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Updated Cash Flow Model: Full Exit From Upfield Could Leave KKR With Single-Digit IRR; Partial Sale, Continuation Fund May Be Favorable Options; Path to Cash Generation, Deleveraging

Credit Research: Nikhil Varsani Relevant Documents: Q3 Report Q3 Presentation Reorg June 2022 Analysis KKR is reportedly looking to exit Dutch vegetable spread manufacturer Upfield but, in our view, this may be difficult to pull off at least in the near term. Though the group expects to report a strong uptick in margins for the quarter ended Dec. 31, 2023, prices of their products are facing downward pressure, while volumes currently remain subdued and will likely be a sticking point for potential suitors of the group. The sponsor has hired Citi and Goldman Sachs to advise on the process, sources told Reorg in January.   If KRR were to exit based on an average comparator 9.5x enterprise value/EBITDA multiple, Reorg calculates the internal rate of return to be 4.4% given their initial equity investment of €1.926 billion. Thus, a better option may be to either sell the group to a continuation fund, or sell a smaller stake in the business, or opt for a combination of the two. A partial stake sale would allow the group to return some capital to limited partners, or LPs, or could possibly be used toward redeeming the group’s senior unsecured debt, leaving a less[...]