KKR seeks to benefit from bone-dry IPO forecast in 2022

The PE giant is bullish on an M&A surge in 2022, with bilateral deals deemed the safer route as investors flee high-risk public listings.

Geopolitical and macroeconomic uncertainty have effectively shut the initial public offering markets in Europe as dealmakers shelve listing plans, following a buoyant 2021 in the Nordics.

“In our view, the IPO markets are shut. We are not even thinking about it right now,” Hans Arstad, a private equity director at KKR, said during a panel at the Nordic M&A Forum hosted by the Swedish Chamber of Commerce in London on Thursday.

Nordic M&A Forum
KKR’s Arstad (first right): IPOs are not worth it in the current environment

“We would never spend any of our own time or our management’s time preparing for an IPO these days. It’s just not worth it.”

Arstad, who heads up KKR’s recently opened Nordic office in Stockholm, noted, however, that the M&A market remains fairly strong, with record levels of dry powder, good financing and asset pricing, as well as competition.

“If we were to sell something today, we would definitely go down the M&A route exclusively,” Arstad said.

He added that the firm also seeks to provide flexible capital to businesses that planned to hold an IPO, but now find themselves unable to. This can be through “somewhat uncommon structures in private equity, which include small, minority stakes”, he said.

Last year was the most favourable year for exits in Nordic history, according to a report from PitchBook. There were 314 liquidity events worth €103 billion in 2021, more than six times the previous exit value record of €27.7 billion in 2017 and the total of 173 exits in 2019. IPOs were a standout exit route, with 58 public listings recorded versus 16 in 2020.

KKR made its first investment in the Nordic region in 2005 when it invested in Danish telecoms company TDC alongside Apax Partners, Blackstone, Permira and Providence Equity Partners. The deal was valued at about €10 billion, the largest at that time in Europe.

The private equity giant has since invested more than €5 billion of equity in the Nordics across 22 transactions from its PE, infrastructure and growth equity strategies, according to a statement in June last year. In the last two years, KKR has invested in five Nordic companies: Söderberg & Partners, Sector Alarm, Wolt, Caruna and Nordic Bioscience. It is unclear whether the firm has exited a company in the Nordics via a public listing.

Nuala Higgins, head of private equity at Carnegie Investment Bank, also noted that big offerings in the public markets are unlikely to go ahead in the coming weeks and months.

“What we’re advising clients who want to IPO is to continue with their preparations, so when the window opens up again, they are ready to go. Having said that, we expect some of these IPO processes to be pushed back given the current climate, or to have an M&A track element,” she said.

When asked whether deals are more expensive in the current market environment, Arstad noted that heightened market volatility and the conflict in Ukraine make it more difficult to assess risk.

“We are going into this with consensus of four-ish percent real growth in rate in Europe. We don’t see recession coming, but growth is coming down. The bigger issue is probably inflation. We wouldn’t touch a business today without pricing power.”

Jan Olsson, chief executive of the Nordics at Deutsche Bank, added: “Ukraine determines everything as a main headline, and it will do so for a long time. As covid dominated for two years, now we will have [the Ukraine conflict] and all the derivatives from Ukraine.”

Olsson said the industry will see more opportunities around public-to-private deals as valuations come down and companies restructure. Sectors that were pushed out in the last five years, such as oil and gas and commodities, are also back, he noted.

Arstad added that KKR is spending more time looking at deals in the public markets in Europe than the previous six to nine months.

“If you back long-term structural trends that you believe in, your chances of doing well from [take-privates] is probably reasonably good and you can hold them for five-plus years. We will probably still try and lean into that, yet it’s still a bit early to get something done,” he said.

The Nordic PE market recorded 1,064 deals worth €108.3 billion in 2021, a year-on-year increase of 101.1 percent and 175.2 percent respectively, according to a report from PitchBook. Nordic growth equity dealmaking also skyrocketed in 2021, driven by an increase in European unicorns and venture fundraising.

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