Every large auction seems to involve the now almost ubiquitous Kohlberg Kravis Roberts. The list is almost endless.
At a time when market chatter constantly revolves around the huge wall of private equity cash, a potential lack of deal flow and an imminent private equity bubble, KKR might be an interesting case study.
What immediately springs to mind, of course, is the auction the US fund won last week for French directories business PagesJaunes, which had seen KKR enter exclusive talks with France Telecom to pay circa €3.3bn for a 54% stake. But the main questions are how and why KKR ended up as the sole acquirer, and what this tells us about its investment strategy.
Six potential bidders dropped out of the race for PagesJaunes during the second round of the auction. These included three potential consortium partners for KKR. AXA and Eurazeo pulled out first, followed by Goldman Sachs at the final furlong, leaving KKR the sole acquirer of the directories business.
Other bidders to bow out were, interestingly, trade buyer Vivendi and a consortium comprising PAI Partners and BC Partners.
This leads to the obvious conclusions that the price was too high, maybe that the business was not as robust as at first appeared and that KKR was willing to accept lower returns. A source close to the deal confirmed that KKR would only get a net return of about 18% using this model, way under the 24% currently expected by most traditional funds.
It has been reported that Goldman Sachs might subsequently buy 20% of the business as part of a KKR consortium, but it too is likely to have more flexible return expectations than a traditional fund.
Neither has KKR stopped at PagesJaunes. Everywhere you turn the fund is there. Last week, saw the announcement of plans for the largest ever buyout globally; that of healthcare group HCA in the US. The potential US$33bn deal involves a private equity consortium comprising Bain Capital, Merrill Lynch Global Private Equity and KKR.
At the same time, it is reported that sales memoranda regarding the pharmaceutical business of the listed German Altana group have been sent to four potential acquirers. It is claimed that a consortium including Nordic buyout firm EQT is looking at launching a takeover bid for Altana Pharma in a deal that could be worth up to US$7bn.
But other bidders reported to be considering it are, surprise, surprise, KKR, Swiss pharmaceutical group Solvay, and Denmark’s Nycomed group, which is owned by a private equity consortium comprising Nordic Capital, Blackstone and Credit Suisse Private Equity.
In addition, KKR has joined forces with EMI in the US$1.5bn auction for Bertelsmann’s music publishing business BMG, and they are believed to be in the second round.
If KKR is actively entering there auctions with lower return expectations, what are the ramifications for the industry as a whole? How long will it be before others are forced to follow suit or lose out?