Private Equity’s Tech Bonanza Continues As KKR Stands

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Private Equity’s Tech Bonanza Continues As KKR Stands To Make Billions On AppLovin Deal



The technology and software sector continues to be a goldmine for the world’s biggest and best performing private equity firms. Add KKR & Co., cofounded by billionaires Henry Kravis and George Roberts, to the list of mega-firms set to mine one of its great dealmaking coups in the tech sector.

AppLovin, a pioneering maker of software for mobile gaming application developers, is poised to go public at a valuation of about $30 billion, according to a report from Reuters. AppLovin has set its IPO range at between $75 a share and $85 a share, and is looking to raise $2 billion by selling 25 million shares.

For KKR, which invested $400 million into Applovin in July 2018 out of its flagship KKR Americas XII Fund, the looming IPO will yield a home run investment.

According to AppLovin’s S-1 filing, KKR’s funds hold over 110 million AppLovin shares. An IPO at the midpoint of AppLovin’s range would create an investment worth over $8 billion. That should yield an astronomical investment rate of return for KKR, which harkens back to the glory days of the buyout industry.

Investors are absorbing the initial public offerings of software companies at sky high multiples of about thirty-times revenues. Public shareholders, even mutual fund firms that invest in growth stocks at a reasonable price, have seen successes like DocuSign or Salesforce and are willing to underwrite years of future growth. That’s because opportunity for software businesses abounds. Industries across the economy are moving their internal infrastructure, marketing, and product development onto software platforms. And new digital-first industries like mobile gaming and app-based e-commerce infrastructure are among the fastest growing subsections in today’s economy.

The technological changes are leading to companies with financials like Applovin, which saw revenues surge 46% to $1.45 billion in pandemic-plagued 2020. Total debt prior to AppLovin’s IPO stands at $2.1 billion, however, the company plans to repay about $400 million in debt through the offering. Adjusted earnings before interest taxes, depreciation and amortization was $345 million in 2020. Investors appear to be prepared to pay over 20-times sales and about 100-times trailing EBITDA to hitch their fortunes to AppLovin’s growth prospects.

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