Public Markets Toss KKR Around Again

Twenty-four hours ago, I was convinced that KKR was even money to buy a 55% stake in Lehman Brothers’ investment management arm. Then near market close came news that the entire Brotherhood was for sale, which appeared to leave KKR holding an empty bag (kind of like when it wanted to go public last year, but then bailed due to the credit crunch/Blackstone stock price double-whammy). Now we hear that Mr. Paulson isn’t too keen on providing a government backstop to Lehman’s potential white knights, which could put the original plan back in play.

It’s enough to give a balanced man vertigo.

Everyone I speak with describes the situation as “fluid,” which in this market is a very different word than “liquid.” But they also expect KKR to keep making a very hard push so long as there is even a chance of success. Why? Because this is exactly the type of opportunity KKR said it was looking for while rationalizing its pending IPO,under the theory that “public currency” could help it dramatically expand/diversify its asset management platform. Plus, it would make so big a splash that Blackstone would be washed off the C-1 page for weeks (yes, that matters a lot at KKR).

It’s also worth noting one other factor at play here, and one that probably helped drive Lehman IM unit bids from Bain Capital and Hellman & Friedman: This could look a lot like a traditional leveraged buyout, in terms of a motivated seller near the nadir of its industry cycle. Lehman just happens to be a financial institution, instead of a mattress maker or software developer.

Of course, if the Lehman IM sale falls through, KKR can always keep its fingers crossed for AIG or Merrill…