KKR's Nuttall declares 'the deal market is back'

KKR & Co. Inc. co-CEO Scott Nuttall said signs of revival in global M&A and IPO markets were shaping his optimistic outlook for the back half of 2024.

"The macro inflation and [interest] rates backdrop has improved, markets are open and the deal market is back," Nuttall said as KKR, which joined the S&P 500 in June, reported second-quarter earnings July 31.

Nuttall said 2024 was shaping up to be a "sweet spot year" for KKR, with transaction activity picking up as prices for assets remained attractive. That is a big shift from 2023, when owners were reluctant to sell, Nuttall added.

"This year, we not only have an open market, we have pent-up supply of deals that didn't get done in the last couple of years coming to market," the CEO said.

Private equity performance

The value of KKR's traditional private equity portfolio appreciated 4% in the quarter and was up 18% over the 12 months ending June 30.

KKR invested $2.58 billion through its private equity strategies in the second quarter, bringing its total private equity deployment to $3.73 billion for the first six months of 2024. The number is far lower than in the first half of 2023, when it deployed $6.07 billion.

The firm aims to close about $9 billion in new private equity investments in 2024, meaning it needs to pick up the speed of deployment significantly in the second half. Nuttall said the opportunity was there.

"Unless something happens to disrupt this momentum, we expect to see increased activity in the second half of this year relative to the first. What's also encouraging is that we believe this is a very attractive investment environment," the executive said.

Fundraising outlook

Crucially for KKR's private equity business, the improving dealmaking environment is opening more potential exit routes for portfolio companies. Exits allow the firm to return cash to investors, providing them with additional capital to commit to future funds.

A muted deal environment that caused distributions to dip drove global private equity fundraising to a six-year low in 2023. Fundraising remained down year over year in the first half of 2024.

"It feels to us like there's a decent chance that the private equity fundraising environment has bottomed as well, and you'll start to see sentiment shift to positive," Nuttall said.

A 2022-vintage KKR buyout fund targeting the middle market, KKR Ascendant Fund SCSp, had raised $4.1 billion as of June 30 and was on track to be oversubscribed, said Craig Larson, the firm's head of investor relations.

"To be clear, we are turning away clients that want to begin final diligence there," Larson said.

Larson described the fund's reception as constructive while cautioning that it is "far too early to try to lead through those dynamics as it relates to North America [fundraising efforts]."

The Ascendant fund's reception with institutional investors could be a good sign as KKR enters the market with KKR North America Fund XIV, the latest vintage of the firm's flagship buyout fund. KKR is aiming to raise $20 billion for the fund, which launched in the second quarter.