KKR asks advisers to ‘share the pain’ amid $18bn spending spree

KKR has asked its financial and legal advisers to “share in the economic pain” by providing discounts on work done this year, even as it has emerged as the most aggressive private equity investor during the economic downturn.

The US group with $207bn assets under management has requested discounts of at least 15 per cent from advisory firms that it refers to as “long-term partners,” said several people who received the requests.

KKR’s roster of advisers — accountants, law firms, intelligence companies and consultants — includes some of the largest corporate firms, such as EY and Simpson Thacher & Bartlett, which are among several approached, said people familiar with the matter. The firms declined to comment.

KKR is believed to be the first private equity firm to request discounts on work carried out by its professional advisers since the outbreak of the coronavirus, several people who received the request said. Fears exist rivals will take their cue from the buyout group and follow suit.

“We are concerned that KKR sets the trend for private equity companies,” said one adviser.

The requests for discounts — made by Robert Lewin, KKR’s New York-based chief financial officer — come as the buyout group is spending billions of dollars on deals to acquire companies during the height of the pandemic.

The group has spent about $18bn on deals since late February. It agreed to acquire a 60 per cent stake in Coty’s professional beauty division whose brands include Wella and Clairol; was part of a trio of companies in a €5bn deal to take control of Spanish telecoms provider MasMovil; and is taking a $1.5bn stake in Indian digital company Jio Platforms.

KKR recorded a net loss of $4.2bn in the first quarter as the economic fallout from Covid-19 took its toll on its investments and halved the share of profits for partners.

Shares in the private equity group, which is listed in New York, have risen almost 60 per cent since a low in late March and are roughly flat this year to date.

A senior lawyer described the discount request as “galling”. Another said the firm had been asked to “help out in difficult times and share the pain”.

One professional advisory firm that works for KKR said the company had asked for a larger than 15 per cent discount for all work done this year, including for jobs completed but yet to be paid for. An adviser at that company called it “outrageous”.

Another of the firms affected was unsure whether the request included work previously completed, while two other companies that advise KKR said that it did not include past work.

Many advisers have accepted KKR’s request. They believe that rejecting it runs the risk of ceding market share and see accepting the new terms as an opportunity to grow, as competitors struggle with a fall in dealmaking.

One adviser said their firm would be willing to offer additional discounts to KKR if it agreed to hire them for other projects.

The importance of larger companies supporting their suppliers has become an important theme for investors, as small suppliers to car and aircraft manufacturers struggled amid the disruption to global supply chains from the virus.

KKR did not respond to a request for comment.