This week, we brought you special research on the “New Age IPOs” known as Special Purpose Acquisition Companies (SPACs).
And I made you a promise.
A promise to round out our three-installment foray into the world of SPACs with a recommendation that would start you down a profit pathway of your own.
With today’s edition of Total Wealth, consider that promise kept. I’m delivering you a SPAC created by one of the top dealmakers of the last three decades: KKR Acquisition Holdings I Corp. (NYSE:KAHC-UN).
KKR Acquisition Holdings is the first SPAC entry by legendary private equity (formerly leveraged buyout, LBO) firm KKR. Known back in the day as Kohlberg Kravis Roberts & Co. LP, KKR came to prominence in the 1980s LBO boom and was at the epicenter of the infamous and frenzied battle for control of RJR Nabisco – a saga chronicled in the seminal 1989 bestseller Barbarians at the Gate by Bryan Burrough and John Helyar.
Since its founding back in 1976, KKR has made massive profits for its LBO then private equity investors, with reported annualized gains in excess of 25% a year. That’s staggering.
By investing in KKR Acquisition, we’ll get a chance to pocket some of those stunning gains for ourselves.
While there’s no predetermined industry, technology, or space the SPAC says it’s going after, the prospectus notes KKR is tracking opportunities in digital transformation and e-commerce adoption, health and wellness, and “experience” based entertainment. Sure, that’s a wide berth, but KKR’s got expertise in all those areas.
The Players – A Hint at What’s to Come
We might be getting something of a heads-up on where the SPAC is heading by looking at the principal executive KKR drafted to be the SPAC’s chairman – Glenn Murphy, chairman of Lululemon Athletica Inc. (NasdaqGS:LULU), the popular athletic apparel company whose stock has been a darling on Wall Street for years.
Murphy was the CEO of The GAP from 2007 to 2014. Before that, he was chairman and CEO of Shoppers Drug Mart, Canada’s largest health and beauty brand.
In 2015, he founded FIS Holdings to invest in consumer companies. FIS is a high-impact, hands-on investment firm that engages with management to help improve the businesses it shepherds
In addition to Lululemon, FIS has investments in Aimbridge Hospitality, Serta Simmons Bedding, Whole Foods Market (now part of Amazon), and Bloomin’ Brands.
Two KKR partners will be on the board with Murphy. Senior Advisory Partner Paul Raether will be a director. He has been with KKR since 1980 and has worked on some of the biggest deals the private equity firm has done over the last 40 years.
U.S. Consumer Economist and Managing Director Paula Roberts will also be a director. She’s been with KKR since 2017 and leads macro real estate investment research. She also partners with real estate, consumer private equity, and credit deal teams at KKR.
Before joining KKR, she was executive director at Morgan Stanley (NYSE:MS), where she managed the U.S. consumer sector coverage.
Her experience in consumer-oriented businesses is still another clue about the type of company KKR intends to buy.
The KKR Acquisition units were priced at $10 at IPO and included one share and 25% of a warrant (with each “full” warrant giving you the right to buy shares at $11.50). The warrants expire in five years if not redeemed before then.
If you can buy the units for $10.25 or less, you’re effectively buying at a slight discount to what the trust value will likely be once the warrants are separated from the stock in early May and interest accrues on the trust’s Treasury portfolio.
Once those units are separated, you can buy the stock outright anytime the price falls below the trust value of $10.
I’d buy a bunch.
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Source: Total Wealth