Thursday, June 25, 2009

KKR is gonna dump stock on the public, one way or another...

AlphaNinja - Do you want the other side of this trade? Kohlberg Kravis Roberts & Co., the world's largest private equity firm, is struggling in its attempts to "tap the public markets."

"Kohlberg Kravis Roberts & Co. continued its relentless push to sell shares to public investors, unveiling a new plan that it hopes will place its shares on the New York Stock Exchange by late 2010.
The move is the latest in a two-year quest to list shares, one that has been repeatedly thwarted by market havoc and problems in KKR's $47 billion investment portfolio. The plans are a fragile sign that some of the market's most sophisticated investors remain hopeful for an economic turnaround in months ahead."

KKR is certainly hopeful for an "economic turnaround," but this development could more accurately read, "a sign that the world's most sophisticated investors need a better investment climate in order to peddle shares to the public at elevated levels."

"KKR says a public listing will give it a large capital base from which to grow and also provides a currency to make acquisitions. It also will ultimately give firm founders Henry Kravis and George Roberts, both 65 years old, the ability to cash out their stakes over time."

Make no mistake about it - there is ALWAYS a market for the founders to "Cash out" their stakes - just not at the valuation that an IPO to "dumb money" might reap for them. Pension funds that cannot justify putting more money into private equity capital calls are selling their stakes to vulture investors - at big discounts.

The WSJ on KKR, or KPE as it will be called soon:

Putting a precise public-market value on KKR is difficult, but based on KPE's market value, the parent company's value could be in the range of $4 billion to $5 billion. That is a steep discount to KKR's expectations from 2007, when it was expecting market values of $12 billion to $15 billion.
"In some ways I find this IPO refreshing because it's not being driven by market euphoria," said Josh Lerner, a Harvard Business School professor. "It only makes sense if KKR can succeed in the years to come."

I agree with the sentiment that it will be "refreshing" to see this thing come public. People have been burned (their own fault by the way) by firms that try and cash out at the top - Fortress(FIG)and Blackstone(BX) are a few examples, as is former value king Pzena(PZN). Be thankful if you didn't buy when these guys decided to sell - I'm sorry, when they decided to "raise capital" through the public markets:

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