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US private capital giant KKR has agreed to acquire Arctos Partners for $1.4bn in a deal that will propel the group with more than $700bn in assets into the booming businesses of sports investment and second-hand private equity fund stakes.
The acquisition, which will be announced by the two companies later on Thursday, comes as KKR tries to capitalise on retail investors’ growing interest in holding sports and so-called secondaries investments for years or decades to come.
The deal will create a new unit of KKR called KKR Solutions that will be led by Arctos co-founder Ian Charles. In addition to sports and secondaries, the unit will push into tailored financing options for other private capital firms.
KKR co-chief executive Scott Nuttall told the FT the new solutions unit could help the New York-based group increase its assets substantially in the coming years, potentially creating “an over $100bn business”.
Arctos, founded by Charles and former Madison Square Garden executive David “Doc” O’Connor in 2019, helped create the marketplace for finance firms to buy minority stakes in sports teams. It is now the largest investor in sports globally, managing more than $15bn in assets.
The firm holds minority equity stakes in some of the world’s most popular teams, including European football clubs Liverpool and Paris Saint-Germain, as well as high-profile US teams such as the National Basketball Association’s Golden State Warriors, baseball World Series champion the Los Angeles Dodgers, and the National Football League’s Los Angeles Chargers and Buffalo Bills. It is also a minority investor in the Aston Martin Formula 1 team.
KKR’s acquisition comprises $300mn in cash and the remaining $1.1bn in KKR shares. The deal could rise to a near $2bn value if up to $550mn in performance milestones are hit.
While Arctos is best known for its sports investment, its Keystone unit is focused on providing financing to private capital firms and relies on Charles’ experiences as an early adviser in the marketplace for second-hand private equity fund stakes.
Charles said selling to KKR would give Arctos far broader financial and operational resources. He added the group would be able to leverage KKR’s capabilities in real estate finance, asset-backed lending and insurance to offer sports clients new options in financing stadiums and media rights deals.
“The partnership with KKR unlocks the full potential of our team. It is going to allow us to dream a bigger vision and win,” Charles said.
The takeover comes as the private capital industry consolidates, with specialist firms selling to larger rivals in search of scale and deeper resources for fundraising.
Last month, secondaries industry pioneer Coller Capital sold itself to Swedish private equity group EQT. In recent years CVC, BlackRock and TPG have all struck deals with credit investment managers.
The KKR-Arctos talks started about 18 months ago when Arctos was looking for new shareholders after two of its minority owners signalled they wanted to exit the firm. But investment talks morphed into an acquisition after KKR expressed interest in buying a full stake, leading to a months-long courtship in which both groups decided there was a strong cultural fit.
For KKR, the deal marks a long-awaited push into secondaries, where rivals including Blackstone have built large businesses. KKR has previously held merger talks with many other secondaries firms.
“You should assume that over the past decade plus, we’ve spent time with most of the big secondaries platforms,” Nuttall said. “We thought taking a fresh look with Ian and the Arctos team was the right way for us to enter the secondaries space.”
