“We have done some large transactions in our history,” Scott Nuttall, KKR’s global head of capital and asset management, acknowledged during a conference call with analysts to discuss the firm’s fourth quarter earnings, which beat analyst expectations. Its $30 billion RJR Nabisco deal from 1989 still ranks as one of the largest, although less than 10 percent of the firm’s deals have been larger than $5 billion, Nutall said.
Nuttall said the firm could still handle a mega-deal, in part because of changes within the firm. “We do have an ability to speak for more,” Nuttall said. “We can still lead it despite the fact NAXI is smaller than the 2006 fund.”
Executives said Thursday they are extending fundraising into the second half of 2013 for the firm’s North America Fund XI, known as NAXI, in an attempt to achieve their $8 billion target for the pool. That would be less than half the size of KKR’s prior mega-fund, North America Fund X, which raised $17.6 billion in 2006.
But KKR has plenty of resources to bring to bear in the hunt for big game. The firm formed a $300 million joint venture last August with Stone Point Capital, a buyout shop based in Greenwich, Conn. The Canada Pension Plan Investment Board joined the venture, called MerchCap Solutions LLC, in January, contributing $50 million to finance the partnership and committing up to $2 billion to invest in MerchCap deals.
In addition, the firm could potentially call on limited partners and other affiliates to contribute equity to a big deal. KKR is trying to develop a separate-accounts management business, building on a $3 billion commitment from Texas Teachers’ Retirement System in November 2011. And its acquisition in October of Prisma Capital Partners, a hedge fund of funds manager, gives KKR access to a pool of more than 100 new institutional investors. “We can syndicate the excess equity to third parties,” said Nuttall.
In the fourth quarter, KKR reported economic net income of $347.7 million, up 18 percent from a year earlier. ENI includes the quarterly marks of portfolio assets in addition to cash earnings. Fee revenue fell 15 percent to $177.6 million. On a retail basis, earnings per unit came in at 48 cents, more than double the consensus 21-cent estimate of Wall Street analysts.