Ramping up returns

It has been a busy few weeks for Kohlberg Kravis Roberts’ European Fund II, a $5.7 billion 2005-vintage. In September, KKR exited TDC and sold its stake in Dutch chip manufacturer NXP, generating combined returns of close to $1 billion for investors. In the same month, it sold a stake in German broadcaster ProSieben for about $1 billion. These European exits came only a few months after KKR floated German warehouse equipment maker Kion Group, the proceeds from which were approximately $550 million. 

Although it is understood that the ProSieben and Kion profits were used to pay down debt, the TDC and NXP proceeds were returned to LPs. As of 30 June 2013, KKR had already realised $2.4 billion from that $5.7 billion fund, according to KKR’s Q2 results. 

One of the largest investments in the fund is Alliance Boots, which KKR partially exited last year, at a money multiple understood to be in the 2.7x range. This alone generated proceeds of more than $2 billion for investors. 

What this means is that the fund’s valuation will have improved significantly since September 2011, when it was showing a negative 3.1 percent net IRR and a 0.9x multiple, according to CalPERS (KKR declined to comment at the time). As of June 30, Europe II was valued at 1.28x, according to the firm; thanks to these recent exits, that multiple is now likely to be substantially higher. 

The question is whether this turnaround paves the way for KKR to go back to market with another European fund. The investment period for European Fund III, a $6 billion vehicle, finishes in March 2014; according to KKR’s Q2 figures, this vehicle has about $1.5 billion of dry powder remaining. So the clock is ticking.