KKR buys 85% in Flextronics for $900 million

Deal marks India's largest technology investment ever.

In the country's largest technology investment till date, US-based private equity fund Kohlberg Kravis Roberts & Co (KKR) has bought 85 per cent in Flextronics Software System, the Indian software arm of Singapore-based Flextronics, for close to $900 million.

Flextronics, which will retain a 15 per cent stake in the company, will receive over $600 million in cash and hold a $250 million face value note with a 10.5 per cent paid-in-kind interest coupon which matures in eight years. Flextronics Software Systems (FSS) CEO Ash Bhardwaj said the company might be renamed in the future.

Flextronics, the world's largest contract electronics manufacturer, expects the after-tax gain from the sale of its software business to be $175 million.

The deal marks the entry of California-based KKR, which has invested over $193 billion in 140 transactions worldwide, in India. This is its second transaction in Asia ever since it entered the region in 2005.

KKR's financing is fully underwritten. Citigroup and Merrill Lynch are acting as joint bookrunners and joint lead arrangers for the acquisition financing. They also acted as financial advisers to KKR.

Flextronics Software System is also looking at a stock buy-back option from the money that it will earn. "The proceeds of the sale can be effectively used for the other side of our business (electronics manufacturing)," added Bhardwaj.

FSS, which has acquired seven entities over the last four years, including Future Soft, AvniSoft and Frog Design, will be grouped into one entity, which will be renamed and headed by the same management team.

FSS along with global software development company Frog Design will continue to focus on communication networks and product development services around the globe.

The transaction, expected to close in the summer, is subject to regulatory approvals and other customary closing conditions. The company, which has 6,100 employees worldwide, has about 85 per cent of its workforce in India.