KKR's Kravis Says No End in Sight for `Golden Era' of Buyouts
By Frederic Tomesco
May 29 (Bloomberg) -- The private-equity boom will continue in the next few years as near-record-low borrowing costs keep buyouts affordable, Kohlberg Kravis Roberts & Co. co-founder Henry Kravis said.
``The private-equity world is in its golden era right now,'' Kravis said today in a speech at the annual meeting of Canada's Venture Capital & Private Equity Association in Halifax, Nova Scotia. ``Stars are aligned, there is plenty of capital on one side, and you have a very receptive community of companies.''
Buyout firms spent $911 billion worldwide to acquire companies last year, an almost ninefold increase from the $106 billion total in 2001, Kravis, 63, said. About two-thirds of the money needed for most transactions is borrowed. The amount of extra yield investors demand to hold speculative-grade bonds over similar maturity U.S. Treasuries narrowed to 2.45 percentage points May 25, compared with a record low set Oct. 17, 1997, according to Merrill Lynch & Co. indexes.
Low interest rates mean yields on investments such as U.S. Treasuries are relatively low, spurring investors to explore asset classes such as private equity. According to the New York- based firm's Web site, its holdings were valued at more than $74 billion as of December on about $30 billion of invested capital. It's completed about 150 deals since it was founded in 1976.
``Today there is equity and debt everywhere, and the reason is pretty simple: It's returns,'' he said. ``If you have a 5 percent long bond in the U.S., people ask how they can get a better return.''
Few Concerns
KKR has announced $118 billion of deals this year, more than a quarter of the $410 billion of buyouts announced so far in 2007, according to data compiled by Bloomberg. The New York-based firm's deals include the $25.6 billion takeover of First Data Corp., the biggest buyout by a single firm, and Alliance Boots Plc for 11.1 billion pounds ($22 billion), Europe's largest LBO.
Kravis said he wouldn't be concerned by a slowdown in the private-equity industry.
``There will be something that will slow the growth rate down for a while, and that's good. There is nothing wrong with that,'' he said. ``Trees don't grow to the sky. This isn't going to continue at this pace forever.''
Even if some of the companies acquired by buyout firms encounter financial problems and go out of business, the industry's success isn't likely to be affected, Kravis said.
Buyout firms such as KKR or Blackstone Group LP could withstand losing $1 billion if one of their acquired companies became insolvent, he said.
No IPO Confirmation
``There is no doubt in mind that there will be one, two, three -- I don't know how many -- companies that don't work out,'' Kravis said. ``We are in a high-risk, high-return business and it's inevitable that there will be those mistakes made. But the assets aren't linked together. Because one investment goes down, it doesn't mean that you are going to have a terrible portfolio or that the whole industry has collapsed.''
Kravis wouldn't confirm a report May 26 in the London-based Times newspaper, citing his remarks, that KKR is considering an initial public offering.
``It's hard for me to comment because we haven't announced anything,'' he said when asked about a possible IPO. |
