KKR’s new mid-market fund on the verge of hitting $4bn target

In a subdued deal environment, mid-market buyouts are drawing more attention. This perhaps explains why KKR has had success with the debut strategy at a time when fundraising is especially challenging.

Pete Stavros and Nate Taylor, KKR

KKR’s Ascendant Fund, the private equity giant’s first dedicated vehicle for mid-market buyouts, is only some tens of millions shy of its target.

Launched in 2022, Ascendant Fund had as of March raised $3.55 billion, according to KKR’s first-quarter financial results. That puts it within close reach of a $4 billion target, recently disclosed by the firm in pension documents. The GP is committing $600 million.

It is not known if the offering has a hard-cap. Two years ago, Bloomberg reported it is seeking as much as $5 billion. KKR declined to comment.

In a subdued deal environment, mid-market buyouts are drawing more attention, in part because they have attractive entry valuations and are easier to finance than large-caps. This perhaps explains why KKR has had success with the debut strategy at a time when fundraising is especially challenging.

Ascendant Fund was created as an extension of KKR’s Americas flagship strategy. It was something Pete Stavros, co-head of global private equity, “began cultivating a decade ago,” Nate Taylor, Stavros’ fellow global co-head, told Buyouts in a May interview.

“It was apparent there was a gap in our ability to chase interesting opportunities in smaller companies where we could still use our relationships, executive advisers, CEO candidates and value-creation playbooks,” Taylor said.

Led by partners Brandon Brahm and Nancy Ford, Ascendant Fund will replicate the flagship’s approach but emphasizing control investing in North American companies with values of $200 million-$1 billion and EBITDA of less than $75 million. Target sectors are consumer, financial services, healthcare, industrials, media, software and tech-enabled services.

The fund has target returns of 20 percent-plus, a gross multiple of about 2.5x and a net multiple of about 2.25x, according to pension documents.

Like all of KKR’s control investing in the Americas, Ascendant Fund will implement employee ownership and engagement programs for portfolio companies. Each business will look to grant equity to non-management employees worth at least six months of annual wages at exit.

To date, five Ascendant Fund platform deals have been announced. The latest, announced in March, is an agreement to acquire MDF Commerce, a listed e-commerce and e-procurement company, for C$255 million ($186 million).

Ascendant Fund was a primary focus of $4 billion raised in the first quarter by KKR’s $183 billion private equity platform. More capital also flowed into K-Series PE, a vehicle designed for private wealth clients. Across all strategies, the firm brought in $31 billion.

KKR is targeting a near doubling in managed assets with the help of a fundraising “super-cycle,” co-CEO Joe Bae said at its 2024 Investor Day. More than $300 billion is expected to be raised from roughly 30 strategies between this year and 2026, pushing AUM beyond $1 trillion.