Issue 32

This day in buyout history: KKR makes a $3.9B move in the public markets

At the start of this month, KKR officially converted from a partnership to a corporation. It was the culmination of a gradual, decades-long shift that's seen the firm become more and more interested in the public markets, in contrast to its traditionally private-markets-focused PE peers.

KKR's penchant for exiting investments via IPO is one indication of this philosophy. And its half- decade as a backer of Gardner Denver—a period that began five years ago today, on July 30, 2013—is a prime example.

In this particular saga, the firm's connection with the stock market began with a search for targets. Gardner Denver, an industrial manufacturer focused on flow-control products for an array of industries, had been publicly traded on the NYSE for 70 years when KKR purchased all its outstanding shares in a take-private buyout valued at $3.9 billion, including the assumption of debt. KKR brought in new management as part of the deal, hiring industry veteran Timothy Sullivan as CEO and president, and appointing Michael Larsen as CFO.

The next four years brought conflicting financial signals for Gardner Denver, with a decline in energy prices wreaking havoc across the industry. The company managed to grow its EBITDA margins steadily under KKR ownership, but revenue declined by some 27% between 2014 and 2016. And something had soon become clear: The debt that KKR had piled onto the company's existing load in order to execute its buyout was proving problematic. A return to the public markets beckoned.

The company still listed nearly $2.8 billion in total obligations as of March 31, 2017, per an SEC filing. Among a list of other risks, Gardner Denver claimed that it "may not be able to generate sufficient cash to service our indebtedness."

That may have played a role in the lukewarm response to the company's roadshow. After initially seeking a price of between $23 and $26 per share for its offering of 41.3 million shares, Gardner Denver ultimately priced its listing at $20 per share for its May 2017 IPO, raising $826 million at an estimated $3.8 billion valuation. The difference between an original midpoint estimate of $24.50 per share and the ultimate $20 per share pricing amounted to some $186 million—a healthy discount from what the company's investors had hoped for.

In reality, we should maybe use the singular "investor": KKR owned a 98.6% pre-IPO stake in Gardner Denver and retained a 75% holding upon the offering's completion.

The company's stock price hovered in the low $20s for the next several months. By last autumn, however, it began to tick up—first past $25 per share, then past $30. For KKR, that meant it was time to pull out some profits.

Last November 13, the firm announced plans to offer 22 million shares of Gardner Denver; the company closed trading that day with a market cap of about $5.8 billion. KKR announced a secondary offering of another 26.6 million shares for $31 apiece in May, a sale that was set to generate some $823 million in cash. Combined, those nearly 49 million shares that KKR sold in a six-month span represent about a quarter of Gardner Denver's outstanding stock.

In terms of the traditional buyout cycle of acquisition to exit, KKR's deal with Gardner Denver may not have generated the sky-high profits to which the PE industry is accustomed. But by holding onto post-IPO shares and playing the stock market, the firm showed the benefits of its emphasis on both the public and private sides of the economy.

From - PitchBook

China's Xiaomi says parts supplier Holitech Technology
to invest $200 million in India

China’s Xiaomi Corp said on Monday its component supplier Holitech Technology would invest about $200 million in three years in India which is the world’s second-biggest smartphone market.

Xiaomi had said in April that it wanted its global smartphone component makers to set up base in India, in what could potentially bring as much as $2.5 billion of investment and create as many as 50,000 jobs.

India imposed a 10 percent tax on imports of key smartphone components, including populated printed circuit boards, in April as it moves to step up local assembly of mobile devices.

Holitech will manufacture components including camera modules, thin film transistor and fingerprint sensor at Tirupati in the southern state of Andhra Pradesh, Xiaomi said in a statement.

The company expects to begin manufacturing by the first quarter of 2019 with an aim to generate 6,000 jobs in three years.

From – Reuters

Nordic investor to boost infrastructure sector with €8B fund

Scandinavian private equity firm EQT is reportedly planning to raise at least €8 billion for a new infrastructure fund, an amount that would make it the largest vehicle in that sector in Europe.

The fund would follow the same strategy as its predecessors, according to the Financial Times, focusing on medium-sized infrastructure companies in sectors including energy, transport and logistics, environmental, social and telecom. Typically, EQT invests between €100 million and €600 million in businesses across the Nordic region, continental Europe and North America.

Fundraising for the new vehicle, which is expected to start in September, would come less than two years after the firm’s third infrastructure fund closed on €4 billion. EQT's investments include B2B data communication services provider GlobalConnect and Delta Comfort, a telecom infrastructure company and supplier of energy. It is expected that firms that backed the third fund, such as BlackRock and Ardian, will also invest in the new one.

If successful, the fund would go a long way in driving up capital invested in the infrastructure space, which this year is lagging behind the heights reached in 2017. More than halfway through 2018, there have been just 19 transactions in the sector, worth a total of about €6.7 billion. Compare that to last year, when investors completed 94 deals for a total of roughly €32 billion, per the PitchBook Platform.

