Kkr & Co. Inc. · NYSE:KKR
Kkr & — Merger or Acquisition (July 2008)
41 slides from Kkr &'s merger presentation, Jul 28, 2008
Slide 1: Transaction Announcement Presentation July 2008
Transaction Announcement Presentation July 2008
Slide 2: Summary of Transaction
2 Summary of Transaction Consideration KPE unitholders will own 21% of combined company outstanding units at closing before giving effect to Contingent Value Interests (“CVIs”) KPE unitholders will receive CVIs, which can result in up to an additional $4.94 per unit of value, or 6% of combined compa
Slide 3: Strategic and Economic Opportunity
3 Strategic and Economic Opportunity KKR is at a unique inflection point in its growth trajectory • Positioned to benefit from investors shifting assets to leading global alternative asset managers • Leading global brand, 26.1% returns over a 32 year track record • Actively pursuing new lines of bus
Slide 4: Implied Premium and Pro Forma Valuation
4 x KPE Ownership Implied Premium to KPE Market Value Implied Premium3 82.8% 67.6% Implied Pro Forma Value per Unit2 $19.20 $17.60 KKR Run-Rate Economic Net Income1 $1,233 $1,233 Multiple 12.0x 11.0x KKR Implied Market Value $14,797 $13,564 ÷ KKR Ownership 79.0% 79.0% Implied Pro Forma Company Marke
Slide 5: CVI Provides Valuation Protection
5 CVI Provides Valuation Protection $ in millions, except per unit price Note: For detailed CVI terms, see page 38 (1) Equals KPE NAV as of 30-Jun-2008 (2) Assumes no distributions (3) Based on $10.50 KPE unit price as of 25-Jul-2008 and three year term. IRRs are illustrative and see “Forward Lookin
Slide 6: Rationale for the Transaction
6 Rationale for the Transaction KPE Unitholders Opportunity for significant implied premium based on market comparables Increased liquidity through NYSE listing and expanded investor base Access to diversified and recurring asset management fee and carry streams from long-dated asset base Opportunit
Slide 7: I. Overview of KKR
|. Overview of KKR Il
Slide 8: KKR Today
8 KKR Today Founded in 1976, KKR is one of the world’s oldest and most successful alternative investment firms with $61bn of AUM • 98% of AUM is locked up for 10+ years Global firm with over 500 employees in 9 offices globally Three core businesses • Private Equity • Fixed Income • Capital Markets F
Slide 9: Key Differentiators
9 Key Differentiators Top 25 senior Private Equity principals have been at KKR an average of 12 years Top 6 Fixed Income professionals have an average of 17 years of experience Experienced investment team with a long history of innovation Relationships KKR’s deep cross-industry relationships are a s
Slide 10: KKR's Investment Philosophy
10 KKR’s Investment Philosophy Acquire Attractive Franchises Develop an Appropriate Capital Structure Create Value by Improving Companies Partner with Companies for the Benefit of All Stakeholders Long-Term Investors Involved, patient investors who want companies to take a long-term perspective and
Slide 11: Diversified Alternative Asset Management Platform With Significant Scale
11 Diversified Alternative Asset Management Platform With Significant Scale KKR Fixed Income Assets Under Management2 ($13.1bn) KKR Principals 79% KPE Unitholders 21% + CVI Fees & Carry Fees & Carry Fees Capital Appreciation Private Equity Invested 3rd Party Capital1 ($24.3bn) Uninvested, Committed
Slide 12: a) The Private Equity Business
a) The Private Equity Business
Slide 13: Private Equity Overview
13 Media & Comm 15% Health Care 19% Industrials 17% Financial Services 13% Tech 12% Retail 11% Consumer Products 3% Chemicals 3% Private Equity Overview KKR is the most experienced, successful private equity franchise • 32 years of history, 14 traditional Private Equity funds (excludes KPE) • Comple
Slide 14: Organizational Structure
