Why KKR is so determined to go public is something of a mystery to me.
It can’t be because of the great performance of its competitor Blackstone, whose stock, while well off its lows, is roughly 20 points below its IPO price. Nor can it be because it welcomes the added transparency that will be forced on it as a public company. And the idea that being public will make it more competitive in attracting and keeping quality employees seems somewhat dated given all the dislocations taking place in Wall Street’s job market.
Still, KKR persists and today it unveiled its latest proposal to go publicthrough an acquisition of its KKR Private Equity Investors (KPE), a limited partnership that trades on the Amsterdam exchange and invests its funds in KKR’s private equity transactions.
KKR originally proposed to issue KPE holders new shares in a combination of KPE and KKR that were equal to a 21% ownership stake in that entity. Today, it’s upped its exchange ratio so that KPE holders would own 30% of the combination.
It would appear, given the multiple awarded Blackstone these days, that KKR has been forced to acknowledge that its original valuation has declined and so in order to maintain the same dollar value for KPE shareholders it had to increase the percentage of ownership in KKR.
When it unveiled its original proposal almost a year ago, KKR mid-valuation range assumed a multiple to net income of 11 times and an overall value for the firm of $17.1 billion, making the stake for KPE shareholders worth $3.6 billion. Even with 30% of the new company, it seems highly unlikely the KPE stake will be valued at that level given the decline in revenues for Private Equity firms such as KKR.
KKR said it has been told by holders of 44% worth of KPE’s units that they will consent to the new offer.
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