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When it comes to bidding wars, having cash on hand and being willing to persuade others can make all the difference. This was evident in a recent battle between KKR and another private equity group.
In early June, KKR initially won the auction for Circor, a US industrials company, with a bid of $1.6bn. However, as the competition intensified, KKR had to increase its offer multiple times in order to secure the deal, eventually raising its bid from $49 to $56 per share. The entry of Arcline Investment Management, a smaller fund, forced KKR to pay even more.
Interestingly, Arcline’s final bid of $57 was higher than KKR’s. To counter this, KKR took a strategic approach. First, KKR highlighted the potential challenges Arcline would face in securing financing through syndicated loans, while KKR had already secured commitments from direct lenders. Additionally, KKR emphasized the potential regulatory issues surrounding Arcline’s ownership of a rival company.
Despite the fact that Arcline initially offered a higher bid, KKR’s arguments resonated with the board of Circor. They recognized the closing risks associated with Arcline’s bid, such as potential financing issues and regulatory scrutiny. KKR’s strategy paid off, as they ultimately raised their bid to $51 and convinced Circor to reject Arcline’s $52.65 offer.
However, Arcline wasn’t ready to back down. They increased their bid to $57 and included an antitrust provision to shift regulatory risks to their side. Arcline also committed a significant amount of their own equity in addition to securing loans from Bank of Montreal. Despite Arcline’s efforts, Circor’s board ultimately favored KKR’s bid of $56 due to the increased deal certainty it offered.
It’s clear that in such bidding wars, factors beyond the dollar amount play a role. The board’s risk aversion and relationships with major players like KKR influenced their decision. Now, Circor shareholders will have the opportunity to vote on the KKR deal and make their opinions known.
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