May 4, 2017

Why ValueAct bought into KKR

Dan Primack, author of Pro Rata

Jeff Ubben, the CEO of activist investor ValueAct Capital, spoke briefly with Axios about his firm's acquisition of a 5% stake in private equity giant KKR & Co. Two notes:

Investment thesis: Ubben believes that KKR stock is undervalued, so either the markets begin to get it "right" or KKR management will eventually choose to convert the structure (perhaps a take-private?). Either way, ValueAct would get paid.

Differentiator: So why KKR, given that stock price undervaluing could also be an argument for buying into, say, Apollo? The answer is KKR's outsized balance sheet, which Ubben sees as a flexibility boon whereas many other managers view it as a burden. For context, S&P Capital IQ shows that KKR's total balance sheet assets were around $39 billion at the end of 2016. Blackstone was $26 billion, Carlyle was around $10 billion and Apollo was $5.6 billion.

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