14 Organizational Structure Invested Funds with Remaining Value KKR Private Equity 2006 (1) 1996 Fund contributes only fees to the public company as it contains no net positive carry (2) Fund size expected to be at least $7.0bn; currently closed on $6.9bn as of 30-Jun-2008 • 1996 Fund1 • European Fu
Slide 15: Investment Portfolio of 46 World-Class Franchises
15 ($ in millions) Sep-07 $ 2,325 May-07 2,129 Dec-02 2,092 Oct-07 1,842 Jul-07 1,118 Nov-06 1,099 Jul-07 1,017 Jul-07 997 Sep-06 850 Jan-08 817 Total $ 14,286 Date of Investment Fair Value (as of 31-Mar-2008) Investment Portfolio of 46 World-Class Franchises $205bn of Revenue and 855,000 Employees
Slide 16: How Our Approach Builds Stronger Companies
16 How Our Approach Builds Stronger Companies Anaheim, CA Wallingford, CA Memphis, TN Bethel, CT Dallas, TX Novi, MI Nov. 1999 – May 2007 May 1997 – Sept. 2004 Aug. 1984 – Dec. 1997 June 1988 – Dec. 1996 Oct. 2007 – Present Feb. 2003 – Feb. 2007 Revenues increased by 43% and the number of employees
Slide 17: How Our Approach Builds Stronger Companies (cont'd)
17 How Our Approach Builds Stronger Companies (cont’d) Palo Alto, CA Portland, OR Carlsbad, CA Boston, MA Wayne, NJ London, UK Feb. 2004 – Present Feb. 1997 – Jan. 2005 Nov. 2001 – May 2007 April 1988 – July 1996 July 2005 – Present Nov. 1998 – Nov. 2005 The number of employees has grown from 6 to 2
Slide 18: Operational approach drives value in all economic cycles
18 When modeling exit strategies, 91% of current portfolio assumed lower multiple at exit than entry Historically, approximately 15% of KKR’s value creation has come from multiple expansion, with EBITDA growth and deleveraging accounting for the remaining 85% Operational approach drives value in all
Slide 19: KKR Has Consistently Delivered Benchmark-Exceeding Investment Performance
19 34.6% 13.6% 34.4% 8.7% 12.1% 9.7% 23.6% 17.3% 18.3% 1.3% 29.4% 5.3% 37.2% 4.2% KKR S&P 500+ KKR S&P 500+ KKR S&P 500+ KKR S&P 500+ KKR S&P 500+ KKR S&P 500+ KKR S&P 500+ KKR Has Consistently Delivered Benchmark- Exceeding Investment Performance Consistently outperformed the markets over the last
Slide 20: b) The Fixed Income Business
b) The Fixed Income Business Il
Slide 21: KFI Portfolio Snapshot
21 Second Lien Loans 15% High Yield Sec’s 14% First Lien Loans 71% KFI Portfolio Snapshot Sponsor and manage fixed income focused investment vehicles with a mix of both permanent and redeemable capital (subject to lock-up provisions – generally longer lock-up terms) Invest in syndicated new issues,
Slide 22: Organizational Structure
22 Organizational Structure KKR Fixed Income (KFI) KKR Financial Holdings LLC (KFN) KKR Strategic Capital Fund (SCF) $2.0bn Equity Capital (Permanent) $1.1bn Equity Capital (2 classes up to 2 and 5 years) CLOs $10.0bn Assets Managed (Up to 10 years) $13.1bn of long-term Assets Under Management as of
Slide 23: Global Organization & Integration
23 Global Organization & Integration Investment Professionals (125) Executive Management Capstone Consulting (31) Senior Advisors (17) KKR Private Equity Investment Ideas, Analysis and Review1 Executive Management Investment Professionals (31) KKR Fixed Income (1) As appropriate and according to com
Slide 24: Fixed Income Growth
24 Fixed Income Growth KKR’s rapid growth in Fixed Income demonstrates how KKR will leverage its brand, global footprint and relationships to build successful new businesses Started in 2004 with one vehicle, $800mm of capital raised through a 144A private placement and a team of 2 people Today the b
Slide 25: c) Distribution and Capital Markets
c) Distribution and Capital Markets
Slide 26: Distribution & Capital Markets Overview
26 Capital Raising • World class capability • Leverage relationships across businesses Structuring Securities • Advise deal teams as needed New Product Development • New funds, products and sources of capital Underwriting • Underwriting term loans, high-yield, mezzanine and private equity primarily
Slide 27: Capital Markets Activity Since Inception
