KKR’s Pandemic Dealmakers See Rivals and Prices Catching Up

(Bloomberg) -- KKR & Co., the private equity firm that outpaced rivals with its spending during the Covid-19 pandemic, will find it harder to repeat the feat in 2021.

With more buyout houses returning to dealmaking after months on the sidelines, and record numbers of special purpose acquisition companies coming to market, competition for targets is rising, said Johannes Huth, KKR's head of Europe, the Middle East and Africa.

“The market has become a lot more competitive” compared with the second and third quarters of 2020, when KKR was particularly active, said Huth in an interview. “I don't think we will be able to make those transactions today in the environment we have.”

KKR was the top spending private equity firm globally from the start of April through December last year, according to data compiled by Bloomberg, with $29 billion of transactions to its name during this period. Among these was a $4.3 billion deal for the Wella and Clairol beauty brands and a multibillion-euro take-private of Spanish phone company Masmovil Ibercom SA.

The firm decided to invest through the downturn to avoid repeating mistakes it made in the aftermath of the 2008 financial crisis, when a more risk-averse stance saw it miss out on the chance to pick up companies at lower valuations.

Now, buoyed by an abundance of cheap credit and willing sellers looking to clean up balance sheets, rivals are catching up. Soaring equity markets, meanwhile, are driving up prices.

“If I look back last year in March and April, we felt we paid some very rich prices. Looking back now it turned out that that was not the case,” said Huth. “I think we need to be smart about where and how we invest.”

One sector in which the firm has been happy to deploy capital is health care. This week it invested about $100 million in Danish biotechnology company Nordic Bioscience A/S, Bloomberg News reported. That means KKR has now spent $1.4 billion on health-care acquisitions over the past year, 30% more than the previous 12-month period.

KRR is not just going up against its traditional buyout rivals this year. Blank-check companies, which raise money in the public markets to fund takeovers of private targets, have been soaking up investor capital and are chasing deals across sectors. This has both negative and positive implications for private equity firms, said Huth.

“It's not such a good thing because we may have some competition for our assets from SPACs,” he said. “It's a good thing because it gives us another opportunity to exit assets.”

PropertyGuru Ltd., the Singaporean online real estate firm backed by KKR and TPG, is considering listing in the U.S. through a merger with a SPAC, people familiar with the matter said this week.

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