Goldman Sachs has emerged as a lead investor on KKR’s process to move Internet Brands out of an older fund and into a continuation pool for more time and capital to grow the business, two sources told Buyouts.
The deal is among a handful of GP-led secondaries processes that have moved through the market, which has become more challenging because of pricing uncertainty. Macroeconomic turmoil has made it more difficult for buyers and sellers to price assets and many processes are taking longer to close.
“A lot of stuff seems stuck in syndication or maybe having difficulty finding lead investors,” a secondary adviser told Buyouts. “These may end up being partial deals.”
KKR launched the single-asset process earlier this year with the intention of selling a minority stake in the company that would set the valuation for the secondary. That deal is in place, two sources said, although it has not been announced publicly.
Goldman, meanwhile, is lead investor on the secondary process, along with Partners Group, three sources said. Spokespeople for the three firms declined to comment. Lazard is working as secondaries adviser on the deal.
The status of the process is not clear. Two sources described it as nearly closed. The deal, which could total between $2 billion and $2.5 billion, would allow LPs in KKR’s North America Fund XI to either cash out of their stakes in the company or reinvest in the continuation fund. It is not clear if existing LPs have the option to roll with the same economics they had in the older fund.
KKR set tiered carried interest rates on the continuation fund, with the chance to earn premium performance fees based on MOIC and IRR triggers, one of the sources said. Continuation fund terms have become a point of heavier negotiations in GP-led deals in the uncertain markets, as buyers are no longer as willing to accept premium terms without hurdles, sources said.
As well, it is not clear if pricing on KKR’s deal has been impacted by the turmoil in the wider economy. Several GP-led deals that were priced off of minority sales last year are being renegotiated to account for the changed markets, sources said.
Affiliate title Secondaries Investor reported last week that Banneker Partners’ single-asset deal for LINQ was renegotiated from a valuation set by an M&A deal in the fourth quarter.
KKR acquired Internet Brands in 2014 from Hellman & Friedman and JMI Equity. The deal was valued at around $1.1 billion, according to reports at the time. Internet Brands operates popular consumer websites such as WebMD, as well as online media for businesses. The company acquired WebMD in 2017 for about $2.8 billion.
Internet Brands has grown revenues and profits by 8x since KKR took over, Lynn Walsh, chief development officer and general counsel with the company, told Buyouts in an interview earlier this year. The company has done more than 20 add-ons under KKR’s sponsorship across its verticals, which includes health, legal, automotive and home and travel, Walsh said at the time.
“Year over year, from 2020 to 2021, we’ve grown revenues and profitability more than 20 percent, which is the reason our sponsor wants to continue to be our sponsor and to strengthen our cap table,” Walsh said.
Internet Brands was among a handful of large GP-led deals to hit the secondary market this year. The fate of several of those deals is unclear – the market dynamics have made it tougher to syndicate large deals out to investor groups.
Other large deals include K1 Investment Management, which wanted to move nine assets, including the largest, software company Smarsh, out of older funds and into a continuation pool. The deal was expected to total $3 billion or more, although the status of the process is not clear.
Roark was also working on a deal to move several assets, including Inspire Brands, out of older funds and into a continuation vehicle. The Roark deal also could total more than $3 billion, but it is not clear if that deal has closed.
GP-led deals like the one Roark is working on represented roughly 51 percent of about $134 billion of total deal volume in 2021, according to Evercore’s 2021 volume report.