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Kohlberg Kravis in Expansion Mode

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Recently, private-equity firm Kohlberg Kravis Roberts & Co. (KKR - Snapshot Report) announced its plan to acquire Pennsylvania-based industrial equipment manufacturer Gardner Denver Inc. for $3.74 billion. Kohlberg Kravis will pay $76 for each of the outstanding shares of Gardner Denver, which is at a 39% premium to this industrial machinery maker’s closing price on Oct 24, 2012.

The agreement is subject to approvals from the shareholders as well as regulatory bodies and is anticipated to close in the third quarter of 2013. Kohlberg Kravis triumphed over major private equity firms like The Blackstone Group LP (BX - Analyst Report).

The Goldman Sachs Group, Inc. (GS - Analyst Report) acted as Gardner Denver’s banker for the deal, whereas UBS AG, along with Simmons & Company International, advised Kohlberg Kravis. Subsidiaries of UBS, Barclays, Citigroup, Deutsche Bank, Royal Bank of Canada and Mizuho Financial Group offered debt financing commitments to Kohlberg Kravis.

The acquisition will be immensely beneficial to Kohlberg Kravis, as Gardner Denver boasts of a 100-year old expertise in industrial goods manufacturing as well as technical innovation. For Kohlberg Kravis, it is the third deal in the industrial sector. Earlier, in 2011, it agreed to acquire Capsugel – a division of pharmaceutical major Pfizer Inc. Later that year, another deal was inked with Capital Safety – a supplier of safety gear for construction and other workers.

According to Kohlberg Kravis, the deal is a part of its focus on diverse revenue sources through the introduction of inventive customer-friendly solutions.

We believe the company’s broad diversification strategy positions it comfortably to benefit from enhanced global investment flows. However, the unstable U.S. dollar, volatile equity markets and a sluggish economic recovery, along with mounting competition, make us apprehensive.

Kohlberg Kravis currently carries a Zacks Rank #3 (Hold) whereas Gardner Denver carries a Zacks Rank #2 (Buy).

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