KKR Channels Teddy Roosevelt
Theodore Roosevelt once famously exhorted, "Do what you can, with what you have, where you are."
KKR & Co. seems to have taken that to heart. After recently venturing to Japan to seal its first buyout of a publicly traded company in 30 months, an affiliate of the New York firm's private equity arm offered on Thursday to buy a minority stake in German market research company GfK SE.
KKR's offer price is 48 percent more than GfK's 20-day average trading price, usually the type of premium reserved for traditional buyouts in which it gains control of a company. Yet in this case, GfK will remain public and its majority shareholder isn't even cashing out.
One reason KKR is willing to take this route is because that same shareholder, GfK Verein -- which is retaining a 56.46 percent stake -- has agreed to work in conjunction with the firm to drive strategic change at GfK. A deal will go ahead even if only 18.54 percent of shareholders accept its offer, which means KKR may only end up investing some 293 million euros ($311 million). 1 But it's also not as rich a price as it seems: Even factoring in a generous premium, KKR's GfK deal values the company at a trailing 12-month EV/Ebitda multiple of 8.9, below the 12.9 median seen in comparable deals, according to data compiled by Bloomberg.
At a time when the private equity industry is sitting on record levels of dry powder with a limited number of places to put it and bargains hard to come by, smaller deals at reasonable valuations should come as welcome news to KKR's fund investors as well as shareholders, considering earnings are tied to the firm's management and performance fees.
KKR also has a reason to be confident that it can post sizable returns from the GfK deal -- the firm more than doubled its investment in one of GfK's rivals, Nielsen Holdings NV. 2 Its experience as an owner of the audience-measurement firm should help it drive both revenue and earnings growth at GfK through digital investment, among other strategies.
It will be years before it becomes clear whether the deal is a success or failure, but that's the nature of the game. For now, KKR should get some credit for being willing to veer from its standard playbook to make the most of an opportunity at a time when they're not easily found.
Most resolutions of shareholders’ meetings in Germany generally require a simple majority but some require a majority of 75 percent, which KKR will essentially have thanks to its agreement with GfK Verein.
KKR owned Nielsen alongside AlpInvest, Blackstone Group LP, Carlyle Group LP, Hellman & Friedman and Thomas H. Lee Partners.
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