FORTUNE -- Buyout firms appear to be running out of things to buy out. And so they are buying themselves.
Late on Monday KKR & Co. (KKR) announced it was acquiring KKR Financial Holdings (KFN). KFN is technically a separate company, a bond fund manager that is publicly traded, but it's really just a division of the giant private equity firm. KFN's CEO is a KKR employee, as are a number of KFN's board members. All of KFN's investing decisions are made by KKR.
Nonetheless, KKR is paying a premium for a company. KFN's stock was trading at $9 before the announced deal. The deal valued the bond manager at $12.79. Put another way, KKR is paying $2.6 billion to buy KFN's $2.2 billion in bonds.
It's not clear why. Fortune contributor Cyrus Sanati says that KFN's holdings are mostly made up of floating rate bonds, and if interest rates go up next year, floating rate bonds will be worth more than bonds with fixed lower yields. KKR may be paying a premium to make a bet on interest rates. Bloomberg's Matt Levine says KKR decided to pay more than it had to to avoid getting sued, because of the appearance of self-dealing. That strategy might not have worked. Law firms who sue on behalf of shareholders have already said they are investigating.
Here's another reason to consider: The buyout world is in a bubble.
KKR says KFN will provide cash flow for the buyout firm. You would overpay for that cash flow if you believe you will make even more money pumping those funds into buyouts. The other reason you would pay more to get into the bond fund management business if you believe now is the time to diversify away from buyouts, and buying a linked but technically separate business could be the easiest way to do that. So it's possible that KKR may be overly optimistic about the returns they will get from buyouts. But it's equally possible that KKR believes that the returns from buyouts won't be as good as they have been. Both scenarios point to a bubble in the buyout business.
So far in 2013, private equity firms have generated 23% of all investment banking fees. That's a record. Back in 2000, it was 7%. Some people say that that has to do with a lack of M&A deals being done by regular companies. When corporate buyers start making acquisitions again, private equity's share of deals will drop. It could also drop if private equity firms simply do fewer deals.
Keefe Bruyette & Woods, a 50-year-old investment bank that survived 9/11 and a CEO scandal, is bought up after a tough year.
Correction: 11/6, 9:30 A.M.
FORTUNE -- Stifel Financial, a brokerage and investment firm based in St. Louis, will pay $575 million to buy KBW, a Wall Street firm that specializes in advising financial firms. The price, which translates to $17.50 a share for KBW (KBW), is less than 10% above MOREStephen Gandel, senior editor - Nov 5, 2012 2:08 PM ET
A NBER study finds that most corporate deals turn out badly.
FORTUNE -- Beware of Wall Streeters bearing mergers and acquisition advice. That's the takeaway of a new study, and investors should take note as well.
The study by professors at the University of California, Berkeley, concludes that acquisitions, while nearly always initially cheered by investors, end up hurting a company, and in particular its share price, in the end. Winning by MOREStephen Gandel, senior editor - May 2, 2012 5:00 AM ET
The proposed merger of the NYSE and the Deutsche Börse is just the latest in a wave of similar deals, even as smaller competitors continue to grab business.
By Chris Redman, contributor
If Deutsche Börse manages to complete its acquisition of NYSE Euronext -- and that's a big if because of antitrust concerns and fears that the U.S. will chafe at losing control of the fabled New York Stock Exchange -- the MOREMar 9, 2011 5:00 AM ET
As regulators start to scrutinize the proposed combination of the NYSE and the Deutsche Börse, they'll need to take into account much more than just equity trading.
By Cyrus Sanati, contributor
The battle for the soul of Wall Street continues as the fate of the New York Stock Exchange remains up in the air. The NYSE's tentative $10 billion sale to Germany's Deutsche Börse will need to pass through a regulatory gauntlet MOREMar 2, 2011 10:13 AM ET
What's in a name? Nothing, in the curious case of the $10 billion exchange megadeal unveiled Tuesday.
Frankfurt's Deutsche Boerse will acquire NYSE Euronext (NYX) in a deal that will give the German exchange's shareholders 60% of the combined company and 10 of 17 board seats. The new company will have headquarters in both New York and Frankfurt, and the exchanges will continue to operate under their own names in their home MOREColin Barr - Feb 15, 2011 11:18 AM ET
Deal talk has exchange stocks grooving. But more mergers spell disaster for markets already tilted dangerously in favor of big companies and fast traders.
Shares of NYSE Euronext (NYX) surged 14% Wednesday after the New York Stock Exchange parent said it was in advanced discussions to merge with Germany's biggest exchange, Deutsche Borse of Frankfurt. The talks come on the heels of this week's tie-up between the London Stock Exchange and Canada's TMX MOREColin Barr - Feb 9, 2011 2:12 PM ET
Bank investors are getting hit with a wave of buyer's remorse.
Finance stocks tumbled Tuesday after Citigroup (C) posted a weak fourth quarter and Comerica (CMA) agreed to purchase Sterling Bancshares (SBIB) in a push to expand its reach in fast-growing Texas.
Citigroup tumbled 5% following the release of its fourth consecutive quarterly profit. CEO Vikram Pandit said the bank accomplished all it set out to in 2010. It earned $11 billion MOREColin Barr - Jan 18, 2011 12:08 PM ET
A little bank merger wave is starting to lap up onshore, but there are few signs this tide will lift the industry's many leaky boats.
On Wednesday we got news of the third decent-size banking sector buyout in a week, when Hancock Holding (HBHC) of Gulfport, Miss., said it would buy Whitney Holding (WTNY) of New Orleans for about $1.4 billion in stock.
Hancock, which runs the 112-year-old Hancock Bank, said the deal MOREColin Barr - Dec 22, 2010 10:12 AM ET
Maybe the regional banks aren't doomed to takeunders after all.
The shares of some big U.S. regional banks rallied Friday after Bank of Montreal (BMO) agreed to buy Marshall & Ilsley (MI), a Milwaukee-based lender that has lost money eight quarters in a row, for $4 billion in stock.
Bank of Montreal will issue about $7.75 a share worth of its own stock in exchange for each share of Marshall & Ilsley, MOREColin Barr - Dec 17, 2010 8:55 AM ET
|5 people you might not tip (but should)|
|General Mills reverses course on right to sue after backlash|
|Pope Francis challenges the free market - The Buzz|
|Stocks: It's report card time on Wall Street|
|Americans have fallen in love with real estate once again|