Global private equity biggie Kohlberg Kravis Roberts & Co (KKR) maybe looking to exit communications software company Aricent, formerly Flextronics Software Services. KKR is said to be in talks with Wipro, Tata Consultancy Services (TCS) and Tech Mahindra, reports Economic Times. In 2006, KKR had acquired a 85% stake in Aricent for $900 million inone of the largest leveraged buyout in India. Though based in Palo Alto, California, 6,500 of Aricent’s 8,000 employees are based in India.
The interested parties are said to be willing to give Aricent a valuation of $350 million. KKR, the leveraged buyput giant had financed the Aricent buyout through $300 million in equity, $350 million in dollar-denominated loans from a consortium of banks led by ABN Amro, and also took an additional debt of $250 million on the books of Aricent’s predecessor, Flextronics Software. With cheap debt not being available anymore in such a credit environment, it becomes difficult to service a transaction like this, which involves funding the deal using the target’s company’s own balance sheet.
In September last year, Aricent raised $60 million in new round of funding from KKR and Gulf-based Family Office.
With the debt markets worldwide drying up, and cost of debt increasing with banks not willing to lend each other, the break-even analysis done for Aricent may have not turned out to be as expected . KKR, which is planning to list on NYSE, also reported a total investment loss of $1.1 billion in the first half of 2008.
Aricent has also had a change of guard with former Wipro veteran Sudip Nandy joining the firm as CEO in October this year. Aricent’s revenues for 2008 are said to be $365 million, with EBIDTA falling to 9% as compared to 12% in 2007. Aricent designs, develops and maintains software for telecom gear makers and operators. Its clients include Bharti Airtel, Nokia and Vodafone.
KKR has recently appointed Citigroup veteran Sanjay Nayar to be chief executive of KKR India in order to step up India investments. KKR also has a strategic investment of $250 million in Bharti Infratel Ltd, the tower arm of India’s largest private sector telco Bharti Televentures.