KKR steps up pursuit of UK companies amid buyout frenzy

KKR is expanding its operations to target more takeovers in the UK, as the record-breaking pursuit of British companies by private equity groups reignites a debate over the role of the buyout industry in the economy.

One of the world’s largest private equity groups will set up a new team of five dealmakers to focus on buying British companies, the heads of its European buyouts business said in an interview with the Financial Times.

“The idea is to have a few more British people covering British companies from a relationship perspective than we have in the past,” said Mattia Caprioli, co-head of KKR’s European private equity business.

There will be “dedicated people covering the UK proactively as a main job”, he added. Its London staff are moving to a larger office in Mayfair’s Hanover Square.

Founded in 1976 by Henry Kravis and George Roberts, KKR helped shape the modern private equity industry and manages about $367bn in assets.

A combination of Brexit and the pandemic have depressed valuations in Britain, prompting private equity groups to snap up companies there at the fastest pace in history. Buyout groups have bought or announced bids for 366 UK companies so far this year, the most for a comparable period since records began in the 1980s, according to figures from Refinitiv.

The latest in the wave of deals came over the weekend when an investor group led by US investment manager Fortress agreed a £9.5bn deal for supermarket group Wm Morrison in what would be the country’s largest leveraged buyout since KKR bought Boots in 2007.

“There’s more value at a high level in the UK than there is in other markets,” Caprioli said. Companies in the FTSE 100 index are valued at similar multiple of their earnings as they have been for years, he said, whereas valuations have risen in many other countries. 

Caprioli, who alongside Philipp Freise was promoted to co-head of KKR’s European private equity division in 2019, said the group was “not that focused” on buying listed companies in the UK, however, because such deals were “difficult” compared with acquiring privately owned businesses.

As part of its UK push, the group is hiring Michaela Wood, an investment director at rival buyouts group CVC Capital Partners, to join the new team, people familiar with the matter said.

KKR’s rivals are taking similar steps. Blackstone has hired Alexander Walsh, a managing director at TowerBrook Capital Partners, as a partner to focus on UK private equity deals, a person familiar with the matter said. Carlyle last year appointed Simon Dingemans, GlaxoSmithKline’s former chief financial officer, to oversee UK buyouts.

The rise in dealmaking has sparked a fierce row with some fund managers saying the industry is buying up businesses too cheaply. The UK’s Daily Mail newspaper has launched a campaign against what it calls “ruthless” and “predatory” dealmaking.

Freise described the reaction as “absolutely normal”, adding that “we saw it in Germany 2001 to 2005 [when a senior Social Democrat politician likened the industry to locusts], we saw it in the François Hollande period [in France] . . . and we’re now seeing it arriving in the UK”. 

The UK is “finding its new role in the world” after Brexit, he said. “With that comes a lot of uncertainty, and it’s only right to ask questions about the various participants in that change . . . With greater uncertainty in terms of safe jobs [and] the role of the City, comes greater scrutiny.

“So I think you see us, as leaders of the private equity business, entirely appreciative of the need to communicate and be transparent.” 

He said a backlash from shareholders over takeover bids was “welcome” because “that’s their job”.

Freise and Caprioli said they had already been prepared to hunt bargains as the pandemic plunged the world into crisis last year.

“We were prepared for a dislocation, for a correction,” Caprioli said. “We had a playbook — a book, literally.” 

On the first day of the shift to remote working in the spring of 2020, he said, its dealmakers “had their target list [and] the only difference was, before, the market price had been 20 per cent, 30 per cent, 40 per cent ahead. And suddenly we were in business”. 

During a hectic period, KKR struck deals for French hospitals company Elsan, Spanish telecoms operator MasMovil, and US cosmetics maker Coty. The group spent about twice as much last year as it usually would, Freise said. 

Shares in KKR and many other listed private equity groups are trading at all-time highs, as investors funnel ever-larger sums into the industry, boosting fee income.

“Private equity came out stronger as an industry, you know, through Covid,” Caprioli said.

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