KKR's $1.2 billion exit from Alliance to boost LP's confidence

In one of the largest exits by a private equity (PE) player in India, KKR & Co has sold its 90 per cent stake in Alliance Tire Group to Japanese strategic buyer Yokohama Rubber Co for $1.2 billion, making an more than two-fold return on its April 2013 investment. 

This is the largest PE exit from an India-related business in the last decade, according to VCCEdge, the data research platform of VCCircle.  Prior to that Warburg Pincus had sold its stake in Bharti Airtel for over $1.6 billion in tranches.

"(The) Fact that a strategic buyer has come in after two private equity investors made significant return, boosts confidence for limited partners in Indian entrepreneurs," says Sanjeev Krishan, leader private equity practice, PwC India. "It also tells how global PE firms can make a difference in value creation journey for Indian companies," he says.

KKR had acquired a controlling stake in Alliance from global PE firm Warburg Pincus in April 2013 which had exited making multi-fold return. This was the biggest transaction by the US based KKR since it set up its India office in 2009. The deal value was not disclosed but VCC Edge estimates an equity valuation of $522 million. KKR had picked around 90 per cent stake in Alliance Tire, which meant a payout of $470 million at the time.

“KKR helped Alliance make deeper penetration in key markets such as the US and Europe. This helped it to drive the valuation and make such a successful exit,” said a person familiar with the transaction.  KKR has strong operation team in the US that helped Alliance achieve rapid growth in the local markets. Alliance reported operating profit of $95 million against revenue of $529 million for 2015 financial year.

Founded by Ashok Mahansaria and his son Yogesh a decade ago with support from Warburg Pincus, Alliance is the world’s fifth-largest maker of off-highway tyres used in agriculture, forestry and construction sectors. The company sells radial and bias tyres in 120 countries around the world, with a focus on the North American and European markets.

Yokohama Rubber does not currently manufacture or sell tyres for agricultural or forestry machinery. The acquisition that will be completed by July 1 will strengthen Yokohama Rubber’s products portfolio in commercial tyres.

“Agricultural equipment tyre demand is expected to increase as a result of the growing use of agricultural machinery, which is crucial to improve agricultural efficiency to meet the increasing food needs for the world’s growing population,” said the Japanese company. It has chalked out its medium-term management plan to push commercial tyres as the new core area for its business.

Limited partners (LPs) have turned cautious on India, given a lack of big profitable exits. This is the second exit for the US based PE giant that set up its shop in India seven years ago. Last year it had exited telecom tower firm Bharti Infratel with modest returns as sharp depreciation in rupee affected its performance.