(Bloomberg) -- KKR & Co. will pay about $2.7 billion in cash to acquire the remaining 37% of Global Atlantic that it doesn’t already own, broadening its bet on insurance to fuel asset and fee growth.
The buyout giant will fund the purchase from its balance sheet, which had $23 billion of cash and investments as of Sept. 30, KKR said Wednesday in a statement. The transaction, along with a series of “strategic initiatives,” is expected to boost after-tax distributable earnings per share by about 10% in 2024, according to a separate presentation.
Shares of KKR climbed 7.7%, the most in more than a year, to close at $74.74. The stock has surged 61% in 2023, outperforming its biggest peers, including Blackstone Inc. and Apollo Global Management Inc.
“Global Atlantic’s been a great investment for us,” Co-Chief Executive Officer Scott Nuttall said in an interview. “It has grown into a meaningful part of KKR, and we think there’s even more we can do fully combined.”
The acquisition gives KKR access to Global Atlantic’s retail distribution platform, which benefits its growing wealth business, and it creates opportunities for the firm’s capital markets unit, he said.
The insurer will continue to operate under the Global Atlantic brand and retain its management team, which is expected to exchange a majority of its equity interests for KKR stock. The deal is set to be completed in the first quarter.
Alternative-asset managers have turned to insurers for a steady stream of capital as their traditional sources of cash, such as pensions and endowments, have become harder to tap. KKR initially acquired about 60% of Global Atlantic in February 2021 in a transaction valuing the retirement and life insurance company at roughly $4.7 billion, joining other private equity firms in acquiring stakes in annuities providers.
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“Moving from a diverse group of shareholders to a single one with KKR clarifies our objectives and allows us to think — and invest — longer term,” Global Atlantic CEO Allan Levine said in the statement. The insurer was founded in 2004 within Goldman Sachs Group Inc. and became an independent company in 2013.
The insurer’s assets under management have swelled to $158 billion from $72 billion in 2020, according to the statement. Global Atlantic has been a key driver of growth in its real estate credit and asset-based financing units, KKR said.
The private equity firm detailed a series of strategic changes designed to boost earnings and better align the firm with shareholders.
KKR’s core private equity balance sheet holdings will be moved into a new strategic holdings segment, which is expected to produce more recurring cash dividends, according to the statement. The strategy has about $35 billion of assets, including $6.5 billion on KKR’s balance sheet.
The firm is also changing its compensation structure to increase the amount of carried interest employees receive to better align KKR with its shareholders, the company said. Employees will receive 70% to 80% of realized carried interest, up from 60% to 70% currently, according to the presentation. They will get 15% to 20% of fee-related earnings, down from 20% to 25%.
A new reporting metric, total operating earnings, will include fee-related earnings, strategic holdings operating earnings and insurance operating earnings, which represents Global Atlantic.
Other highlights from KKR’s announcement:
- Fee-related earnings per share are expected to increase about 10%
- Firm raised its 2026 fee-related earnings target to at least $4.50 per share from a previous goal of at least $4
- A conference call for analysts to discuss the announcement is scheduled for 10 a.m. in New York
(Updates with closing share price in third paragraph.)
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