Kohlberg Kravis Roberts, one of the world’s biggest private equity firms, said yesterday that it plans to float on the New York Stock Exchange with a price tag of about $15bn. Last summer the credit crunch scuppered its original plans for a public listing – now it’s decided to revisit the idea, despite the fact that financial stocks are still in the doldrums.
In the UK, KKR’s highest-profile deal has been the £11bn acquisition of Alliance Boots last summer, at the height of private equity’s notoriety – which it luckily managed to get away just before the big problems started (although the banks that backed the deal weren’t quite so lucky). But it’s still probably best known for the $31bn acquisition of RJR Nabisco in 1989, a deal which was immortalised in the classic business book ‘Barbarians at the Gate’.
When founder Henry Kravis announced KKR’s plans to list last year, he talked of a ‘golden age for private equity’. But since then, its lustre has been rather tarnished – a series of big deals brought the industry under hostile scrutiny from the wider world, and the onset of the credit crunch meant the supply of cheap debt that fuelled the buyout boom dried up almost overnight. The fortunes of arch-rival Blackstone, which has seen its share price fall off a cliff since listing last year, demonstrates how sentiment has changed for these Masters of the Universe.
As does KKR’s expected valuation. Last year’s flotation was expected to value the firm at about $26bn, raising $1.5bn in fresh capital. This time round it’s expecting to achieve a value of about $15bn, with no extra capital – while it’s also insisting that none of its top brass will be cashing in their chips.
And it’s taking a different approach: this float is happening via a complicated merger with Euronext-listed fund KKR Private Equity Investors. Like most listed private equity stocks, KKR PEI (which invests in other KKR funds and also co-invests on specific deals) has tanked in recent months, dropping from $25 a share to nearly $10. The theory is that its parent company wants to buy in at this low valuation, which will effectively allow it to buy back bits of its own deals on the cheap.
After 32 years as a private partnership, it’s a bold move to list at a time when sentiment is so negative. But KKR will argue that as always, it’s playing the long game – and at a time when institutional money is drying up, it might be a good idea to open up an extra source of capital. If this is anywhere near the bottom of the market, there could be a big upside for patient investors who buy in now...