Kohlberg Kravis Roberts’ recent mezzanine deal with specialty chemical distributor IMCD Group was the latest in a string of more than €1 billion of mezzanine financings the firm has joined since creating a dedicated platform in 2009.
KKR led a consortium that injected €105 million of mezzanine financing in Bain Capital’s acquisition of Netherlands-based IMCD, which markets, sells and distributes specialty chemicals. The deal closed at the end of February.
The transaction is one that KKR has gotten used to doing – finding a trusted private equity manager doing a deal and providing mezzanine debt into the acquisition. But this year, the mezzanine team will be looking for other types of deals to take part in, including acquisitions without private equity participation, according to Marc Ciancimino, a member of the mezzanine team.
Mezzanine investments are generally a subordinated, unsecured form of debt that requires a borrower to pay more because of the bigger risks involved to the lender. Mezzanine investors have traditionally targeted “equity-like returns” on their investments.
We've done deals as far afield as Australia. This is a product in which one quarter the US might be super busy, the next quarter it's Europe.
In 2009, the firm launched a mezzanine fund, which so far has raised nearly $560 million, according to the firm’s quarterly public reporting. The firm has targeted over $1 billion for the mezzanine vehicle, according to a person with knowledge who spoke with PEI at the time. KKR declined to comment about fundraising.
Finding the right private equity managers with whom to partner on deals has been integral to the firm's mezzanine strategy, Ciancimino said.
“A lot of different factors go into the decision of whether we want to be involved [in a deal], including which private equity house it is, sometimes which person at that private equity house is leading the deal,” Ciancimino said. “Do they have experience in the sector, how have they performed in other deals?”
KKR’s mezzanine team completed one of its biggest deals last August when it led a consortium including TCW/Crescent Mezzanine and Sankaty Advisors to provide $470 million to help finance Advent International and Bain Capital’s $3.2 billion acquisition of RBS WorldPay.
The RBSWorldPay deal was attractive from a mezzanine standpoint because “it was a carve-out and did not have sufficient audited financial statements to go down the high yield route”, Ciancimino said. The private equity sponsors in the deal “liked the certainty” of the mezzanine investment, he said.
KKR’s mezzanine team does not target any specific sectors, though it prefers to target mid to large-sized
A lot of different factors go into the decision of whether we want to be involved [in a deal], including which private equity house it is.
“We’ve done deals as far afield as Australia,” Ciancimino said. “This is a product in which one quarter the US might be super busy, the next quarter it’s Europe.”
KKR’s mezzanine team is housed within the firm’s larger KKR Asset Management division that is led by William Sonneborn. Mezzanine and credit investments in general are just one part of the firm’s product offerings, which also include private equity, energy and infrastructure-focused funds.
KKR is not the only large private equity firm building up its mezzanine capabilities.
The Carlyle Group, for example, launched a mezzanine fund in 2006 and collected $436 million. Carlyle’s second mezzanine fund closed on $553 million in 2009. The Blackstone Group affiliate GSO Capital raised its first mezzanine fund in 2007. GSO is in the process of raising its second mezzanine fund with a target of $3 billion.
Firms globally raised a total of $8 billion for mezzanine investments last year, almost the same total amount as in 2008, according to data from placement firm Probitas Partners. Mezzanine had its peak fundraising year in 2007, when firms raised almost $28 billion for the strategy.