Boston mutual fund giant Fidelity Investments and New York private equity firm
KKR has investments in 50 companies with a combined $200 billion of revenue. But KKR has not had an IPO since it took Sealy Mattress Co. public in 2006.
There have been only seven traditional IPOs on U.S. exchanges this year, according to Thomson Reuters data. But that string of deals came after a six-month period that had seen only one U.S. IPO.
The market “may be picking up momentum,” said Mark Haggerty, president of Fidelity’s capital markets unit, referring to the deals so far. “Overall it’s moving in the direction we hope,” he added.
IPOs tend to be riskier investments, their image strongly tied to the dot-com era, and the recession has all but eliminated them this year.
Under the terms of the deal, Fidelity will get the right to sell retail securities to its customers. Traditionally, retail customers had trouble getting IPO shares to buy through their brokers, since underwriters first look to wealthier customers and institutional investors to buy large numbers of the securities. Also, many financial advisers caution that these shares can be too risky for the average investor saving for retirement or similar goals.
Craig Farr, head of KKR’s Capital Markets group, said he hopes the deal with Fidelity will increase demand for shares, or what he called greater “pricing tension.” If retail customers typically buy around 25 percent of an IPO, he said the new arrangement might increase that to 30 percent.
The deal between KKR and Fidelity would also give the mutual fund giant’s customers access to an IPO by the private equity firm itself if KKR were to do one, a source familiar with KKR said.
In April, KKR extended by four months the deadline to buy its Amsterdam-listed fund KPE, a deal that is key to KKR’s plans for any U.S. stock listing.
KKR announced the complicated transaction last July, saying it would buy KPE, delist it from Euronext and launch the combined new company on the New York Stock Exchange under the stock symbol “KKR.” KKR had previously considered a more conventional IPO.
The IPO market has only begun to recover gradually from its near collapse in 2008. After 186 IPOs in 2007 yielded $38.9 billion, only 28 IPOs priced last year, according to Thomson Reuters data.
By Ross Kerber