KKR preps for dealmaking in wake of stock market sell-off

NEW YORK (Reuters) – Private equity firm KKR & Co Inc sees the chance to take advantage of the recent U.S. stock market plunge to make acquisitions, co-President and co-Chief Operating Officer Scott Nuttall said on Thursday.

This week’s stock market sell-off follows a sustained period of high valuations, which many private equity executives have complained make it harder to find companies to buy. KKR is sitting on almost $60 billion it has yet to invest.

“Our teams have been waiting for a valuation adjustment to make some assets that they really like more attractive,” Nuttall said in an investor call for KKR’s third-quarter earnings.

“The presiding emotion here is excitement that valuations have started maybe in the U.S. to come down a bit,” Nuttall added.

Last year, private equity deal valuations in North America were at record-high levels, according to Hamilton Lane’s market overview. In the high-price environment, KKR this year has made two of its biggest acquisitions in the last 10 years with Envision Healthcare Corp and business software company BMC Software.

In third-quarter earnings, KKR reported its second-highest distributable earnings (DE) in its history, as results were buoyed by the sale of the divestment of its stake in payments processor First Data Corp and the sale of Finish healthcare company Mehilainen.

After-tax DE – the actual cash available for paying dividends – totaled $496.7 million for the three months to end-September, up 21.3 percent year over year, KKR said.

KKR rival Blackstone Group LP reported a similar 22.8 percent year-over-year rise in third-quarter DE last week.

KKR said DE per share came in at 60 cents, slightly ahead of analyst consensus for 59 cents.

KKR shares were up around 4 percent in mid-morning trade in New York, outpacing the broader market.

KKR said earlier this year it considers DE as its primary earnings metric, as opposed to economic net income, which reflects the mark-to-market valuation of gains or losses of private equity firms’ holdings and is a closely watched measure of performance at peers.

This focus on DE is part of the firm’s efforts to make its stock more accessible to investors, a push which included converting to a corporation from a publicly traded partnership on July 1.

KKR’s assets under management grew to $194.6 billion, up 27 percent over the last 12 months. Over the same period, Blackstone’s assets under management rose 18 percent to $456.7 billion.