Kohlberg Kravis Roberts & Co's deal to sell IPO stocks through Fidelity Investments suggests it might be gearing up to take public some of the companies in its portfolio, despite a market that remains inhospitable to deals backed by private equity.

Under terms of a deal announced Monday, Fidelity alone among retail brokerage firms will be able to sell IPO shares of KKR-sponsored companies but will not be guaranteed a percentage of shares of any issue. It also will not be able to sell the IPO shares of companies backed by other private equity firms.

What it says is that KKR has deals it's going to try to get done, said Linda Killian, a principal with Connecticut-based investment firm Renaissance Capital.

It tells you there is a lot going on behind the scenes and is another sign of increased IPO activity down the road.

With a credit market still too cold for mergers and acquisitions, and an IPO market only beginning to reawaken, KKR is taking no chances in taking its companies to market as it tries to unclog its pipeline.

IPOs, along with sales to strategic or other private equity buyers, have traditionally been the main way financial sponsors cash out on their investments. The credit crisis has stymied the first two exit strategies and the bear market has slammed the brakes on the third.

It sounds to me like a desperate effort by KKR to unload its companies -- discount brokerage houses have typically participated in very few IPOs, said Scott Sweet, a senior managing director with advisory firm IPO Boutique.

Still, Sweet said, it could increase the odds of success by spreading shares into more hands.

TOUGH TO UNLOAD

A deluge of KKR-led IPOs does not appear to be imminent. Of the 102 companies with active U.S. IPO registrations, only one, Avago Technologies Ltd, a Singapore developer of semiconductor devices, which filed in 2008 for a $400 million IPO, has KKR-backing, according to Thomson Reuters data.

The IPO market remains firmly shut to most private-equity backed companies, which typically carry debt levels far above the comfort level of IPO investors in the current climate.

They need to be able to turn over properties -- what KKR is trying to do is get companies to market in the most efficient way, said Duke University finance professor Campbell Harvey, who predicted KKR's rivals would follow suit if the arrangement with Fidelity is even remotely successful.

Rivals Apollo Management and Carlyle Group are faring only slightly better, each with a handful of firms in registration.

Analysts predict that tech, education and health-related companies will lead the charge when the IPO market reopens.

Though it is anyone's guess which companies KKR could try to bring public first, its portfolio includes stakes in 50 firms such as hospital operator HCA Inc [HCA.UL] and Laureate Education Inc,[WGNALL.UL], once called Sylvan Learning Systems.

High-profile IPOs by KKR portfolio companies have included those by publisher Primedia Inc (PRM.N), and biotech company Jazz Pharmaceuticals (JAZZ.O).

After reaching a decade high of 66 deals yielding $17.5 billion in 2007, private-equity backed IPOs dwindled to 6 by 2008 in deals that yielded $1.25 billion.

The KKR-Fidelity deal is not the first time a financial company has looked for exclusive deals to sell IPO stocks to retail customers, but those arrangement have come and gone with little sense of how successful they were, analysts said.

In 2001, Goldman Sachs Group (GS.N) bought an on-line investment banking venture to get the rights to sell stock offerings to retail customers of discount brokers including Charles Schwab Corp (SCHW.O).

It was more show than go, Killian said of those previous efforts.

Even if some of KKR portfolio companies get to the point where they are IPO-ready, the Fidelity deal is no guarantee of success unless the companies themselves are compelling.

They're just getting another customer for their shares -- that's all this is, Killian said.

(Reporting by Phil Wahba; Editing by Steve Orlofsky)

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