KKR Will Finally Pull the Trigger on a NYSE Listing


Since its founding the mid-1970s, private equity firm KKR has had to deal with tough economic downturns and credit squeezes. No doubt the turmoil of the past couple years has stressed the firm.

But its fourth-quarter earnings report shows progress at KKR. (Shares of the firm are listed in Amsterdam.) Economic net income -- which excludes costs like amortization and nonrecurring charges -- came to $515.3 million for the quarter and $1.95 billion for the year. There will be a dividend payment of eight cents per unit.

And now KKR is finally poised to list on the New York Stock Exchange. It's been a long wait: The firm made its IPO filing in July 2007.

Buyouts and Exits

With $14.5 billion in capital commitments, KKR has a lot of firepower to get deals done. But the firm has been fairly selective.

In November, KKR joined General Atlantic to purchase TASC from Northrop Grumman (NOC) for $1.65 billion. NG provides information technology services for intelligence, defense, and civil agencies.

In late January, KKR purchased Pets at Home, a top U.K. retailer of pet food and other products and services. Despite the slow economy, the company has posted strong growth numbers.

However, the real bright spot for KKR came from two IPOs: Avago Technologies (AVGO) and Dollar General (DG). The deals provided nice returns for investors, and will likely be a future source of gains.

Because of these deals, as well as the general improvement in the equity markets, KKR marked up the value of its private-equity portfolio by $1.84 billion, or 5%. Currently, the firm has roughly $52.2 billion under management.

A number of KKR deals are still facing trouble, such as its Energy Future Holdings, valued at 40 cents on the dollar, and First Data, at 60 cents on the dollar. Moreover, the IPO market has recently been chilly, as seen with the problems the Blackstone Group (BX) has had with deals like Travelport, Merlin Entertainments and Graham Packaging (GRM).

The Public Option

The road to the NYSE has been convoluted for KKR. Because of the credit crunch, the firm could not pull off a traditional IPO, which would have resulted in an influx of capital. Instead, KKR has had to use some financial engineering. This has involved a merger with KKR Private Equity Investors on the Euronext exchange.

Now, the next step is to file a prospectus with the Securities and Exchange Commission, which should come any day. KKR shares will then probably trade on the NYSE in a couple of months.

So why go public, even if it will not mean getting extra capital? There are several reasons. It will help to retain key execs, because of liquid stock options. As KKR shares get seasoned in the U.S. equities market, the firm may eventually raise capital through a secondary offering.

But perhaps the key reason for the public listing is that KKR will have public stock to buy companies. The firm wants to find ways to diversify away from the volatile private-equity business. Just look at Fortress Investment Group (FIG). This private-equity firm recently purchased Logan Circle Partners, which is a fixed income investments.

And given the difficulties in the alternative asset space, the valuations are attractive. After all, Logan Circle sold for only $21 million -- with an earnout for the end of 2011 -- even though the firm has $12 billion in assets and a top-notch investment team.