KKR’s private equity co-head says it’s a great time to do deals, but be sure to exercise caution

Private equity firms should be motivated to hunt for deals despite the challenging interest rate environment as the potential purchase price tends to be more in their favor, according to KKR’s Global Co-Head of Private Equity Pete Stavros.

“This is a great time to do deals,” Stavros said in an interview with CNBC’s Leslie Picker for the Delivering Alpha newsletter. “When you want to be more cautious is when capital is everywhere. You can get as much debt as you want. The credit markets are red hot. The M&A market you know is on fire. Those are times to raise your bar and be a little bit more cautious.”

Private equity fundraising has slowed down drastically after a series of aggressive interest rate hikes made borrowing costs skyrocket. Globally, private equity funds raised $444.65 billion in the first half, down 20.5% year over year from, according to S&P Global Market Intelligence.

“When the public markets are more volatile and when credit markets are tighter, better return deals are done. That’s the history,” Stavros said. “It’s logical because purchase prices are constrained because you can’t borrow as much and the the money you can borrow is more expensive. This is the time to be leaning it now.

KKR announced its latest exit deal that involved RBmedia, a audio-books publisher that was sold to another investment firm H.I.G. Capital. The deal has an employee stock ownership program in place.

Stavros said private equity investors shouldn’t decide to sit on sidelines or go all in based on the market environment, adding that KKR instituted a rigorous process of not over-deploying or under-deploying in any given year.

“One of the most important points as it relates to private equity M&A, my view is as a private equity investor, you should not be trying to time the market,” Stavros said.