Koch Industries' investment arm buys more than $2 billion stake in Infor

[November 16, 2016]  By Liana B. Baker

SAN FRANCISCO (Reuters) - The investment arm of Koch Industries, the industrial conglomerate of the billionaire Koch brothers, is spending more than $2 billion to take a significant stake in enterprise software provider Infor, the companies said on Wednesday.

The transaction marks the largest investment for Koch Equity Development LLC, the subsidiary that invests excess cash from its parent company, and also represents its biggest push yet into the technology sector.

Reuters exclusively reported last week that the Koch investment arm was in talks with Infor to acquire a stake that was a mix of preferred and common equity valuing the private company at roughly $10 billion.

Koch Industries, with annual revenue of about $100 billion, owns brands such as Brawny paper towels, Dixie Cups and Lycra, and is controlled by Charles and David Koch, two of the world's richest men.

Charles Koch was personally involved in the decision to invest in Infor, a New York-based firm that helps companies automate business processes, according to Infor's chief executive Charles Phillips. Phillips said in an interview that he visited Wichita, Kansas three times to discuss the investment with the billionaire.

"(Charles Koch) was looking to do more in technology and realizes he needs to transform his own companies," Phillips said. "He's been looking for the right platform to help modernize his companies."

Pulp and paper company Georgia-Pacific is already an Infor customer, and Koch Industries' swath of companies that could lead to future business for Infor helped it prevail over other interested parties, Phillips said. About half a dozen private equity firms had been vying to buy either a minority or majority stake in the company, Reuters previously reported.

Brett Watson, senior managing direction at Koch Equity Development, said in a statement that Infor's capabilities were relevant to its portfolio and that it hoped to explore new innovations together.

Infor offers specialized software licenses to specific sectors, as opposed to selling one product to all its customers across industries. It competes with Phillips' former employer Oracle, as well as SAP SE and IBM Corp.

Koch Equity Development will be an active investor and will receive four board seats as part of the deal while the other five seats will go to the existing owners of Infor, Golden Gate Capital and Summit Partners, and Phillips, the CEO. The deal is expected to close in early 2017.

With the new investment, Infor plans to continue spending on acquisitions and on shifting its business model to software subscriptions delivered over the cloud, Phillips said. Its existing owners will also be able to cash in on a portion of their long-held investments.

Golden Gate has owned Infor since 2002, when it acquired one of its predecessor companies, Agilisys. The company changed its name to Infor in 2004, when Agilisys acquired German firm Infor Business Solutions AG.

Koch Equity Development's exclusive adviser was Rothschild Inc and its legal adviser was Jones Day. Infor was advised by Morgan Stanley, Bank of America and Credit Suisse. Gibson Dunn was Infor's legal adviser while Kirkland & Ellis LLP advised its owners.

(Reporting by Liana B. Baker in San Francisco; Editing by Stephen Coates)

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