KKR takes patient approach with Americas XII

Amid high valuation multiples, KKR’s Alex Navab expects its latest fund, the $13.9bn America XII, will focus more on add-on acquisitions.

KKR is eyeing add-on acquisitions as a way to deploy capital out of its recently-closed fund amid a high-valuation environment, according to the firm’s head of Americas private equity, Alex Navab.

The New York-based private equity giant held a final close on its 12th Americas-dedicated fund, Americas XII, on $13.9 billion, above its $12 billion target, as reported by Private Equity International.

Americas XII has not made any investments to date, because the fund manager just finished deploying the previous Americas fund, North American XI, which closed on $9 billion in February 2014.

The next investment will come out of Americas XII, although there is no specific timeline for the latest fund’s first deal, Navab said.

“We’re likely to be more patient and cautious right now,” Navab told PEI, citing high purchase price multiples for platform acquisitions.

Indeed, consultant Bain & Co said in its Global Private Equity Report 2017 last week that acquisition multiples are now running at more than 10x for leveraged buyouts in the US and Europe due to cheap credit. These multiples are in excess of levels seen pre-global financial crisis, Bain’s report said, adding that GPs are struggling to map out how to achieve targeted returns for assets bought at today’s levels, as reported by PEI.

Given this environment, Navab said one way KKR is looking to deploy capital is by backing some of its existing portfolio companies for add-on acquisitions. Such transactions would be backed by not only the newest fund, which is the largest private equity fund raised in the Americas region, but also by some reserve capital from NAXI.

“That would be a great risk-adjusted way for us to deploy capital,” Navab said.

The $13.9 billion of capital raised by KKR represents the $12.5 billion hard-cap reached via limited partner commitments and a $1.4 billion general partner commitment. Of that $1.4 billion, $1 billion came from KKR’s balance sheet and $400 million from KKR’s employees.

The 12th fund saw a record number of LPs in a single KKR fund, according to Navab. He said there were around 230 individual LPs, of which 80 were new investors. Those 80 new LPs represented more than $2 billion of the total capital raised in this fund, he said.

KKR initially launched Americas XII 18 months ago with a target of $10 billion to $12 billion and a hard-cap of $12 billion, according to Navab, but were authorised to increase its hard-cap to $12.5 billion to account for oversubscription. He declined to comment on the oversubscription amount.