KKR’s Accell Misstep: A Cautionary Tale of Pandemic-Era Private Equity Euphoria

In January 2022, KKR, a prominent US private equity (PE) firm, acquired Dutch bicycle manufacturer Accell Group for €1.8 billion, aiming to capitalise on the pandemic-induced cycling surge. This move was emblematic of the broader PE enthusiasm during the COVID-19 era, marked by aggressive acquisitions at elevated valuations. However, the subsequent performance of this investment underscores the perils of misjudging transient market trends.​

The Acquisition and Its Premise

During the COVID-19 lockdowns, cycling experienced a notable uptick, with Accell's sales climbing 17% to €1.3 billion in 2020. KKR's acquisition thesis hinged on sustaining this momentum, particularly in the e-bike segment, where Accell held a strong market position. The strategy involved streamlining operations and leveraging Accell's extensive brand portfolio across Europe.​

Post-Acquisition Challenges

The anticipated demand failed to materialise post-pandemic. Traditional bike sales declined by 4% in 2022, and e-bike sales growth lagged due to supply chain disruptions and component shortages. Compounding these issues, Accell had overstocked in anticipation of continued demand, leading to a 50% increase in component inventories to €540 million and a near doubling of finished goods to €380 million. To address the surplus, Accell resorted to discounting, resulting in a 10% revenue drop in 2023 and a significant impairment that turned a €90 million profit in 2022 into a €330 million loss.​

Financial Restructuring

By mid-2023, Accell's financial health had deteriorated, necessitating a restructuring agreement in October 2024. This deal reduced the company's debt by approximately €600 million, from €1.4 billion to €800 million, with maturities extended to 2030. KKR and co-investor Teslin converted portions of their shareholder loans into equity and injected an additional €235 million to stabilise operations. Despite these measures, KKR had to write down the value of its €1.1 billion equity investment within 30 months.​

Broader Implications for the PE Landscape

Accell's predicament mirrors challenges faced by other PE-backed firms from the pandemic-era deal frenzy. For instance, Dun & Bradstreet, acquired in 2019 and taken public in 2020, saw its shares plummet by about two-thirds, highlighting current M&A challenges. Similarly, Asda, under new ownership by TDR Capital and the Issa brothers since 2020, has struggled with declining market share amid a challenging retail environment. These cases underscore the risks of high valuations and leveraged buyouts during periods of market exuberance.​

MY PERSPECTIVE

The Accell case underscores the critical importance of timing and market analysis in PE investments. Acquiring at market peaks, especially in sectors experiencing temporary booms, amplifies exposure to cyclical downturns. Moreover, the reliance on leverage during periods of low interest rates can become a double-edged sword when market conditions shift.​

The broader PE industry is now grappling with a backlog of unsold assets, with $3.6 trillion tied up across 29,000 companies. This liquidity crunch is reminiscent of the pre-2007 financial crisis era, where capital return delays strained investor relations. The current environment necessitates a reassessment of exit strategies and valuation models to align with evolving market realities.​

Conclusion

KKR's experience with Accell serves as a cautionary tale for the PE industry, highlighting the perils of aggressive acquisitions based on short-term market trends. As the sector navigates post-pandemic uncertainties, a more disciplined approach to valuation, leverage, and market analysis will be paramount to achieving sustainable returns.