KKR’s Alliance Boots defies market conditions

Alliance Boots, the drug store chain and pharmaceutical group bought in Europe’s largest leveraged buyout in 2007, has posted positive performance results in spite of the depressed economic conditions challenging many other retailers.

The company, which was bought by Kohlberg Kravis Roberts and executive chairman Stefano Pessina for £11.1 billion (€12.6 billion; $17 billion) in May 2007, reported a 15.5 percent rise in total revenue to £20.5 billion for the twelve months to April 2009. Group trading profit was up 11.6 percent to £953 million.

Alliance Boots consists of two divisions: health and beauty, which covers the business’ 3,200 retail outlets and beauty and skincare ranges, and pharmaceutical wholesale. Both arms of the business saw increased revenue for 2008, according to the group’s preliminary results.

The group has a strong cash flow and is benefiting from historically low interest rates, said Pessina in a statement this morning.

The robust performance from Europe’s largest ever leveraged buyout target provides a welcome contrast to other highly-leveraged deals. Energy Future Holdings, which was bought in 2007 by TPG, KKR and Goldman Sachs for $45 billion, was in April downgraded by Moody’s Investors Services based on its high leverage, limited financial flexibility and increasing likelihood of a default. Earlier this month, however, the business returned to profit buoyed in part by lower natural gas prices.

While Alliance Boots has posted positive results, it has seen its value drop significantly since its acquisition at the height of the credit boom in 2007. KKR Private Equity Investors (KPI), the Euronext-listed investor in KKR-managed funds and deals, made a $301 million co-investment in the buyout. As of the end of March this year, KPI’s stake was worth $172 million according to fair value accounting rules.