The infrastructure fund would be EQT's second massive vehicle of 2018. Earlier this year, it closed its eighth buyout vehicle on €10.75 billion—making it the biggest in the firm’s history, the third-largest European buyout fund in history and only the fifth to surpass €10 billion.

This feeds into the larger trend in the European private equity industry of an increase in mega-funds. Last year, CVC Capital Partners gathered €15.5 billion for the largest Europe-based fund in recent history. This year has already seen three €5 billion-plus vehicles: one each from BC Partners and PAI Partners and the €10.75 billion fund from EQT.

From – PitchBook


Malaysia approves a Singapore Rail Link, for now
Malaysia’s new government has called into question the future of multibillion-dollar rail projects since Tun Dr Mahathir Mohamad took power in May. Now it appears to be ready to proceed with at least one.

The Malaysian cabinet has given in-principle approval for a rail project linking Johor Baru in the southernmost tip of the country with Singapore, Malay Mail Online said in a report citing Transport Minister Anthony Loke. It is still looking at costs and other details.

This project was delayed by two months due to the general elections, which saw Mahathir become prime minister. A known Singapore critic, Mahathir has wanted to cancel a proposed multi-billion dollar high-speed railway connecting the city state to Kuala Lumpur as it was too expensive while saying it may happen in the future.

Mahathir’s stance prompted Singapore’s Transport Minister Khaw Boon Wan to tell parliament on July 9 that his government will seek compensation for all costs incurred if Malaysia cancels the 350-kilometer railway link between the two countries.

For now, it seems to be a go for the 4-kilometer rail line, which will be able to transport 10,000 travelers in one direction every hour between Singapore and Johor Baru.

The two neighbors will set up a joint company for the project after the full approval is given by Malaysia. - Bloomberg

From – The Star

SoftBank in Talks to Invest Up to $750 Million in Zume, the Startup That Sells Robot-Made Pizza

SoftBank Group Corp. is in talks to invest from $500 million to $750 million in Zume Inc., a startup that makes and delivers fresh pizzas with the help of robots, according to people familiar with the conversations.

Zume owns a patent for delivery trucks capable of cooking food while it’s en route to customers. The startup's proprietary trucks are loaded in part by robots and have ovens that fire up on demand, via a remote cloud signal. The technology allows Zume to operate legally despite some laws preventing food truck companies from preparing food while a delivery vehicle is in motion. In addition to delivering pizza, Zume creates technology to manage perishable supply chain logistics and sees an opportunity to partner with companies that wish to provide freshly cooked menu items to customers.

The investment shows SoftBank’s Vision Fund's broader ambitions to attach itself to the food- delivery businesses, said the people, who asked not to be identified because the discussions are private. Earlier this year SoftBank led a $535 million funding round into meal-delivery app DoorDash. SoftBank also owns a 15 percent stake in Uber, which says its last mile meal-delivery business, UberEats, is growing quickly. In February, Uber's chief executive officer, Dara Khosrowshahi said food delivery already represented about 10 percent of Uber’s business.

Right now, Zume’s pizza delivery business is only operating three trucks from its headquarters in Mountain View, California, but the small startup has ambitions to partner with food couriers like UberEats and DoorDash.

Zume, which started operations in stealth mode in 2015, was co-founded by Alex Garden, a former president of Zynga Studios, and Julia Collins, a restaurant operations executive who worked for artisanal fromager brand Murray's Cheese and Mexicue, a small chain of Mexican food eateries.
Shortly after Zume began selling its cyborg-constructed pies, the company secured funding from Yahoo Inc. founder Jerry Yang's venture shop, AME Cloud Ventures. In a 2016 interview, Garden said he had designed the robots to mimic the movements of human workers, to "pread your sauce perfectly, but not too perfectly," to recreate the experience of eating a handcrafted slice.

SoftBank’s Vision Fund could help take the startup's concept global. SoftBank has stakes in Asian ride-hailing giants Ola, Grab and Didi Chuxing, which have all expanded into the food-delivery business. The Vision Fund is also planning to lead an investment of as much as $5 billion into, the food delivery giant owned by Alibaba Group Holding Ltd., according to an earlier Bloomberg report.

Yum! Brands Inc.'s Pizza Hut and Domino Pizza Inc. have been experimenting with robots too. In 2016, Pizza Hut Asia announced that it would be using Pepper, the humanoid robot from SoftBank Robotics Corp., to take orders at certain locations. SoftBank Robotics, originally a French startup before its acquisition by SoftBank in 2012, was heavily marketed in Japan as part of SoftBank Group leader Masayoshi Son’s big push into robotics. Yet the futuristic clerk has yet to go mainstream. As of last March, about 10,000 Pepper robots had been sold since they began shipping in 2015.
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