KKR expects declines in buyout profit
Kohlberg Kravis Roberts & Co. founders George Roberts and Henry Kravis said returns earned by private equity firms on leveraged buyouts would decline just as they take their firm public.
“The coming years will be harder, no question,” Roberts said in an interview in Germany’s Manager Magazin. “Returns will fall significantly.”
Alex Geiser, a spokesman for KKR in Germany, confirmed the comments, saying the interview took place in early June, before the New York-based buyout firm filed to raise as much as $1.25 billion in an initial public offering.
Kravis, in a speech in New York in April, hailed a “golden age” for leveraged buyouts, with chief executives willing to take their companies private and buyout firms enjoying easy access to financing. Since then, private equity firms have found it harder to entice investors to buy the loans and high-yield bonds they use to fund their takeovers as losses from U.S. sub-prime mortgages have roiled the corporate bond and loan markets.
KKR pulled plans to sell $1.38 billion of loans for Dutch retailer Maxeda this week. The firm was also forced to accept limits imposed by lenders funding its takeover of British drug chain Alliance Boots. KKR also delayed a $3-billion sale of debt last month to buy caterer U.S. Foodservice Inc. in Columbia, Md.
KKR’s Millennium Fund, which closed in 2002, has generated a return to its investors of 41% a year, making it the firm’s best-performing pool, according to a filing with the Securities and Exchange Commission.
“We have always clearly outperformed the S&P; 500 and other stock indexes,” Kravis told the magazine. “That’s the measure: Can we deliver better performance than other asset classes? If not, people shouldn’t give us any money.”
Kravis and Roberts, both 63, have announced $200 billion of leveraged buyouts in the last year, more than any other private equity firm, according to data compiled by Bloomberg.
The firm said July 3 that it would sell shares to raise money for investments and to expand into new businesses. Kravis and Roberts won’t sell shares in the IPO, unlike Blackstone Group founders Stephen Schwarzman and Peter G. Peterson, who netted $2.56 billion between them from their firm’s June IPO.
