Even as secondaries pricing gaps have made it tougher to bring large GP-led deals to final close, KKR managed to finish off one of the largest single-asset secondaries processes of the year, sources told Buyouts.
The firm closed its process for Internet Brands, moving the company out of North America Fund XI and into a continuation pool for more time and capital to run the investment. The deal totaled somewhere in a range of $2 billion to $2.5 billion, making it one of the largest deals of the year, sources said.
The process was led by Goldman Sachs and Partners Group, which Buyouts previously reported. LPs in the older fund had the option to cash out of their interests in the company, or reinvest in the continuation fund. Lazard worked as secondaries adviser on the process.
The valuation for the process was set through a minority stake sale in the company that closed this week, which valued Internet Brands at more than $12 billion. Warburg Pincus led a group of investors in the minority investment, the company said. KKR remains the majority investor in Internet Brands. KKR also got a fairness opinion on the valuation, a source said.
Many single-asset secondaries deals rely on valuations set by traditional M&A transactions, which gives the processes market validation. (Otherwise the GPs would need to get a fairness opinion on the price of the deal.)
Some deals that were valued by minority investments before the market turbulence have had to be renegotiated. This has caused delays with some large secondaries deals, with a few being put on hold until pricing stabilizes, sources have said.
Internet Brands got done because it’s a high-quality company run by a well-known GP – meeting a high standard that has increased as the market has turned, an adviser source not connected to the transaction said.
“The market is willing to do this type of deal; deals of this quality don’t come around a lot,” the adviser said. “The bar has been set so high and they meet the bar.”
The continuation fund KKR created to hold Internet Brands includes tiered carried interest with the chance to earn premium performance fees based on MOIC and IRR triggers, sources previously told Buyouts. 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.
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.
Another large deal that appears to be heading for a final close in September is run by Roark Capital, which is moving several portfolio companies into a continuation fund. HarbourVest Partners, AlpInvest Partners and two other investors are leading the deal, Buyouts previously reported.