It’s official. KKR is the undisputed buyout champion of the world. The private equity group’s agreed $29bn buyout of US credit card processor First Data takes its total deals for 2007 to a massive $104.5bn, AP reports, citing figures from Dealogic.
KKR’s buyout volume is way ahead of its nearest competitor, TPG, which has announced deals worth about $49bn this year, said Dealogic.As a proportion of overall buyout volume this year, KKR’s spending is 55 per cent compared with TPG’s 22 per cent, said Dealogic’s John Ward. He added that there will be some overlap because of the number of “club” deals, where private-equity firms team up to bid.
Its takeover of First Data stands as the second-largest leveraged buyout completed by a single firm. And the largest? KKR’s own famed $31bn takeover of RJR Nabisco.
KKR is currently pursuing a £10bn bid for Alliance Boots and has joined with TPG to offer $43.7bn for Dallas-based power utility TXU. KKR is also part of a group circling retailer J Sainsbury (Update 11.25: not anymore). KKR is also remains interested in Australia’s Coles Group.
The firm is investing out of its $16bn Global Buyout Fund and its €4.5 bn European Fund II. It is also returning to the market later this year to raise a third European fund.
But it also borrowing money, and lots of it. The group is in talks with banks to borrow $11bn to fund a third attempt to buy Coles, Bloomberg reported on Thursday. The list of advisers on the First Data deal read like a who’s-who of the Street: Citigroup, Credit Suisse, Deutsche Bank, HSBC, Lehman Brothers, Goldman Sachs and Merrill Lynch all committed to provide debt financing for the transaction.
Which led blogger Felix Salmon to note that investment banks are now primarily valued for their ability to bring their own risk appetite to the table. “And they’re not just taking on senior debt, they’re taking on equity bridges and even outright equity risk,” Salmon writes.
So, if and when a blow-up occurs, Salmon writes, “more than one investment bank will find itself severely damaged by the repercussions.”
The good news is that a damaged investment bank is hardly the end of the world, he says. “But it’s the beginnings of a hint of a possibility of some systemic risk, all the same.”
And what of KKR and its similarly levered peers? They’re all betting the current, benign credit cycle won’t turn any time soon. Let’s hope they’re right, since a damaged private equity group or three might just bring these good times to an abrupt end.
