KKR: Wall Street’s everything shop


One thing to start: Brooks Brothers, the centuries-old purveyor of American business wear whose suits were sported by presidents including Abraham Lincoln and John F Kennedy, is to file for bankruptcy protection in the US. Read more on the latest retailer pushed over the edge by the coronavirus pandemic here.

© Bloomberg

Welcome to the Due Diligence briefing from the Financial Times. Not a subscriber? Sign up here. Get in touch: Due.Diligence@FT.com

KKR makes a big bet on insurance

At this point, using the term “private equity group” to describe a financial services company like KKR or Apollo Global Management is a bit like calling Amazon an online bookstore.

Sure, the buyout group that inspired the Wall Street classic Barbarians at the Gate still runs funds that snap up huge companies such as Unilever’s former margarine business to Envision, the controversial medical staffing company. And yes, you can still order your lockdown literature fix on Amazon.

© Reuters

Jeff Bezos was still mostly selling novels when he ordered the construction of dozens of warehouses despite apparently having little idea what his expanded company would sell. “Just design something that will handle anything,” he reportedly told his underlings. 

Leon Black and Henry Kravis have likewise set their sights on bigger things, and the shape of their ambition comes into focus with every new deal.

On Wednesday, KKR became the latest Wall Street investment group to make a move into annuities, buying Global Atlantic, the former life assurance unit of Goldman Sachs, in a deal worth roughly $4.4bn. The buyout group is using its own balance sheet to pay for the transaction, which will boost KKR’s assets under management by a third to $279bn.

Here’s the report from DD’s Mark Vandevelde. 

But, like Apollo before it, KKR is unmistakably diversifying; even before the deal, one-third of its business consists of lending money to other companies, taking over a role once reserved for banks and insurers.

As Lex says, the buyout group is putting its money where its mouth is. While Apollo and Blackstone have arm’s length relationships with insurers, the house of Kravis and Roberts will make its biggest ever balance sheet bet by owning Global Atlantic outright. Shareholders cheered the move, sending KKR shares up 10 per cent to a record high. 

READ  Old school trading under threat as insurers rethink life at Lloyd’s

“This is not KKR becoming an insurance company,” the group’s co-chief operating officer Scott Nuttall, pictured, told investors on Wednesday. He’s right.

© Bloomberg

Amazon took the capabilities it had built while selling books, and turned them into an unstoppable platform for selling anything you can imagine.

And in the same way, Apollo, KKR and its peers have taken ambitious strides to becoming Wall Street’s version of the everything store.

Boohoo: reality bites

Some of you may be familiar with Love Island. The hit British reality TV show is known for its drama, toned abs and fast fashion. Even if you don’t find love, you’re likely to find yourself signing a deal with Boohoo — one of the fastest-growing fashion brands in the UK. 

But now the Manchester-based fashion retailer has fallen out of fashion. Boohoo’s share price has dropped more than 40 per cent over the past week, following allegations that garment workers in Boohoo’s Leicester supply chain were paid below minimum wage and suffered poor working conditions. 

Line chart of Share price (pence) showing Boohoo's turbulent year

After a Sunday Times investigation exposed longstanding concerns about textile workers in Leicester, authorities say they have found no evidence of modern slavery offences in the first round of inspections on Boohoo subcontractors. Investigations are still ongoing. 

Why does this matter? Online fast-fashion retailers have caught on to an important trend: social media. Boohoo has essentially tapped into the reality TV conveyor belt of celebrities. By striking deals with famous people young Brits can identify with, it has eclipsed well established British brands like Marks and Spencer and rival online retailer Asos.

The company has achieved its strong margins by marketing to teenagers and young adults and offering prices they can actually afford. This, combined with its ability to speedily churn out trends, has made Boohoo a stock market darling and Mahmud Kamani, its co-founder, a billionaire.

Boohoo's rapid growth

But it seems that cheap fashion often comes at a cost. If you’re buying an item of clothing that costs less than a cup of coffee, someone else might be paying for it. 

To get up to speed with how fast fashion has exploited Britain’s garment workers, check out this magazine piece from the FT’s Sarah O’Connor. And here she is talking about the exploitation of fast fashion workers in the UK. 

