KKR Leads $46.7 Billion of Leveraged Buyouts in Two-Week Streak
Kohlberg Kravis Roberts & Co.'s purchase of Royal Philips Electronics NV's semiconductor unit last week ended a 10-day stretch of $46.7 billion worth of deals, almost a fifth of all leveraged takeovers this year.
The world's biggest buyout firm said Aug. 3 that it would buy 80.1 percent of the Philips subsidiary for $9.5 billion with Silver Lake Partners and AlpInvest Partners NV. KKR announced on July 24 that it was part of the $33 billion takeover of hospital chain HCA Inc., and was leading the $4.2 billion purchase of a 54 percent stake in France Telecom SA's yellow-pages publisher.
Leveraged buyout firms, which use their own cash and borrowed funds to pay for takeovers, paid more than $290 billion of acquisitions this year, a record, according to data compiled by Bloomberg. Higher interest rates are pushing up the cost of financing purchases and competition is forcing firms to pay more for targets.
``KKR has got a lot of capital at its disposal,'' said Billy Gilmore, an Edinburgh-based investment director at Scottish Widows Investment Partnership, the fund unit of Lloyds TSB Group Plc. ``Their model is to do a relatively small number of very large transactions, and as the reach of private equity increases, you'd expect their transaction sizes to increase.''
Blackstone, Permira
New York-based KKR, led by 62-year-old cousins Henry Kravis and George Roberts, attracted $5 billion in an initial public offering for an acquisition fund in May, in addition to 4.5 billion euros ($5.8 billion) for European takeovers in November.
The firm is seeking $15 billion for its biggest global fund. KKR often bids against Blackstone Group LP, which completed raising $15.6 billion in July, and Permira Advisers Ltd., which attracted $12.8 billion for a new fund.
KKR was part of a group that agreed to acquire Nashville, Tennessee-based HCA for $33 billion in the biggest leveraged buyout in history. The deal broke KKR's own record, the $31.1 billion it paid for cookies-to-cigarettes maker RJR Nabisco Inc. 17 years ago.
Over the past 30 years, KKR has invested in more than 141 transactions with a total value of $213 billion.
KKR was attracted to Philips because it makes chips used in digital TVs and devices that track goods and people, Johannes Huth, the firm's European chief, said in an interview. The deal tops Bain Capital LLC's $3 billion takeover of Texas Instruments Inc.'s sensors unit in January as the biggest LBO in the semiconductor industry.
The Philips purchase followed KKR's agreement to buy a 3.3 billion-euro stake in France's PagesJaunes SA.
Depending on Debt
Takeover firms are becoming more dependent on debt to finance their purchases as interest rates rise.
The pace of deals ``is a function of lenders being willing to lend aggressively and the pools of capital being raised,'' said John Howard, chief executive officer of New York-based Bear Stearns Merchant Banking, which raised $2.7 billion last week for takeovers.
European companies acquired by LBO firms on average took on debt equal to 5.3 times cash flow in the second quarter, up from 4.6 times in 2004, according to Standard & Poor's LCD, a unit of the New York-based credit-rating company.
The London interbank offered rate, a benchmark for lending, is the highest since 2001. KKR and Bain have arranged $16.8 billion of loans to pay for the acquisition, according to a filing with the U.S. Securities and Exchange Commission.
Bonds rated below investment grade now yield 8.363 percent on average, or 83 basis points higher than a year ago, according to Merrill Lynch & Co. indexes. That adds $8.3 million a year to the cost of financing for each $1 billion borrowed.
The European Central Bank and the Bank of England last week increased interest rates to restrain inflation. The U.S. Federal Reserve, whose officials meet tomorrow, on June 29 increased its benchmark rate for a 17th time to 5.25 percent from 5 percent.
Kohlberg Kravis Roberts & Co.'s purchase of Royal Philips Electronics NV's semiconductor unit last week ended a 10-day stretch of $46.7 billion worth of deals, almost a fifth of all leveraged takeovers this year.
The world's biggest buyout firm said Aug. 3 that it would buy 80.1 percent of the Philips subsidiary for $9.5 billion with Silver Lake Partners and AlpInvest Partners NV. KKR announced on July 24 that it was part of the $33 billion takeover of hospital chain HCA Inc., and was leading the $4.2 billion purchase of a 54 percent stake in France Telecom SA's yellow-pages publisher.
Leveraged buyout firms, which use their own cash and borrowed funds to pay for takeovers, paid more than $290 billion of acquisitions this year, a record, according to data compiled by Bloomberg. Higher interest rates are pushing up the cost of financing purchases and competition is forcing firms to pay more for targets.
``KKR has got a lot of capital at its disposal,'' said Billy Gilmore, an Edinburgh-based investment director at Scottish Widows Investment Partnership, the fund unit of Lloyds TSB Group Plc. ``Their model is to do a relatively small number of very large transactions, and as the reach of private equity increases, you'd expect their transaction sizes to increase.''
Blackstone, Permira
New York-based KKR, led by 62-year-old cousins Henry Kravis and George Roberts, attracted $5 billion in an initial public offering for an acquisition fund in May, in addition to 4.5 billion euros ($5.8 billion) for European takeovers in November.
The firm is seeking $15 billion for its biggest global fund. KKR often bids against Blackstone Group LP, which completed raising $15.6 billion in July, and Permira Advisers Ltd., which attracted $12.8 billion for a new fund.
KKR was part of a group that agreed to acquire Nashville, Tennessee-based HCA for $33 billion in the biggest leveraged buyout in history. The deal broke KKR's own record, the $31.1 billion it paid for cookies-to-cigarettes maker RJR Nabisco Inc. 17 years ago.
Over the past 30 years, KKR has invested in more than 141 transactions with a total value of $213 billion.
KKR was attracted to Philips because it makes chips used in digital TVs and devices that track goods and people, Johannes Huth, the firm's European chief, said in an interview. The deal tops Bain Capital LLC's $3 billion takeover of Texas Instruments Inc.'s sensors unit in January as the biggest LBO in the semiconductor industry.
The Philips purchase followed KKR's agreement to buy a 3.3 billion-euro stake in France's PagesJaunes SA.
Depending on Debt
Takeover firms are becoming more dependent on debt to finance their purchases as interest rates rise.
The pace of deals ``is a function of lenders being willing to lend aggressively and the pools of capital being raised,'' said John Howard, chief executive officer of New York-based Bear Stearns Merchant Banking, which raised $2.7 billion last week for takeovers.
European companies acquired by LBO firms on average took on debt equal to 5.3 times cash flow in the second quarter, up from 4.6 times in 2004, according to Standard & Poor's LCD, a unit of the New York-based credit-rating company.
The London interbank offered rate, a benchmark for lending, is the highest since 2001. KKR and Bain have arranged $16.8 billion of loans to pay for the acquisition, according to a filing with the U.S. Securities and Exchange Commission.
Bonds rated below investment grade now yield 8.363 percent on average, or 83 basis points higher than a year ago, according to Merrill Lynch & Co. indexes. That adds $8.3 million a year to the cost of financing for each $1 billion borrowed.
The European Central Bank and the Bank of England last week increased interest rates to restrain inflation. The U.S. Federal Reserve, whose officials meet tomorrow, on June 29 increased its benchmark rate for a 17th time to 5.25 percent from 5 percent.