Update: After slow two years, KPS sees deal pipeline expand

  • KPS didn’t complete platform acquisition for two years
  • Firm recently inked deal to acquire WHA Holdings
  • Growth prospects causes corporates to divest post-election: Psaros

The past two years were slow on the deal front for KPS Capital Partners, Co-Founder and Managing Partner Michael Psaros said today at BuyoutsPartnerConnect East conference in Boston.

“In 26 years, the last two years have been the worst that [we] have experienced for putting capital to work,” he said during a keynote interview. “It’s been the golden age of the strategic buyer.”

KPS had called only 11 percent of Teachers’ Retirement System of Louisiana’s $75 million commitment to its $3.5 billion 2014 vintage fund as of Jan. 10, a Hamilton Lane report obtained through a public-records request shows.

The same report contained a summary of KPS Capital’s annual meeting, indicating the firm expected to deploy the remaining $3.4 billion in that fund over the next five years, “which is slower than the original expectation.”

On Tuesday, KPS broke the cold snap when it definitively agreed to acquire WHA Holdings SAS, known as Winoa, a French maker of steel abrasives. It was the firm’s first platform acquisition in two years, Psaros said.

“For the last two decades, I could look at our LPs and say that never, not once, has a strategic buyer looked at an asset that we were looking at,” Psaros said. “We’re not about AUM, so we just sat back and participated in so many processes and let them go.”

Even as PE firms amass larger and larger piles of dry powder — Preqin pegged available investment capital at $820 billion as of December, up 8.6 percent from the year before — sponsor-backed deal volumes have fallen. Pitchbook had private equity deal volumes declining 12 percent year-over-year in 2016. The year before, PE deal volumes fell 14 percent.

Meanwhile, average purchase-price multiples remain at or near records. In his remarks, Psaros attributed higher prices and declining deal volumes to more competition from strategic and corporate buyers, which kept KPS on the sidelines.

The election of President Donald Trump has buoyed growth expectations, which could expand KPS’s deal pipeline in the near term, Psaros said. He attributed the uptick to corporate CEOs’ optimistic growth expectations, which is causing them to divest non-core holdings.

“I would tell you, starting in Q4 of last year, especially after the election. Our pipeline has blown out in terms of opportunities,” he said during the keynote, adding that carve-outs and distressed situations remain of interest.

KPS’s previous fund, which closed on $1.2 billion in 2007 and was upsized to $2 billion in 2009, was netting a 23.2 percent internal rate of return and 1.6x multiple as of June 30, according to California Public Employees’ Retirement System.

The New York firm has $5.5 billion under management. KPS recently won Buyouts’ Deal of the Year award for its investment in Anchor Glass

Action Item: More on KPS: www.kpsfund.com

KPS Capital Partners Co-Founder and Managing Partner Michael Psaros. Photo courtesy of the firm.

This article has been updated to show that KPS’s previous fund was upsized to $2 billion in 2009.