KKR to acquire Avoca Capital

The firm has taken a big step in expanding its European credit business by agreeing to acquire the European credit specialist.

Kohlberg Kravis Roberts has entered an agreement to acquire European credit specialist Avoca Capital, the firm announced in a statement Friday.

The firms began discussing a possible deal at some point earlier this year, a source with knowledge of the situation told Private Debt Investor. Terms of the transaction were not disclosed.

The acquisition of Dublin- and London-based Avoca would represent a remarkable expansion of KKR’s European credit practice, which would grow by approximately €8 billion in assets under management upon close. The transaction is expected to close in the first quarter of 2014.

Avoca invests in European loans and bonds, credit opportunities, long/short credit, convertible bonds and structured and illiquid credit, according to the press release.

In its release, KKR cited European banks’ need to adjust their balance sheets to come into compliance with Basel III regulations. As banks scale back their traditional lending practices, non-traditional lenders are expected to fill the breach.

“European credit markets are likely to grow significantly over the decade ahead as banks deleverage and take time to rebuild their capital bases. This transaction creates a broad based credit business that will be at the forefront of the developments in European credit markets in the years to come. We are very excited by the enhanced opportunities the transaction will bring for the Avoca team and its clients,” said Avoca Capital co-founders Alan Burke and Dónal Daly in a statement.

Burke will lead KKR’s European credit platform. Daly will join the firm as a senior advisor.

The combined multi-strategy credit platforms of Avoca and KKR would manage €28 billion in assets and include offices in Dublin, London, San Francisco, New York and Sydney.

Several firms have expanded their operations in the European credit space over the last year. Apollo Global Management and The Carlyle Group have raised CLOs dedicated to the region, and firms such as Strategic Value Partners are adjusting their fund investment strategies to accommodate the opportunities created by banks offloading of distressed assets.