bloggingbuyouts

When The Blackstone Group (NYSE: BX) went public, many observers -- myself included -- were concerned by the total lack of corporate governance checks and balances.

But at the time, the private equity industry was so hot that Blackstone could do no wrong, and no one cared enough to complain. Now that KKR is mulling a plan to list on the New York Stock Exchange, things could be different. The wheels have come off the industry, at least for now, and the arrogant attitude of "We'll tell you what we feel like telling you and you'll like it" may not play so well.

American International Group (NYSE: AIG), once the world's largest insurer, is selling assets outside the U.S. to repay a government bailout. The Carlyle Group, KKR, JC Flowers, and other U.S. private equity firms and Asian financial groups are reported to be interested in AIG's Taiwanese unit Nan Shan Life Insurance Co.

"Everyone hopes this is going to be a fire sale as AIG is in a difficult situation," said a local partner of Standard & Poor's.

The $52 billion merger of Anheuser-Busch InBev has resulted in some nice opportunities for private equity firms. For example, KKR recently purchased a division of the firm -- Oriental Brewery Co. (the number two brewer in South Korea) -- for $1.8 billion.

Doesn't sound like a lot? Well, it is a big deal. In fact, it's the biggest private equity deal in nine months.

Over the past few years, the private equity powerhouse KKR has tried to go public. First, the firm attempted a typical public offering, but this failed because of the credit crunch. Then KKR tried to go public by using a complicated structure by purchasing another entity, KKR Private Equity Investors (KPE), which is listed on the Euronext.

Well, it looks like this plan may also be dead, according to the Financial Times, as KKR is considering an approach to purchase KPE without triggering a listing on the New York Stock Exchange.

In 2005, several Chinese entrepreneurs started a milk production company, Modern Dairy. No doubt, the company realized there was a huge opportunity in China for milk (right now, the country is third in the world in terms of production).

Besides, in light of some of the contamination problems in the industry (especially last year's melamine scandal), there was a need for a better approach.

Well, this Chinese dairy has caught the attention of the mighty private equity firm KKR. This week, the firm invested $150 million in Modern Dairy, according to Bloomberg.

Investors have long coveted hot initial public offerings. But access to the biggest IPOs usually requires big money and insider connections. However, a deal between Kohlberg Kravis Roberts & Co. and Fidelity Investments may change that.

The companies are reportedly near a deal to give some of Fidelity's 20 million individual and institutional clients access to IPOs by the stable of companies in which KKR has made private equity investments.

KKR & Co. (NYSE: KFN), which gained famed in the 1980s from the then-record purchase of RJR Nabisco, today reported its first loss in about five years.

As Bloomberg News noted, the New York-based firm posted a $1.2 billion loss for 2008, compared with pretax economic net income of $815 million the previous year. KKR's assets under management plunged 11% to $47.3 billion at the end of March. The closely held company, which last year announced plans to go public, has seen its access to credit dry up as banks tightened standards. Many private equity deals also are buckeling under the weight of excessive leverage.

Bloomberg reports that Gome Electrical Appliances Holdings Ltd. may sell up to 20% of the company to Bain Capital. The asking price is said to be in the neighborhood of $500 million. KKR & Co. and Warburg Pincus are also said to be interested in the stake in Gome.

With more than 800 stores in 160 cities, Gome is China's second-largest electronics retailer, which makes it a tempting target for investors looking for alternatives to recession-constrained businesses in the United States, Europe, and developed markets in Asia.

Leveraged buyout guru Henry Kravis, cofounder of the legendary private equity firm Kohlberg Kravis Roberts, tells Forbes that he believes private equity will come back from the hit it has taken from the financial crisis.

"It's not dead at all, but it will take different forms," he said.

Kravis compares the current economic environment to 1979, when, the U.S. economy was struggling, inflation was at 13%, unemployment at 11%, and zero financing was available. But then, of course, followed the explosion of private equity in the 1980s and 1990s.

Buyout funds managed by private equity giants Apollo Management LP and Blackstone Group LP (NYSE: BX) are among a growing number of limited partnerships that have experienced sharp declines in value, reports the Wall Street Journal, which highlights the economy's impact on such funds, as well as the influence of mark-to-market accounting.

