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Kohlberg Kravis to Expand Further

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Kohlberg Kravis Roberts & Co. L.P. (KKR - Free Report) – a private equity investment firm – has decided to buy Mitchell International Inc. from Aurora Capital Group. Though the company has recently confirmed the news, the exact value of the deal is still unknown.

According to Bloomberg, the deal value could be around $1.1 billion (including debt). The transaction is expected to close by fourth-quarter 2013.

Mitchell is a software company which was acquired by Aurora in 2007 for $500 million. The latter primarily provides information and software services to large insurance houses, thereby executing a major chunk of work for them.

With the increasing popularity of the automated insurance claims process in the North American market, the demand for software companies like Mitchell is on the rise. As reported by Reuters last month, Kohlberg Kravis Roberts was one of the many firms eyeing Mitchell after the announcement of its divesture by Aurora.

The investment could be a profitable venture for Kohlberg Kravis Roberts as insurance is a lucrative sector with scope for improvisation and upgradation. Once the deal closes, Kohlberg Kravis Roberts intends to expand the acquired unit globally, especially in Western Europe and Asia. Moreover, it intends to double Mitchell’s annual revenue of $300 million to $400 million.

For Aurora, this divesture forms part of the company’s streamlining initiative. Aurora has been recently selling off some of its acquired units at a price higher than the purchase price. Earlier this year, the company vended its carbonated drinks gas supplier NuCO2 to Praxair for $1.1 billion (almost double the price of purchase).

Of late, the auto insurance market is witnessing shrinking claims due to latest accident avoidance technologies like back-up cameras. Large companies in the market now have to mould themselves and venture into new avenues to adapt to the changing environment.

So far, Mitchell primarily focused on the North American market. Now, once acquired by Kohlberg Kravis Roberts, it will get the much needed exposure and enhancement.

Merrill Lynch, a part of Bank of America Corporation (BAC - Free Report) , is Kohlberg Kravis Roberts’s advisor for the deal while The Goldman Sachs Group, Inc. (GS - Free Report) is the financial advisor of Mitchell.

Currently, Kohlberg Kravis Roberts carries a Zacks Rank #3 (Hold). A better performing stock is The Blackstone Group L.P. (BX - Free Report) with a Zacks Rank #2 (Buy).

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