Flurry Of Deals Shows KKR’s Diversification

  • Exiting Europe’s largest buyout
  • Eearly-stage growth investment
  • Buying fund of hedge funds

Within a span of days, Kohlberg Kravis Roberts & Co. set the terms for an exit from giant 2007 deal in the United Kingdom, put another portfolio company on the block in Australia, set up a deals team in Singapore, led a $135 million growth capital investment in a California speaker maker, named a senior adviser to help guide its future investments in Brazil and acquired a New York-based fund of hedge funds manager,

And shares of KKR & Co., the publicly traded face of the firm, rose 5 percent during that week to close at $12.60 on June 22, while the broader Dow Jones Industrial Average slipped 1 percent on the week to 12,640.78.

KKR did not make executives available by deadline to discuss the developments, but the series of events underscored how far the New York firm has branched out since its founding in 1976 as a buyout shop.

By far, the single biggest step was the firm’s agreement to sell a 45 percent stake in the British apothecary Alliance Boots Holdings Ltd for $6.7 billion in a cash and stock to the U.S. drugstore chain Walgreen Co.

KKR should make about 2.2x its original investment in Boots, according to Reuters BreakingViews, a sister service dedicated to financial commentary. “KKR has found the right formula to exit Alliance Boots, its top-of-the-market drugstore deal. Walgreen’s two-stage acquisition of its European rival should more than double the investment KKR and its partners made at the peak of the leveraged buyout frenzy.” At the time of the original deal in 2007, the Boots LBO was the largest ever in Europe, a distinction that remains unchallenged.

Under the terms of the deal, KKR, which invested £1.2 billion in the company in 2007 alongside other investors, receives £1.2 billion back, plus Walgreen stock worth $140 million, according to the Wall Street Journal’s European deal blog The Source. Walgreen has the option to buy the rest of Boots in the next three years.

On the same day that Walgreen announced that deal, sister news service Reuters reported that KKR had decided to exit Bis Industries Ltd, an Australian provider of services to the minerals, metals and coal mining sectors.

Sources told Reuters that Bis Industries was facing a June 2013 deadline to repay A$905 million ($922.06 million) in loans that KKR used to buy the company in 2006, and refinancing talks had stalled. Reuters said Bis Industries was valued at around $1.8 billion including debt.

Difficult IPO and bank loan markets are prompting companies in Asia to seek alternative ways to finance their businesses, Reuters reported. In the case of Bis Industries, KKR was paying 225 basis points over the benchmark Australian reference rate, and was facing steeper pricing on the refi plan. Bis and KKR declined to provide comment to Reuters.

Elsewhere in Asia, KKR is setting up its first deals team in Singapore as it seeks to invest about $1 billion in Southeast Asia through its second Asia fund, Reuters reported, citing sources with knowledge of the matter. KKR will have as many as eight deal makers in Singapore, the sources said.

That team includes Ridha Wirakusumah, formerly president and CEO of Bank Internasional Indonesia, one of the country’s largest banks, the sources said. Kabir Mathur, a director and ex-TPG Capital executive, and David Tan, a principal who played a key role in KKR’s previous Southeast Asia investments in Masan Consumer Corp. and Unisteel, will also be part of the team, they added.

A number of U.S. buyout firms have established Singapore offices and built teams there specifically to invest in Southeast Asia. Private equity deal volume in the region jumped nearly 44 percent year-to-date to $609.4 million, according to Thomson Reuters data.

In addition to Asia, KKR has its eye on Latin America. The firm announced the appointment of Henrique Meirelles, former governor of the Central Bank of Brazil and former president of FleetBoston’s Corporate and Global Bank, as a senior adviser to the firm.

“Henrique Meirelles has had an incredibly distinguished career. He took over the Central Bank at a critical time for Brazil and played a key role in laying the foundation for the country’s prosperity today,” Henry R. Kravis and George R. Roberts, co-founders and co-chief executive officers of KKR, said in the press release announcing the appointment. “We believe he will be a tremendously valuable partner to the firm and our portfolio companies worldwide.”

Meanwhile, on the deals front, KKR made a couple of moves that, although seemingly departures from the firm’s historic business of LBO investing, demonstrated the firm’s evolution into a broader financial manager.

For instance, the firm led a pair of funding rounds, senior and junior together worth $135 million, in a company called Sonos, a maker of wireless multi-room speaker systems. The Dow Jones blog All Things D said investors Redpoint Ventures and Elevation Partners supported the round.

Although KKR is not known as a VC investor, this is not the firm’s first early-stage deal, a spokeswoman said in an e-mail message. “It’s growth equity. We will still have governance through our board seat and we believe the company is poised for growth.”

And on the day that the Sonos deal was announced, KKR also agreed to buy Prisma Capital Partners. Financial terms were not disclosed. Prisma, a fund-of-hedge-funds manager founded in 2004 by former Goldman Sachs partners, has $7.8 billion in assets under management. As part of the deal, the asset manager AEGON will sell its minority stake but remain a significant investor in Prisma’s funds.

“Many institutional investors are seeking more liquid alternative investment products, and we believe customized hedge fund solutions play a key role in meeting that need. This makes Prisma a good fit for KKR,” Kravis said in the press release announcing the deal.