KKR dusts off listing plans, opts for takeover route
KKR, the leveraged-buyout firm run by Henry Kravis and George Roberts, plans to convert to a public company by the end of the year in a transaction that may give it a market value of as much as $15 billion.
By Bloomberg |
NEW YORK: KKR, the leveraged-buyout firm run by Henry Kravis and George Roberts, plans to convert to a public company by the end of the year in a transaction that may give it a market value of as much as $15 billion.
KKR will abort the initial public offering it announced a year ago, before the buyout market collapsed, and instead go public through a takeover of the Amsterdam-listed buyout fund it created in May 2006. KKR Private Equity Investors has left investors who bought shares in its May 2006 IPO with losses of almost 60%, the firm���s only fund to post a loss in KKR���s 32-year history. When the deal is completed by December, the shares will trade on the New York Stock Exchange, KKR said.
Kravis and Roberts won���t raise new capital in the deal, a goal of the original IPO, though they will get the buyout fund���s $4.56 billion of assets and can issue more new stock to make acquisitions and attract and retain employees.
The cousins, who started the firm in 1976, consider being public key to efforts to expand KKR���s fixed-income and capital-markets units and reduce their reliance on LBOs.
���Having a public security is sufficiently attractive that a firm will do a complex deal like this is order to have it,��� said Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College���s Tuck School of Business in Hanover, New Hampshire.
After the acquisition, shareholders of KKR Private Equity Investors will own 21% of the public KKR. The firm will keep 79%, and principals including Kravis and Roberts, whose stock will vest over six to eight years, won���t be able to start selling shares for 180 days.
Kravis and Roberts, both 64, started the firm with their Bear Stearns colleague Jerome Kohlberg and helped pioneer the LBO business with deals such as the buyout of RJR Nabisco in 1989. Kohlberg left in 1987 to start Kohlberg & Co. The firm���s investments today range from Alliance Boots, the British chain of drugstores, to HCA, the US hospital operator.
In all, Kohlberg Kravis Roberts & Co, as the firm was previously known, owns stakes in 46 companies with $205 billion in sales and 8,55,000 employees, according to a presentation on its website. That includes the former TXU, the Dallas-based power producer it bought with TPG for $45 billion including debt, the largest US leveraged buyout.
In a leveraged buyout, the purchaser borrows money against the target company to fund the transaction. A two-year boom, fuelled by low interest rates that allowed firms to seek ever-larger acquisitions, ended a year ago when rising losses on subprime mortgages scared investors away from all but the safest government debt, making financing scarce.
KKR forecasts a profit of about $1.2 billion in 2009, according to the presentation. It expects investors to value the company at 10 to 12 times earnings, or between $12 billion and $15 billion. At $15 billion, KKR Private Equity would have a value of about $3.9 billion, according to the presentation.
Deals Drop
Announced private-equity deals dropped more than 70 % to $163.1 billion in the year through July 25 from the same period in 2007.
``You can't get bank debt right now, and KKR or any other private-equity firm can't get the returns they're looking for without bank debt,'' said Dan Veru, who helps manage $2.8 billion at Palisade Capital Management LLC in Fort Lee, New Jersey. ``They require more equity investment than leverage.''
KKR managed $60.8 billion of assets at June 30, 2008, according to the statement. Blackstone oversees $113.5 billion, and Washington-based Carlyle has about $81 billion under management. KKR's funds have returned an average of 26 % to investors, according to the Web site.
Morgan Stanley and Goldman Sachs Group Inc. are advising KKR, while Citigroup Inc. is advising KKR Private Equity and Lazard is advising KKR Private Equity's independent directors.
KKR will abort the initial public offering it announced a year ago, before the buyout market collapsed, and instead go public through a takeover of the Amsterdam-listed buyout fund it created in May 2006. KKR Private Equity Investors has left investors who bought shares in its May 2006 IPO with losses of almost 60%, the firm���s only fund to post a loss in KKR���s 32-year history. When the deal is completed by December, the shares will trade on the New York Stock Exchange, KKR said.
Kravis and Roberts won���t raise new capital in the deal, a goal of the original IPO, though they will get the buyout fund���s $4.56 billion of assets and can issue more new stock to make acquisitions and attract and retain employees.
The cousins, who started the firm in 1976, consider being public key to efforts to expand KKR���s fixed-income and capital-markets units and reduce their reliance on LBOs.
���Having a public security is sufficiently attractive that a firm will do a complex deal like this is order to have it,��� said Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College���s Tuck School of Business in Hanover, New Hampshire.
After the acquisition, shareholders of KKR Private Equity Investors will own 21% of the public KKR. The firm will keep 79%, and principals including Kravis and Roberts, whose stock will vest over six to eight years, won���t be able to start selling shares for 180 days.
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The takeover values each share of KKR Private Equity Investors at $16 to $19.20, less than the fund���s $22.25 net asset value at the end of June, the firm said in a presentation. The stock rose 29% to $13.50 by 11:40 am in Amsterdam on Monday. The shares, which were first sold to the public for $25, had dropped as low as $10.30 on July 18.Kravis and Roberts, both 64, started the firm with their Bear Stearns colleague Jerome Kohlberg and helped pioneer the LBO business with deals such as the buyout of RJR Nabisco in 1989. Kohlberg left in 1987 to start Kohlberg & Co. The firm���s investments today range from Alliance Boots, the British chain of drugstores, to HCA, the US hospital operator.
In all, Kohlberg Kravis Roberts & Co, as the firm was previously known, owns stakes in 46 companies with $205 billion in sales and 8,55,000 employees, according to a presentation on its website. That includes the former TXU, the Dallas-based power producer it bought with TPG for $45 billion including debt, the largest US leveraged buyout.
In a leveraged buyout, the purchaser borrows money against the target company to fund the transaction. A two-year boom, fuelled by low interest rates that allowed firms to seek ever-larger acquisitions, ended a year ago when rising losses on subprime mortgages scared investors away from all but the safest government debt, making financing scarce.
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After earning $814.8 million in 2007, KKR had a net loss of $117.9 million in the first quarter as the value of the companies it owns fell, according to the statement released on Sunday.KKR forecasts a profit of about $1.2 billion in 2009, according to the presentation. It expects investors to value the company at 10 to 12 times earnings, or between $12 billion and $15 billion. At $15 billion, KKR Private Equity would have a value of about $3.9 billion, according to the presentation.
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Blackstone Group, manager of the world���s largest buyout fund, raised $4.75 billion in an IPO in June 2007. The New York-based company, whose stock has fallen 45% since, trades at 13 times estimated 2009 earnings and has a market value of $18.4 billion. Apollo Global Management, the New York-based buyout firm run by Leon Black, initially sold stock to investors in a private placement, though it has filed to allow almost 30 million shares to trade publicly. Deals Drop
Announced private-equity deals dropped more than 70 % to $163.1 billion in the year through July 25 from the same period in 2007.
``You can't get bank debt right now, and KKR or any other private-equity firm can't get the returns they're looking for without bank debt,'' said Dan Veru, who helps manage $2.8 billion at Palisade Capital Management LLC in Fort Lee, New Jersey. ``They require more equity investment than leverage.''
KKR managed $60.8 billion of assets at June 30, 2008, according to the statement. Blackstone oversees $113.5 billion, and Washington-based Carlyle has about $81 billion under management. KKR's funds have returned an average of 26 % to investors, according to the Web site.
Morgan Stanley and Goldman Sachs Group Inc. are advising KKR, while Citigroup Inc. is advising KKR Private Equity and Lazard is advising KKR Private Equity's independent directors.
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