It’s basically saying to Kronos customers that when it comes time to upgrade, they should be going with Ultimate. From an end-user perspective, Kronos is dead – or, at the most, set to become an UltiPro Light, as there is no reason for there to be any investment into the product anymore.”

With reporting from Robert Hof

Photo: Pkonradk/Wikimedia