Sponsor: Kohlberg Kravis Roberts & Co.
Listed Entity: KKR Private Equity Investors
Anticipated IPO Size: $1.5 billion
Legal Counsel: Simpson Thacher & Bartlett, Linklaters
Placement Managers: Citigroup, Morgan Stanley,
Many of the big-name buyout firms have flirted with the idea of going public. Kohlberg Kravis Roberts & Co. may be among the first to do so, as the New York firm is planning an initial public offering on Amsterdam’s Euronext exchange that could corral as much as $1.5 billion.
This is not the first dalliance into the public realm for the group. The firm took part in the stillborn BDC run in 2004, which saw KKR and many of its peers file to float business development companies only to abandon those efforts amid lackluster investor sentiment. That same year, however, KKR was able to raise $780 million for a publicly held real estate investment trust, KKR Financial Corp.
The firm’s anticipated listed entity, KKR Private Equity Investors, will be an investor in the firm’s primary buyout funds and also co-invest in certain KKR transactions. (The firm is rumored to be seeking as much as $10 billion for its latest limited partnership fund.)
KKR is by no means the first buyout shop to seek a public listing, but it would probably be the most notable at this point. Last spring Ripplewood Holdings floated RHJ International on Brussel’s Euronext exchange. Ripplewood’s floatation, however, differs from the likely KKR offering in that its IPO gave new shareholders an interest in companies the firm already controlled, such as Columbia Music Entertainment, Asahi Tec Corp. and Shaklee Global Group.
Other private equity shops with public listings include Canada’s Onex Corp. and 3i Group, based in London, as well business development companies such as American Capital Strategies, Gladstone Capital and Allied Capital. Also, just this past March, Swiss fund-of-funds manager Partners Group went public in a €1.4 billion ($1.7 billion) IPO.
The obvious lure to launching a public vehicle is that it makes raising capital significantly easier than the typical fundraising exercise most buyout firms are used to.
Moreover, it offers liquidity to the KKR partners. While the floatation won’t offer a chance to realize portfolio liquidity as in the case of Ripplewood, it does give the firm a chance to cash in on the value of its brand.
There is also the belief that operating through a public company allows for more flexibility in terms of holding onto businesses. Public entities, without the pressure of a 10- or 12-year fund life, can embrace the Warren Buffett tack of a longer long-term strategy. But since KKR’s public entity will likely be investing in the firm’s limited partnership funds, this benefit may be neutralized.
Speculation has been percolating for some time that other brand names in the business, such as The Carlyle Group and Blackstone Group, could also seek out public listings, and there may also be an inclination to view KKR’s offering as a precursor to a greater rush of buyout groups going public.
Carlyle head David Rubenstein even predicted such a transition toward public ownership in a 2003 interview with The Financial Times. However, Carlyle spokesman Chris Ullman downplayed such a move for his firm in the near future, saying Carlyle “currently has no plans” to seek out a public listing. Blackstone representatives were unable to be reached by press time.
The listed KKR vehicle is expected to begin trading early this month, while Citigroup, Morgan Stanley and Goldman Sachs are managing a separate private placement for high-net-worth investors, according to reports. Simpson Thacher & Bartlett and Linklaters are serving as legal counsel to KKR.
A spokesman for KKR declined comment for this story. —K.M.