The Wall Street Journal pointed out yesterday (subscription required) that private equity IPOs have effectively fallen on their face after KKR's blockbuster. The Journal also notes that KKR's share price has slid 10% since the IPO. All in all, not surprising. Every IPO is, to some extent, a game of hype and timing.
The interesting thing about KKR's offering is that it was quick, dirty and capitalized on the sterling brand name KKR has developed for itself. One has to wonder some if there wasn't some early sense that the original offering size would be exceeded, and the public relations boon of having an "oversubscribed" offering was more than a little design. "Supplies are limited, so call now."
Still, this might be a new sort of "one and done," the nimble IPO in a space on the verge of a decline while the competition isn't looking. Suddenly, in a declining and overbought market for private equity vehicles, the key feature of the IPO, a new independence from the distractions of the private equity fund raising cycle, seems to be worth far more than was, at least initially, obvious. Locking up funding for several years right on the verge of what will likely be a continued hike in interest rates, a decline in IRRs and a downturn in fundraising prospects was a bit of genius. If you look at it from a competitive landscape perspective it was a brilliant move, even if mostly accidential with respect to the timing. Even the decline in the price of the KKR units plays in wonderfully.
And, of course, the KKR deal is so bad for the public investors any competition who wants to try the same thing would probably have to sweeten the deal to get it done, putting them at a distinct disadvantage with respect to KKR.
That is, if anyone else even manages to consummate an effective offering, and the Journal seems to doubt it:
Blackstone Group and Carlyle Group, which were actively pursuing initial public offerings earlier this year, have postponed any plans they had to go public in the immediate future and could abandon their IPO hopes altogether, people close to the firms said.
KKR could have slipped through another coup, as they are quite prone to do. Quoth the Journal:
Given the poor performance of KKR and Apollo, private-equity firms are trying to determine whether investors have a lasting appetite for future offerings or whether this recent string of IPOs is merely a passing fad.
KKR's fund is trading below net asset value because the firm put a lot of capital in conservative instruments that return 2% to 3%, while charging a management fee that consumes almost as much as the return.
Getting investors to pay for your war chest, what's not to love?