READ  Hiscox/Lloyd’s: we happy few

Go deeper with this just published analysis from the FT’s Patricia Nilsson, Jonathan Eley and Attracta Mooney. Finally here’s Lex

How grandma’s favourite bank took a chance on Wirecard’s Braun

Oldenburgische Landesbank is a relatively small German bank with big ambitions. So when the opportunity came to step into Deutsche Bank’s shoes, it couldn’t miss the chance. 

Deutsche had gotten cold feet about one of its high-profile clients. In 2017 Germany’s biggest bank had lent €150m to Markus Braun, pictured below, who most DD readers know was, until very recently, the chief executive of Wirecard. Now he’s on bail following his arrest on suspicion of accounting fraud and market manipulation but denies any wrongdoing.

© Bloomberg

Several stories and whistleblower reports about accounting fraud at Wirecard made Deutsche uncomfortable (it didn’t need another scandal) and the bank decided not to renew the loan. 

In stepped OLB, a bank so boring it had earned the moniker “Omas liebste Bank”, or “Grandma’s favourite bank”. A consortium including Apollo Global Management bought the bank from its longtime owner Allianz for €300m in 2017. Grandma’s bank suddenly had a bigger appetite for risk. 

In the middle of May, while investors were still reeling from the findings of a special audit into Wirecard’s accounting, OLB replaced Deutsche as a key lender to Braun. But OLB wanted more than just shares as collateral. It asked the 50-year-old executive to also pledge his two houses in Austria — worth a combined €30m. 

That was a slick move. Braun would eventually only draw half of the €120m loan OLB had provided. With the houses as collateral, it has €30m at risk if Wirecard’s shares become worthless. 

Go deeper here with the FT’s Olaf Storbeck. 

Job moves

  • Peggy Johnson, an executive vice-president at Microsoft, has been appointed chief executive of Magic Leap, the US augmented reality start-up.

  • Metro Bank has appointed Robert Sharpe, an industry veteran and the chairman of Bank of Ireland UK, as its chairman after co-founder Vernon Hill resigned in the wake of a reporting scandal last year. 

  • Nicholas Basso has joined Peak Rock Capital as a managing director, focused on credit investments. He previously worked at Oaktree Capital Management

  • Susan Davy, chief financial officer of the water and waste company Pennon, will succeed Chris Loughlin as chief executive. Gill Rider, a senior independent director, will succeed John Parker as chairman. 

  • The law firm Hogan Lovells has hired Don Williams, Tony Mou and Cheng Xu as corporate and finance partners, based in Shanghai. All three join from the law firm Sheppard Mullin’s Shanghai office.

  • Nicholas Hanna and Mark Tan will join Pinsent Masons as partners based in Singapore. Both join from K & L Gates.

READ  Insurance spotlight offers small hope for health sufferers

Smart reads

Rethinking tax London’s Savoy Hotel, owned by Prince Alwaleed bin Talal of Saudi Arabia and the Qatar Investment Authority, has paid no UK corporate tax for 15 years — and it is far from alone. Will governments, faced with ballooning deficits because of the coronavirus crisis, rethink the creaking international framework for corporate taxation? (FT

A grim history The tontine, a centuries-old financial instrument that Bill Ackman’s latest special purpose acquisition company is based on, inspired grim storylines in The Simpsons and Agatha Christie tales. But supporters say the vehicle — part annuity, part mortality lottery — is misunderstood (Bloomberg)

No big deal Even after failing miserably in its bid for the London Stock Exchange Group, shares in Hong Kong Exchanges & Clearing have surged almost 40 per cent to a record this year. Here’s a look at why. (FT)

News round-up

Allstate to acquire rival insurer National General for $4bn (Wall Street Journal)

Itochu makes $5.4bn bid for rest of Japan’s FamilyMart (BBG)

Solar deal would create a new industry giant (New York Times)

United Airlines to send lay-off warnings to 36,000 staff (FT)

Silicon Valley weighs whether to leave Hong Kong (FT)

Facebook has caused ‘serious setbacks’ for civil rights, report finds (FT)

M&A leveraged loan pricing establishes a Covid-era new normal (BBG)

Gold shoots above $1,800 for first time since 2011 (FT)





READ SOURCE

LEAVE A REPLY

Please enter your comment!
Please enter your name here