Friday, April 27, 2012

Will KKR's Lower Distributable Earnings Hurt Carlyle IPO?

KKR's distributable earnings drop came at a bad time for The Carlyle Group as it will price its IPO this coming week. Reuters reported:

KKR & Co LP said Friday that income from its share of investors' profits and the fees it charges for its assets slumped in the first quarter, prompting the private equity firm to cut its dividend.

KKR, whose investments include retailer Toys R US Inc, Internet domain registration company Go Daddy Group Inc and hospital operator HCA Holdings Inc, said first-quarter gross distributable earnings, which are used to pay dividends, fell 42 percent from a year ago, to $111.5 million.

Carlyle's DBD co-founders are in the midst of a global IPO sales blitz.  David Rubenstein says Carlyle is priced at a discount and ready to go up post offering.  Private equity firms are known for their earnings volatility and thus far in Q1 Blackstone and KKR have lower earnings.

A year ago Apollo Global Management went public at $19 a share  It's down to $13.11, a 31% drop .  Oaktree Capital priced weeks ago at $43.  It's down to $39.80, a 7.4% fall.  KKR's HCA priced at $30 and it closed today at $27.23, a decline of 9.2%.

The Carlyle Group believes it can beat this pattern.  Beware the PEU plague.