Private Equity Capital Markets House: KKR Capital Markets
Running hot The floodgates may not have fully opened for private equity deals in 2024, but KKR’s capital markets team led landmark financings for portfolio firms CyrusOne and Cotiviti and a string of ECM and structured finance transactions. For its scale, depth and range, KKR Capital Markets is IFR’s Private Equity Capital Markets House of the Year.
KKR Capital Markets has established itself as a pioneer for capital markets advisory within private equity firms and its revenues for 2024 look likely to have closed somewhere close to US$1bn – a new milestone to show its scale and expansion into new areas continues to pay off.
In a year when many private equity firms continued to sit out and await better conditions to monetise their investments, KKR Capital Markets – or KCM – led the way with some standout deals. They included innovative financing for US data centre operator CyrusOne and healthcare payments firm Cotiviti, equity follow-ons for mobile technology company AppLovin, and plenty of transactions for third-party firms.
The first in-house capital markets advisory team at a private equity firm dates back 25 years. But KKR, which set up its team in 2007, went a step further and wanted its business to be a revenue generator in its own right. The team was given two primary objectives: arrange financing and drive performance for KKR’s portfolio companies; and create its own earnings stream.
It has clearly achieved both. In the process it has increased headcount, expanded into new areas, won business from private equity firms outside the KKR family and become a significant rival and partner for Wall Street’s major firms.
“Over the last 18 years, we've built the largest and most developed in-house capital markets capability across all investment firms,” said Adam Smith, global head of KCM. “This year was the year we got major scale and showed the effectiveness of having those capabilities.”
Structured expansion
Unlike many in-house peers, KKR discloses financial figures for its unit. Full-year results for 2024 had not been reported by the time IFR's awards supplement went to press, but KCM’s January–September revenues were US$731m, including US$424m in the third quarter, its best ever quarter.
In the first nine months it had already surpassed its annual average in the past four years of US$626m and was on track to top the US$847m in its previous best year in the 2021 deals boom, and perhaps reach US$1bn.
So clearly, a lot went right.
“We're more specialised than other people, we're larger than other people, we're in more geographies than other people, we're more integrated than other people and we have more product capabilities. We've been doing that gradually and we've been continually investing in our platform,” Smith said.
In 2024, that included expanding its structured capital markets capabilities. That was helped when KKR bought insurance firm Global Atlantic, which the firm expects to help its financing in structured markets for KKR firms or third parties and in turn could be a big revenue generator for KCM.
KCM’s ratings advisory unit set up in 2022 is also bearing fruit. Led by Craig Fitt, the former head of ratings advisory at UBS, it has now rated more than 350 transactions and more than 60 KKR portfolio companies. In 2024, its advice on ratings supported Metronet, CyrusOne, Global Medical Response and others.
KCM now has about 73 staff – 45 in North America, 14 in Europe and 14 in Asia-Pacific. Its headcount has doubled from 2018 and is up from 54 in 2021, although flat from 2022. It is far bigger than peer private equity in-house capital markets teams but a fraction of headcount at big investment banks, and Smith said it is a lean operation.
It operates in debt and equity capital markets, structured products and has a deep co-investment distribution capability.
“We've got a lot of resources, capabilities and capacity with that [headcount],” Smith said. “But we like to run the engine hot. Our teams work tirelessly on that.”
Lovin’ deals
Data centres are also running hot in 2024 and were on the hunt for capital to fuel their growth. KKR’s ownership of an insurance company and KCM’s expansion in structured finance came together for an innovative financing deal for portfolio firm CyrusOne.
KCM extended and upsized a revolving credit facility to US$1.8bn and structured, rated and syndicated two ABS transactions for CyrusOne. In July, it structured and arranged an US$8bn warehouse facility and increased how much was raised by sole arranging a US$3bn institutional tranche that was anchored by Global Atlantic.
“That showed how having more specialised capabilities and resources can really drive differentiated outcomes,” Smith said.
A debt and equity financing package for Cotiviti also stood out, as part of KKR’s US$10.5bn purchase of 50% of the company in February.
KCM was physical bookrunner on US$5.6bn of debt financing, including an RCF and floating and fixed-rate loans, which was announced when the purchase was signed and allowed for a rapid timeline. KCM was also placement agent for US$2.7bn co-invest equity.
Other highlights for KKR portfolio companies in 2024 included advising on the US$693.3m IPO of US firm BrightSpring Health Services in January and a subsequent US$2.6bn term loan; a US$5.1bn refinancing by US hospital patient care firm Global Medical Response; acquisition financing for Italian telecoms firm TIM NetCo; an innovative fibre assets securitisation for Metronet; and the US$564m IPO of US software firm OneStream. It was also in the market with innovative refinancings for Groundworks and other companies when market conditions improved.
KCM has done a raft of transactions for Applovin since it was bought by KKR in 2017, and it sold about US$4bn of equity across six transactions during a 12-month period, with little impact on its share price.
KKR was the biggest investment banking fee payer by a sponsor in 2024, according to LSEG data, so that helped keep KCM busy. Still, a parent can be a demanding client and also has other advisory options for its estimated 500 portfolio companies.
And KCM also continues to ramp up work from other firms. Third-party work accounts for about half its revenues, and it says it treats them just as it would a KKR firm – with an ownership mentality.
“These are some of the biggest and brightest sponsors, which used to be perceived as competitors, which are now some of our best partners. And the repeat nature of these mandates is good validation of our approach and being ownership aligned,” said Cade Thompson, KCM’s global co-head of debt capital markets.
Its third-party work in 2024 included as lead financial adviser to US warehouse REIT Lineage on its US$5.1bn IPO; a US$3.2bn syndicated credit facility for Rubix; and the financing of CVC Capital Partners’ £5.4bn purchase of Hargreaves Lansdown.
KCM said it did 101 third-party deals in the first nine months of 2024, already its highest tally for a year. It worked with 56 third parties in that time, up from 34 in all of 2023 and another record. Clients included the likes of Silver Lake, Advent, Bain Capital and CVC.
The work with third parties is helped by a hefty capital base KCM has at its disposal, which allows it to commit its own capital to transactions. It has about US$7bn of capital it can commit.
“A real key with third-party business is the capital base to allow you to compete with the banks. We very deliberately set about building our capital base so that we could participate alongside the banks at the top tier of transactions in everything we did,” said Mark Danzey, global co-head of debt capital markets.
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