Private equity firm Kohlberg Kravis Roberts & Co is preparing for an initial public offering for discount retailer Dollar General, a source said, and others are speculated to follow as it looks to take advantage of a recent rise in equity markets.

KKR itself is looking to become publicly-listed and successful IPOs of its portfolio companies could be a boost to its ambitions. It has announced plans to combine with its Euronext-listed fund KKR Private Equity Investors and has potential plans for a U.S. listing.

Private equity firms buy companies in order to eventually exit the investments, either by IPO or selling to a rival.

But they have, for some time, been held back from exiting investments through an IPO amid the market turmoil; while finding potential buyers with the cash available to make acquisitions has been hard.

As markets have risen this year, firms have been cautiously looking for ways to exit investments. Bankers and lawyers have reported a rise in the number of portfolio companies in their IPO pipelines and a increased level of talks with private-equity firms.

One KKR backed firm, Avago Technologies Ltd, is already well into the IPO process. A Singapore developer of semiconductor devices, the firm's shares were priced this week at $13 to $15, according to a filing with the SEC.

KKR is also preparing an IPO of discount retailer Dollar General, a source with knowledge of the situation told Reuters. KKR wrote up the value of the retailer in May.

A Dollar General IPO would be underwritten by Goldman Sachs, Citigroup and KKR itself, the Wall Street Journal reported earlier this week.

The Financial Times reported online on Friday that KKR is preparing up to six companies for IPOs in the next year including toy retailer Toys R Us, hospital group HCA, credit card processor First Data and the Danish telecoms group TDC, citing a person familiar with KKR's plans.

KKR declined to comment on the FT's story or for this article.

KKR, which also recently wrote up the value of its investment in HCA, struck a deal in June to sell IPO stocks through Fidelity Investments, suggesting it might be gearing up to take public some of the companies in its portfolio.

The most likely sectors cited by bankers to file for IPO are those that haven't been hit so hard by the economic downturn. Healthcare, education and potentially energy are cited, as well as select companies such as discount retail firms that are weathering the crunch in consumer spending.

Rivals have also started making the most of the improved climate to find exit routes. Blackstone sold its investment in Stiefel Laboratories Inc earlier this year to GlaxoSmithKline for 1.4 times the cost of the investment, or 40 percent above what it paid two years ago.

Another investment that will likely be highly profitable for Blackstone on exit is its $220.1 million investment into Kosmos Energy, which it marked at $602 million at the end of 2008. Kosmos Energy is currently selling its Ghanaian oil interests in a hotly followed auction.

(Reporting by Megan Davies in New York and Adrian Croft in London, Editing by Dean Yates)

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