27 Capital Markets Activity Since Inception KKR Capital Markets launched in summer 2007 Business Highlights US broker dealer license – September 2007 UK FSA license – January 2008 Closed $700mm financing facility – February 2008 Received license to distribute PE funds in Japan – April 2008 Participa
Slide 28: d) New Initiatives
28 d) New Initiatives
Slide 29: Significant Growth Opportunities
29 Significant Growth Opportunities KKR continues to develop new businesses and capital sources to further leverage its brand, information advantage, substantial resources and sourcing capabilities Infrastructure Mezzanine Public Equity Real Estate Develop new products / hybrids (example: recently l
Slide 30: KKR Future
30 KKR Future KKR has a history of innovating and leading business transformations that have shaped the investment landscape • Pioneer of the leveraged buyout model • Largest ever buyouts in several geographies, including the U.S., Canada, France and India KKR has grown significantly over the past f
Slide 31: II. Financials
II. Financials
Slide 32: Summary KKR Historical Financials
32 Summary KKR Historical Financials We have significantly grown our assets under management over the past three years Our fees have grown at a 90% CAGR over the same time period Our recent historical financials reflect only minimal earnings from the $24.5bn of capital we have invested over the past
Slide 33: Revenue Drivers
33 Revenue Drivers Management Fees Monitoring Fees Transaction Fees Incentive Fees Private Equity assets typically generating 1-2% fees Fixed Income assets typically generating 0.5-2% fees Fees earned on completed transactions and the syndication of additional equity related to these investments Fee
Slide 34: Simplified Pro Forma Expenses and Ownership Chart
34 Simplified Pro Forma Expenses and Ownership Chart 20% Held Back for Future Grants KKR Holdings (Partnership) Public Net Profits (Shared Pro Rata) Distribution Policy Intend to distribute substantially all of the fees and carry net of expenses with possibility of periodic distribution of principal
Slide 35: Illustrative Earnings Power
35 Illustrative Earnings Power Expenses and Taxes4 Normalized Fees Management fees, transaction fees and monitoring fees ($ in millions) Illustrative Performance Based Fees3 Existing Invested Capital: $28.9bn + 15.0% Return 17.5% Return 20.0% Return $917 $1,062 $1,206 Total Revenues $1,617 $1,762 $1
Slide 36: III. Transaction Structure
Ill. Transaction Structure Il
Slide 37: Transaction Summary
37 Transaction Summary Key Structuring Steps • KPE contributes all of its assets and liabilities to KKR in exchange for newly issued KKR units representing 21% of the equity of the combined company (before giving effect to CVIs) - KKR principals retain 79% of the equity of the combined company throu
Slide 38: Detailed CVI Summary
38 Detailed CVI Summary • Strike Price = $22.25; set at 30-Jun-2008 KPE NAV/unit • Floor Price = $17.31; set to transfer up to 6% ownership to KPE unitholders • KKR unit price will be calculated over a 90-day averaging period at the end of year three • Payment will effectively be funded by principal
Slide 39: Creates Value for KPE Unitholders
39 Creates Value for KPE Unitholders New Current Regular distribution of substantially all of the asset management company cash earnings Limited to tax distributions Dividends Growth in existing asset management business, new businesses, capital appreciation of assets Capital appreciation of assets
Slide 40: Forward Looking and Illustrative Information
40 Forward Looking and Illustrative Information This presentation contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not hi
Slide 41: Offering Information
41 Offering Information This presentation is being made in respect of the proposed transaction involving KKR and KPE. In connection with the proposed transaction, KKR will file with the SEC an amendment to its existing Registration Statement on Form S-1 (file no. 333-144335) and will be filing other