Apollo and Blackstone recently disclosed to investors the values of their last buyout funds at year-end. Apollo Investment Fund VI LP, a $10.1 billion investment vehicle that closed in 2005, was held at 34% below cost. Perhaps the most notable Fund VI deal is Harrah's Entertainment Inc., which has struggled with its debt covenants. Apollo and TPG Capital LP acquired Harrah's in January 2008 for $27.8 billion.

Back in early 2007, KKR Private Equity Investors -- along with Citigroup (NYSE: C) -- invested $700 million in Sun Microsystems (NASDAQ: JAVA). The investment structure was a convertible senior note (both firms split the investment).

And, just like many other private equity deals, KKR wrote down the investment -- by about $167 million. This was as of last year.

The disk drive business isn't exciting. But it does generate nice cash flows.

Over the weekend, KKR announced that it is buying Unisteel, which is a disk drive component developer in Singapore. There were other bidders at the table, such as the Carlyle Group, TPG, and Bain Capital.

The price tag: $578 million.

Unisteel is listed on the Singapore exchange. Because of low trading volume, there are many bargains to pick from, which should be attractive to private equity players.

From a strategic standpoint, the Unisteel deal is another sign of the consolidation in the global disk drive market, in which scale is incredibly important.

Interestingly enough, KKR purchased another disk drive operator, MMI Holdings, about a year ago. So, by combining MMI and Unisteel, there should be some juicy cost savings.

Moreover, it looks like KKR will continue to focus on Asia. After all, the firm recently raised a $4 billion fund that is focused on the region.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Today, the Environmental Defense Fund (EDF) and Kohlberg Kravis Roberts & Co. L.P. (KKR) announced a "Green Portfolio" partnership. The first environmental organization and private equity partnership, it will build on the 2007 TXU Corporation acquisition and gauge and enhance the environmental performance of KKR's portfolio of U.S. companies.

KKR and the EDF designed a set of metrics to track the environmental improvements portfolio companies have made and enable managers to improve cost-effectively enhance efficiency and reduce waste, while simultaneously addressing the impact that their greenhouse gas emissions, toxic substance use and water generation and consumption have on the environment. The concept has financial and environmental benefits for the companies that utilize the program.

Initially, the Green Portfolio will implement the program in pilot projects for six months before analyzing and applying to the full portfolio in the next year, publicly announcing results at each phase. The partnerships ultimate goal is to design a program that will be used by companies around the world.

First Data Corp. has entered into an agreement to acquire InComm today, only about 7 months after it was acquired by affiliates of Kohlberg Kravis Roberts & Co. The value and terms of the transaction has not been disclosed, however, the deal is estimated to be accretive for First Data and is expected to close next quarter.

InComm is an industry leader in marketing, distribution, and technology innovation of gift cards, prepaid wireless products, reloadable debit cards, digital music downloads, content, games, software and bill payment solutions. InComm generated $300 million in net revenues in 2007 on $8 billion in retail sales transactions. The combination will allow First Data and InComm to provide a full prepaid product suite.

This should be an interesting deal as First Data Corp. is a electronic commerce and payment processing services. At the time that KKR closed its merger, First data said it had over 5 million merchant locations, 1,900 card issuers and their customers, in its network. This may really allow the combined InComm & First Data channel to expand rapidly. Brooks Smith, the CEO of InComm will head First Data's Global Prepaid Services unit once the transaction closes.

Jon Ogg produces and edits the Special Situation Investing Newsletter for 247WallSt.com.

Lately, there have been some scary stories -- such as in BusinessWeek and Forbes.com -- about the buyout of Freescale, which is a major semiconductor operator. The transaction came in September 2006 at $17.6 billion.

The latest earnings report was anemic. Plus, the company's bonds are selling at distressed levels. And CEO Michel Mayer quit his post in February (but don't cry for him as he took millions in a nice payday). And of course, Freescale's key customer, Motorola, Inc. (NYSE: MOT), is ailing.

So, might this prevent further buyout deals in the semiconductor space?

Not necessarily. According to a piece in Financial News, it looks like KKR is still bullish on the sector. Actually, the firm made an investment in the sector, NXP, which has taken a drubbing.

But, then again, private equity is supposed to take the long view, right?

Well, KKR thinks that NXP could be a vehicle for consolidation. And, the firm has no shortage of cash to pull it off. Besides, NXP recently sold its wireless assets to STMicroelectronics for a cool $1.5 billion.

It's a gutsy move for KKR -- but does make sense. With a cyclical downturn, there should be many bargains. Plus, there are opportunities to cut costs.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.