By Mike Spector
KKR & Co. signaled continued momentum in profiting from
previous takeovers, with companies increasingly open to buying
firms the buyout shop owns.
The New York company, alongside other private-equity owners,
reached an agreement on Thursday to sell orthopedic-device maker
Biomet Inc. to rival Zimmer Holdings Inc. for $13.35 billion. The
deal builds on a series of so-called " exits" for KKR and other
private-equity firms as they seek to sell companies owned for
several years outright or cash out by taking them public on stock
exchanges.
Private-equity firms are rushing to take companies public as the
stock market trades near record highs. But they prefer to sell
companies and take profits immediately, whereas initial public
offerings require them to sell shares over time and hope that
markets--and prices--remain robust.
"There is more strategic dialogue going on. There does seem to
be strategic interest in our companies," said Scott Nuttall, who
heads KKR's global capital and asset-management group, during a
conference call with analysts to discuss the KKR's first-quarter
financial results. Still, Mr. Nuttall said KKR would continue to
pursue IPOs for companies and sell shares of those already publicly
trading. "You'll continue to see a mix" of IPOs and M&A deals,
he said.
His comments echoed those from Blackstone Group LP President
Hamilton "Tony" James, who earlier this month shrugged off recent
hiccups in the IPO market, in which several companies priced below
expectations. Mr. James said he believed the market volatility
would be "relatively temporary" and wouldn't interfere with the
buyout firm's ability to cash out of deals.
KKR, meanwhile, reported first-quarter earnings that soundly
beat Wall Street expectations, largely on the back of taking public
companies it previously bought and selling shares of other
companies it owns that already were trading on stock exchanges. The
buyout firm also reported record fee-related earnings from raising
money and doing deals during the year's first three months.
KKR took Santander Consumer USA Holdings Inc., the U.S.
auto-lending arm of the Spanish bank, public in January. KKR also
sold shares of NXP Semiconductors NV and Nielsen Holdings NV in the
quarter.
In addition to Biomet, KKR on Thursday pointed to M&A deals
expected to close in the months ahead that would add to the firm's
so-called realized carried interest, the share of deal profits KKR
reaps after fund investors receive returns. They include an
agreement to sell US Foods to rival Sysco Corp. for $3.5 billion
and a deal to sell Ipreo Holdings LLC to other buyout firms.
KKR reported a first-quarter profit of $210 million, or 65 cents
a share, up from $193.4 million during the same period a year
ago.
The buyout firm reported economic net income of $630.3 million
compared with $647.7 million during the year-earlier period. That
amounted to 82 cents for each after-tax-adjusted share. Analysts
polled by Thomson Reuters expected 52 cents. Economic net income is
a measure preferred by private-equity firms because it gauges
realized and unrealized gains and losses and quirks related to
private partnerships becoming public companies.
KKR's financial performance resulted in a first-quarter
distribution to shareholders of 43 cents, a roughly 59% increase
from the company's dividend during the same time period a year
ago.
KKR's overall distributable earnings--the portion of profits
from which shareholders get a cut--in the first quarter increased
about 54% from the comparable time period a year earlier to $446.8
million.
The financial firm's assets under management at the end of the
first quarter totaled $102.3 billion, up from $94.3 billion at the
end of 2013. KKR closed on its acquisition of European credit firm
Avoca Capital during the first quarter, adding $8.4 billion to the
private-equity firm's assets under management. The value of KKR's
private-equity portfolio rose 4.5% in the first quarter.
In addition to selling off investments, buyout firms also have
taken advantage of robust debt markets to help finance takeovers
after raising billions of dollars in new funds from investors they
now need to put to work. KKR in the first quarter bought eyewear
retailer National Vision Inc. and insurance-claims provider
Sedgwick Claims Management Services Inc.
KKR also plans to soon close a deal to acquire KKR Financial
Holdings LLC in a $2.6 billion all-stock deal. A shareholder vote
on the deal is set for next week.
The private-equity firm in the first quarter racked up fees of
$327.6 million for doing deals and raising money. That helped it
post record fee-related earnings of $151.7 million.
Write to Mike Spector at mike.spector@wsj.com
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