KKR boosts Asia business by offering outbound deal access

"It's all about how we can bring to bear the full weight of KKR's global platform and this might be by doing things outside of Asia," Bae told the Hong Kong Venture Capital and Private Equity Association's (HKVCA) Asia forum on Wednesday.

KKR established strategic partnerships with two Japanese conglomerates - Itochu Corporation and Sharp - by supporting their entry into the North American energy sector.

In late 2011, Itochu contributed $1 billion to KKR's $7.2 billion leveraged buyout of oil and gas explorer Samson Investment. The Japanese trading company noted at the time that US shale gas is cost-competitive with liquefied natural gas (LNG) imported from Asian producers.

That same year, KKR co-invested with Sharp subsidiary Recurrent Energy in California-based solar assets. Google came in on the deal, agreeing to be the project's 100% off-take partner. According to Bae, Recurrent had previously struggled to make an impact on the US market.

The general idea is that, by working with large-scale corporations, KKR will be perceived more favorably by other potential partners in Japan. In late 2012, the private equity firm withdrew a JPY100 billion ($1.3 billion) bid for ailing Japanese chipmaker Renesas Electronic Corp. after state-backed Innovation Network Corporation of Japan rallied local companies to trump the offer.

Energy, a key strategic concern of many of Asia's fast-growing economies, is also at the heart of partnerships with Korea's National Pension Service and China's Yanchang Petroleum Group. The former, already an important LP for KKR, teamed up with the private equity firm to acquire Chevron Corp's stake in Colonial Pipeline for $1 billion. The latter has a $1 billion co-investment program with KKR that seeks out natural resources assets in North America.

The private equity firm is also using its global platform to bring outbound M&A opportunities to Chinese corporations. Last year, Weichai Group, an automotive equipment manufacturer owned by Shandong Heavy Industry, made a $922 million investment in Kion Group, a German forklift truck maker backed by KKR and Goldman Sachs.

"There are some very large companies here in Asia that have become the most aggressive acquirers globally, looking for distribution networks, technology and customer access," Bae said. "With Kion, we invited Weichai Power to make a large minority investment. They wanted distribution in Europe and Kion wanted to access the high-growth Chinese market."

Speaking to AVCJ last week, Silke Scheiber, a partner in KKR's industrial and chemicals industry teams in London, offered more detail on the transaction. In addition to buying a minority stake in Kion, Weichai took a majority interest in a subsidiary, Linde Hydraulics. The plan is to make China's hydraulic machinery industry less import-oriented.

"It was important for both parties to enter into a cooperation with a strong underlying strategic and not just a financial rationale," Scheiber said. "One interest in the strategic partnership with Kion was to get access to a very high quality hydraulic component business which is important to enhance the product portfolio, and there must be an advantage that they see from Kion's products."

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• Topics
• Buyout
• Greater China
• North Asia
• Industrials
• KKR
• Outbound investment
• Asia
• China
• South Korea
• Japan
• energy
• manufacturing
• USA
• Europe
• Co-investment