Jul 09, 2018
As part of the KKR Capital Markets presentation, Tara Davies, Head of European Infrastructure, shares two case studies where the Infrastructure team worked very closely with the capital markets team – Calvin Capital and Q-Park.
Infrastructure Case Studies
Head of European Infrastructure, KKR
Good morning. My name is Tara Davies and I am Head of the European Infrastructure team. Just by way of background, I am a chartered accountant by trade. I started investing in infrastructure at Macquarie Group back in the late 1990s. In 2004 I moved to Europe and then continued to invest in the infrastructure space there. In 2016, I joined KKR. Some of my portfolio responsibilities include two renewable energy businesses. One is a global solar developer; the other is a partnership with Acciona in the onshore wind space. I also sit on the board of a telecommunications company, a towers and cables business in partnership with Telefónica, called Telxius. I also sit on the board of Calvin Capital.
Today I am just going to spend a couple of minutes talking to you about two case studies where the Infrastructure team has worked very closely with the Capital Markets team. The first one is Calvin Capital.
Calvin Capital Case Study
Calvin is a UK gas and electricity meter asset provider. What is interesting about that market in the UK is that the government has mandated that all homes must have a smart meter by 2020, providing a really exceptional growth opportunity. Just to put the UK market into context, that is a 50 million meter market and Calvin is one of the three largest meter asset providers.
The Calvin deal was a big deal. It was £1 billion transaction. We in the Infrastructure Fund had £250 million to invest. But it was a business that we were very well prepared for. We had met with the energy suppliers, we had very strong conviction on the thesis for this business.
We worked very closely with Adam and his team. His team raised competitively sourced debt on attractive terms and also syndicated the rest of the equity to our LPs. But what was even more powerful was we wanted to move quickly. The balance sheet backstopped our bid. We made a pre‑emptive offer on this transaction. The balance sheet backstopped it, providing a syndication opportunity to our LPs and we managed to take this transaction out of the competitive process. We signed a sale and purchase agreement before the auction bid date. It was a super powerful point to use the Capital Markets team, coupled with the balance sheet, on this transaction for us.
Calvin is one of 12 investments that we have made in Infrastructure Two, one of our funds. Eight of those 12 investments, we have worked alongside Adam and his team on the equity syndication, providing co‑investment opportunity for our LPs. For us, in a very growing franchise within KKR, this is the rule rather than the exception to the rule.
Q‑Park Case Study
Our next case study is Q‑Park. Q‑Park is the number one parking operator in Western Europe. It is very much focused on off‑street car parks and purpose‑built car parks. It is a market we know very well, having invested in the space before, but what was very exciting about this particular business was that it was owned by a very fragmented shareholder base, and therefore was a very undermanaged business. When we saw this business, we knew there were lots of levers to pull in terms of value creation, from yield management to operational efficiencies to even some M&A opportunities.
For us, as a mere $3 billion infrastructure, this was a €3 billion. It was a huge deal relative to our fund. Typically we will invest about 10% of the equity from the fund per deal. Again, we therefore worked with the Capital Markets team; we raised $1.2 billion of debt and $1.5 billion of equity. That meant, given the size of the equity, we actually went beyond the LPs of the infrastructure fund to KKR's friends and family.
The interesting thing here was that, of the 18 co‑investors on this transaction, 11 of the 18 became new LPs when we started to raise Infrastructure Fund III.
As an investing team, working with the Capital Markets team allows us to speak for the whole deal. We do not get bogged down in consortium arrangements and therefore always have control of our funding situation. It allows us to focus on the things that really matter, like due diligence, assessing the risk and developing our investment thesis. It also creates new follow‑on opportunities as we develop our relationships with our LPs. They are underwriting the transaction along with us, and so they are understanding how we assess risk and how we underwrite these deals.
In terms of Calvin Capital, the revenue event for the Capital Markets team was $80 million. On the Q‑Park transaction, the revenue event was $62 million.
KKR Capital Markets: Conclusions
Head of KKR Capital Markets, KKR
I think that is a very good segue into our conclusions. The full-service nature of what we do can be a major competitive advantage for our firm and our investment teams. It is also an advantage for our third-party clients that we serve. We, as a firm, have experienced significant growth and diversification in all of our investment strategies. That has translated also into growth and diversification in our Capital Markets business, which as we talked about earlier, achieved very significant earnings of $440 million last year.
What we see today is a very strong baseline business across private equity, infrastructure and our third-party activities in Capital Markets, with a healthy balance of revenue generation across the debt and the equity markets. The transformation of our debt and capital markets platform to allow us to lead transactions and stand alone has been a major accelerator of what we have been accomplishing.
For me, when I look ahead and think about where we are going, I get particularly excited. I see a lot of runway in our debt capital markets and third‑party activities. There is certainly room to grow. We also have new business opportunities that we expect to appear, like we saw with the infrastructure team, as the newer strategies that we have in our firm start to reach greater scale and greater maturity.
Finally, we are going to follow the geographic expansion of the firm as it builds out new business initiatives in Asia and elsewhere, or as we build new credit capabilities and raise new types of credit funds in our Credit business. That is what excites me to be part of KKR.
With that, we would like to turn it over to our partner Suzanne Donohoe, who heads our Client & Partner Group and would like to spend some time talking about our fundraising.
DisclaimerInvestor Day podcasts and corresponding transcripts have been prepared for KKR & Co. Inc. (NYSE:KKR) for the benefit of its public stockholders and is not intended to be a solicitation or sale of any of the securities, funds or services that they may discuss. Please find a copy of the presentation here.