Henry Kravis is spinning a different sort of club deal. The old kind, in which several private equity shops would make an acquisition together, led the buyout baron’s KKR to join the recent hefty settlement of a lawsuit that alleged collusion with other firms. In the new iteration, KKR buys Pioneer’s DJ audio equipment business for $550 million. Kravis is laying down a smooth groove in a funky M&A market.
For KKR’s latest trendy investment, Abenomics meets Ibiza. Under Prime Minister Shinzo Abe, it has become easier for Japanese companies to break with corporate norms that discourage offloading divisions or welcoming foreign buyers. KKR seized a similar opportunity last year when it agreed to acquire Panasonic’s healthcare division for $1.7 billion.
Betting on selling the modern-day equivalent of gold-rush pickaxes to participants in the rave rush of Electric Daisy Carnival and clubs like Booom Ibiza also fits KKR’s new quest for the next big thing. In a series of departures from its traditional buyout model, the firm recently took a minority stake in home automation firm Savant, backed fantasy sports startup FanDuel and invested in British online retailer Hut Group.
The Pioneer deal at least involves some rational economics amid wider M&A exuberance. KKR is paying about 2.7 times the $200 million in revenue cited by Pioneer’s chief executive. That’s the same multiple of sales Apple forked out for Beats, which controls three-fifths of the headphones market, about what Pioneer manages in turntables and other DJ gear.
More significantly, Pioneer boasts an operating margin of about 20 percent, implying a valuation of 14 times operating profit. Harman International Industries, whose audio brands include JBL and Harman/Kardon, trades at about 17 times. The 70-year-old Kravis may not shuffle to Swedish House Mafia or Deadmau5 but he knows that drop when it comes to finance. The only question is whether he is late to the dance music party.