By Dow Jones Business News,
February 06, 2014, 08:25:00 AM EDT
KKR Profit Soars
KKR & Co. expects market conditions to remain ripe for selling off shares in companies it owns, continuing a
development that helped the private-equity firm's earnings soar in 2013.
About a third of the New York company's roughly $39 billion in private-equity investments are tied up in ownership
stakes in companies it is already taken public, giving deal mavens at KKR an opportunity to keep returning cash to
investors and themselves in the months ahead.
"There is opportunity to monetize those positions on a continuous basis, " said Scott Nuttall, head of KKR's global
capital and asset-management group, during a call with analysts on Thursday after the firm announced its fourth-quarter
profit had nearly tripled from a year earlier.
KKR is also poised to start putting more money to work after raising more than $21 billion in 2013, in part for funds
dedicated to North American buyouts, real estate and distressed companies. Management fees associated with that fresh
dry powder also helped lift KKR's earnings in the fourth quarter and the full year, the firm said. Buyout firms
typically raise these sums from pension funds, university endowments and the ultrawealthy.
The private-equity deal market is showing renewed signs of life to the start the year, with KKR rivals Apollo Global
Management LLC buying the owner of the Chuck E. Cheese's restaurant chain and Carlyle Group LP reaching a deal to
acquire a blood-testing business from Johnson & Johnson. In January, meanwhile, KKR agreed to buy a majority stake in
Sedgwick Claims Management Services Inc. for about $2.4 billion.
KKR's financial performance in 2013 resulted in a distribution to shareholders of $1.40, the firm's highest dividend
since going public in 2010. KKR co-founders Henry Kravis and George Roberts, already billionaires, are poised to collect
more than $117 million and $121 million in dividends, respectively, based on the number of shares the two financiers
currently hold, according to the most recent securities filings.
KKR's results come on the heels of record earnings reported last week by larger rival Blackstone Group LP. Apollo
reports earnings on Friday, and Carlyle does so later this month.
KKR said its fourth-quarter profit rose to $277.9 million, or 89 cents a share, from $96.7 million, or 36 cents, a
year earlier. The firm reported a full-year profit of $691.2 million, or $2.30 a share, up 23% from $560.8 million, or $
2.21 a share, in 2012.
Economic net income in the fourth quarter more than doubled to $789.6 million, or $1.08 a share, adjusted after taxes,
compared with $347.7 million, or 46 cents a share, a year earlier, soundly beating Wall Street expectations. Analysts
polled by Thomson Reuters expected 89 cents. Economic net income gauges realized and unrealized gains and losses and
reflects quirks related to private partnerships becoming public companies.
For 2013, KKR reported economic net income of $2.2 billion, up slightly from $2.1 billion in 2012. That amounted to $
2.99 a share, adjusted after taxes, beating analysts' expectations of $2.76.
KKR shares rose nearly 3% to close Thursday's session at $23.89.
The firm's management fees rose 21% in the fourth quarter to a record $175.2 million. Total fees for 2013, including
those tied to deals KKR undertakes, increased 25% to more than $1 billion, the firm said.
In addition to selling stock in companies it owns, KKR expects to pocket additional cash this year from selling firms
in their entirety, Mr. Nuttall said. The buyout firm, for instance, expects to reap about $1.9 billion, more than five
times its original investment, from the sale of Oriental Brewery to Anheuser-Busch InBev. The deal is expected to close
in the second quarter, Mr. Nuttall said.
In 2013, private-equity firms sold shares at a frenetic pace as stocks marched higher and, in turn, increased the
value of the companies they owned. The sales crystallized 2013 as the year of the exit for private-equity firms eager to
realize investment returns years after taking companies private in debt-fueled takeovers.
In the final three months of 2013, KKR sold shares in hospital operator HCA Holdings Inc. and television-ratings
company Nielsen Holdings NV. The firm in the fourth quarter also sold off the last of its shares in Dollar General
Corp., the discount chain it bought in 2007.
KKR and its rivals, however, largely remained cautious about putting money to work on new deals last year, worried
they might overpay as the stock market bid up the value of public companies.
Write to Mike Spector at email@example.com
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