KKR & Co Inc (KKR.N) said on Wednesday it would acquire Goldman Sachs-backed Global Atlantic Financial Group Ltd, making it the latest private equity firm to add an annuities and life insurance provider to its platform.
KKR said it will become the manager of Global Atlantic’s investment portfolio, giving it a steady stream of lucrative fees and boosting its assets under management from $207 billion to $279 billion.
New York-based KKR will take over Global Atlantic through its balance sheet rather than its buyout funds, and plans to keep it as opposed to flipping it for a profit as it does with its private equity portfolio. It said the deal will boost its permanent capital base from 9% to 33%, reducing its reliance on fundraising.
The purchase price will be equal to Global Atlantic’s book value at the time the deal closes, sometime in the first quarter of 2021 subject to regulatory approvals, KKR said. Global Atlantic had a book value of about $4.4 billion at the end of March.
KKR said it would pay cash for the acquisition but offer the opportunity to Global Atlantic investors, including Goldman Sachs Group Inc (GS.N), to keep ownership of the firm. KKR said it expected to own about 60% of Global Atlantic.
KKR shares ended Wednesday up 10% at $33.88.
Global Atlantic serves more than 2 million policyholders through its retirement and life insurance products. It was set up by Goldman Sachs in 2004.
The investment bank kept a stake in it when it separated it as an independent company in 2013. KKR co-President Scott Nuttall told analysts on a conference call on Wednesday that Global Atlantic’s investors will have made three times their money over the last seven years as a result of the deal.
Two years from now, KKR expects to be receiving $200 million in annual management fees as a result of the deal, KKR’s chief financial officer, Robert Levin, said. Last year, it generated $1.2 billion in management fees.
KKR said it expected to grow Global Atlantic’s platform through more acquisitions, as low interest rates give insurers that generate returns from high-yielding assets such as private equity an edge.
It is the latest deal in the private equity industry to emulate Warren Buffett, whose network of insurance firms has given his conglomerate Berkshire Hathaway Inc (BRKa.N) a reliable flow of insurance premiums to invest.
Private equity rival Apollo Global Management Inc (APO.N) has blazed a trail in the insurance industry, and now generates almost half its management fees through permanent capital it manages for a network of insurers, including Athene Holding Ltd (ATH.N), which also account for about half its $316 billion of assets under management. Unlike with KKR and Global Atlantic, however, Apollo owns only a third of Athene.
Blackstone Group Inc (BX.N) manages the investment portfolio of FGL Holdings, an insurance firm with $28.9 billion in assets under management that was taken over last month by Fidelity National Financial Inc (FNF.N).
(This story corrects Global Atlantic’s name in paragraph 10)