KKR Kills $500 Million IPO--A Sign Of The Times

KKR, the private equity firm, pulled its $500 million IPO. It made a similar move in 2007 as the investment markets fell apart.

The large financial operation said the market conditions were not favorable, although the S&P 500 is up almost 5% in the last month.

But what company knows more about the conditions of the credit and equity system than KKR does? The answer is very few.KKR probably sees two things on the horizon. The first is the increased problem of off-loading highly leveraged companies that the firm bought with large bank loans during the credit and stock market booms of 2006. Many of these transactions are now in trouble because the cash flow of the companies, often undermined by a weak economy, cannot cover the debt service of the long-term liabilities on their balance sheets.

The other reality KKR faces is that the economy married with new financial regulations may make banking and buyout firms risky investments. Forecasts for investment banking company earnings are already being aggressively cut by analysts. That would cause the firm’s share offering to be a failure for investors who put money into KKR at what may be a tipping point for the industry. Blackstone (NYSE: BX) has a disastrous IPO in 2007. KKR wants to avoid a similar fate.

Douglas A. McIntyre