KKR & Co., the private equity firm run by Henry Kravis and George Roberts, plans to go public in a transaction that may value it at as much as $15 billion, according to two people familiar with the matter.
The firm will buy KKR Private Equity Investors, its publicly traded leveraged-buyout fund in Amsterdam, using new shares that will list on the New York Stock Exchange after the purchase is completed in the fourth quarter, said the people, who asked not to be identified before an official announcement. KKR, which is based in New York, won't sell shares in an initial public offering.
KKR's non-traditional route to going public comes amid the worst market for initial public offerings in four years and after debt funding for buyouts dried up. The firm wants publicly traded stock to pay for acquisitions and to retain employees, the sources said. The plan may be announced as early as today, according to the two people. KKR spokesman David Lilly declined to comment.
"It's clear that the deal is coming in that manner because the U.S. equity markets are so difficult, particularly for anyone doing leveraged transactions," said Dan Veru, who helps manage $2.8 billion at Palisade Capital Management in Fort Lee, N.J. "That's ultimately how they're going to get the best valuation."
KKR forecasts it will post a profit of about $1.2 billion in 2009, the people said. KKR expects investors to value the company at 10 to 12 times earnings, or between $12 billion and $15 billion, they said.
Blackstone Group, manager of the world's largest buyout fund, raised $4.75 billion in an IPO in June 2007, just before the leveraged-buyout market collapsed. The stock, which has dropped 45% since the offering, trades at 13 times estimated 2009 earnings.
KKR Private Equity has a market capitalization of $2.1 billion, a drop of 58% since it raised $5 billion in May 2006. The stock, which sold for $25, now trades at $10.50, less than half the book value of its assets, according to data compiled by Bloomberg.
The fund invests in KKR deals, meaning that Kravis and Roberts probably plan to scoop up assets at a discount to book value.
After buying the Amsterdam unit, shareholders of KKR Private Equity will own 21% of the combined firm, with KKR executives and employees holding 79%, according to the people. The KKR-held shares will vest over six to eight years, they said.
