For a firm that traditionally put the “private” in private equity, KKR planned stock-market listing amounts to a cultural revolution.
KKR, or Kohlberg Kravis Roberts, has always guarded its privacy so keenly that, even today, it doesn’t bother to employ an in-house press officer. But following its planned IPO, it will become public in every sense of the word: Its units will trade on public markets, it will invest in public companies, and it will be forced to accept full public scrutiny of its ownership, compensation and tax arrangements. That is bound to be an uncomfortable experience.
All this begs the question why KKR would put itself through the trauma of change to raise such a paltry amount of money. Private equity group KKR filed on 4 July with US regulators to raise up to $1.25 billion (Rs5,000 crore) in a flotation. That’s about a quarter of the amount KKR raised for its Amsterdam-listed private equity fund last year and a tiny fraction of its total $56 billion under management. Assuming KKR is valued on a similar multiple of 25 times this year’s earnings to that of rival Blackstone, the firm would be floating just 4% of its equity. The IPO will allow KKR to match the pioneering move into the public markets made last month by Blackstone. Its move comes despite fears that the cheap credit that has fuelled the buyout boom may be coming to an end, reports the Financial Times.
What’s more, none of the founders are taking cash off the table. The proceeds will be used to fund new businesses, including plans to start investing in public markets.
The curiously modest ambition of this IPO may bewell judged. The market has only just digested the $4 billion listing of Blackstone, which is now trading below its offer price. Fortress Investment Group, which floated earlier in the year, is also down 30% from its peak.
Two other asset managers, Och-Ziff and Citadel, are also planning stock market listings over the next few months.
And all these deals are taking place against a backdrop of increasing nervousness in the markets and the threat of US legislative changes to the way the industry is taxed.
At least by keeping the deal small, KKR is unlikely to stretch the appetite of a saturated market. And it provides an acquisition currency for the industry consolidation that is likely to come.