By KKR Mar 11, 2021
We sat down with Paul Atefi, Managing Director of KKR Credit, to learn more about how his team approaches credit investments in the Technology sector, and what KKR’s Credit team brings to the table.
Given your recent investments into the tech sector, is it a big focus for you?
There are a lot of software assets on the market at the moment. As a result, we spend a lot of our time evaluating opportunities in the tech sector. Fortunately, we have a great deal of embedded knowledge within the firm on the sector generally and in software specifically. The Credit team is sector agnostic, but we leverage the deep sector expertise across KKR when evaluating credit investment opportunities. The connectivity across the firm is a great advantage in our deal evaluation and due diligence process. In certain circumstances, we can leverage the diligence done by other teams to help us participate in transactions.
When you’re evaluating the tech sector, what are you looking for?
Two of the most important attributes we evaluate are whether our borrowers have scale and a differentiated market position. We also lean in to opportunities where there is existing expertise within KKR and regularly speak with colleagues who may have already evaluated a sector.
Our credit investment in CDK International (CDKI) is an example of this approach in practice. The broader KKR team had previously done due diligence on CDKI, but ultimately passed on the opportunity to invest in the equity, and helped us get up to speed quickly on CDKI’s specific software sub-sector. Ultimately, we concluded that CDKI – now called KeyLoop - has strong recurring revenues and low churn rates, resulting in good visibility on future revenue streams. With this running start, we were able to quickly underwrite CDKI and won the opportunity to support CDKI’s sponsor, Francisco Partners, with a bespoke credit investment.
What is your relationship like with the sponsors and target company’s management team?
It depends on the situation. For example, we made a credit investment in a company called InPost, a market leading e-commerce platform owned by Advent International, where we worked very closely with the management team and its sponsor. From day one, we were embedded in the business and regularly engaged with the sponsor and management team throughout the due diligence process. In other deals, like some public-to-private transactions, the level of information naturally needs to be given on a more arms length basis until the transaction is consummated and financial reporting requirements are fulfilled.
The credit market is very competitive – how does KKR distinguish itself?
From a credit perspective, our goal is to enhance rather than delay a sponsor's due diligence process by leveraging KKR’s connectivity. This is a crucial differentiator. Being a global firm with nearly 45 years of experience and invested in multiple asset classes, someone within KKR will have invariably invested in a given asset or have had a tangential experience. KKR’s expertise and knowledge pool is a great resource to draw upon and enabled by our “one firm” culture. Given we are often able to be a 100% solution provider to our clients – which could involve supplementing our credit investment with KKR’s Capital Markets team – this eliminates the requirement for sponsors to talk to multiple parties during what are often compressed timelines with sensitivity around information sharing about a potential investment.
There are, of course, always areas to build out – one area that we’re interested in growing further is early-stage software investing and how to work with firms where profit might still be a ways off.
What's the one piece of technology, whether it’s software, hardware or something else that has affected your life the most?
Sorry to be dull here, but it has to be the iPhone!