KKR and Silver Lake portfolio company files for IPO

Avago plans to raise $504m in the IPO, in which both private equity firms will be diluting their stakes. The semiconductor company was KKR’s first deal in Asia when both firms acquired the company in 2005 for $2.66bn.

Avago Technologies, a portfolio company of private equity firms Kohlberg Kravis Roberts (KKR) and Silver Lake Partners, has filed for an initial public offering (IPO) on the NASDAQ.

Headquartered in San Jose, California and Singapore, Avago provides a range of analog, mixed-signal and optoelectronic components and subsystems to manufacturers globally. Its products can be found in the industrial and automotive, wired networking, wireless communications and computer peripherals industries.  The company’s annual revenue in 2008 was about $1.7 billion.

Avago: to list  

The company is offering 36 million shares at between $13 and $15 per share, under the symbol AVGO, according to a registration statement filed with US’s Securities and Exchange Commission. Using the median offer price of $14, Avago will raise approximately $504 million from the offering.

In 2005, KKR and Silver Lake acquired Avago for $2.66 billion. Both firms were equal partners in the deal. Avago was then the semiconductor products unit of electronic equipment company Agilent Technologies.

KKR and Silver Lake, currently Avago’s controlling shareholders, will be selling their shares in the offering, the statement noted. It is unclear what stakes KKR and Silver Lake presently hold in the company and how much of their stakes they intend to dilute.  

KKR declined to comment. Silver Lake did not respond to requests for comment at press time.

Avago estimates that its net proceeds from the IPO will be around $278 million based an IPO price of $14 per share and after subtracting the estimated underwriting discounts, commissions and offering expenses.

Of the $278 million, about $53 million will be paid to its equity sponsors to terminate an advisory agreement. KKR, one of the company’s equity sponsors, will received approximately $28 million of the $53 million. It is unclear who the other equity sponsors are.

Approximately $225 million of the $278 million in net proceeds will be used to pay down its $704 million debt, the statement noted.

KKR Capital Markets, which acts as KKR’s broker-dealer and is responsible for its capital market activities, will underwrite the IPO, along with 10 other banks, according to the statement.

In June, KKR entered into an agreement with fund management group Fidelity Investment. The agreement gives Fidelity’s retail and institutional customer exclusive access to shares allocated to KKR in all US-based public offerings for which KKR Capital markets is acting as an underwriter. In return, KKR will have a new retail distribution channel through which to market its IPOs.

Avago is KKR’s first deal in Asia. The investment in Avago was made from KKR’s $4 billion Asia fund, its first such vehicle as well. The firm’s previous investments in this space in Asia include MMI Holdings, a Singapore-based components maker; Unisteel Technology, a Singapore-listed computer disk-drive parts maker; Flextronic International, a software business and also KKR’s first investment in India; and Yageo Corporation, a Taiwan-based passive-component services provider.

Focused on the technology sector, Silver Lake gained attention with its $300 million investment in disc-drive maker Seagate Technologies in 2000. When the company went public in 2002, the firm saw a $1.5 billion return. Its previous investments include UGS PLM Solutions, a software company; Avaya, an intelligent communications solutions provider; and Gerson Lehrman Group, a technology and services provider.