KKR & Co LP said on Friday that it would start a new business to offer capital market services to clients other than its portfolio companies in its latest bid to rake in lucrative transaction fees and further diversify revenue from buyouts.
KKR, which in 2006 tapped Craig Farr, Citigroup Inc's North American head of equity capital markets, to build such a business, has so far had little to show in external capital market mandates. A famous exception is an underwriting role on Manchester United Ltd's 250 million pound ($392 million) private bond placement in 2010.
As a result, KKR has ended up arranging debt and equity financing mostly for its portfolio companies, justifying the fees on the basis that it offers a way to test the capital markets itself to ensure access to the most attractive pricing.
On Friday, KKR and buyout firm Stone Point Capital LLC said they would each commit $150 million to a capital markets joint venture that will target midddle-market and private equity-backed companies as well as make principal investments.
The new business, SPC Merchant Advisors LLC, may expand over time to include other services, including risk management and fundraising, KKR said.
"Middle-market companies and financial sponsors need access to more services and capital, and we believe KKR-SPC Merchant Advisors will be well positioned to provide both," KKR co-founders Henry Kravis and George Roberts said in a statement.
KKR's capital markets and principal activities unit posted a 21.1 percent year-on-year rise in fee-related earnings for the second quarter as more deal activity in the firm's portfolio companies boosted fee revenue.
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