Jeremy Warner's Outlook: As KKR floats, are we at the market top?

A second of America's private equity goliaths - Kohlberg Kravis Roberts - is planning to float on the stock market. Others are said to be thinking of scrambling aboard the bandwagon too, while a number of hedge fund groups have also taken the plunge into public markets. Do these flotations signal the top of the market, in the same way that the dotcom goldrush did in the late 1990s?

It is certainly tempting to argue so, but there are a number of reasons for thinking the fun and games might last a while longer yet. The KKR float is in almost every respect a clone of the pioneering Blackstone IPO. The lead advisers are the same, the proposed sale of "partnership units" rather than traditional shares is the same, and the limited voting rights attached to those tradable partnership units is also the same.

That outside investors are prepared to buy into an enterprise over which they will have no say is certainly indicative of mania.

Yet the backdrop is not as favourable as it was for Blackstone, which ominously now trades at a discount to its issue price. In a calculated barb against Blackstone, the $1.25bn being raised by KKR is all new money. Partners cannot therefore be accused of attempting to cash in at the top of the market, as has occurred with Blackstone.

The political environment is also less benign than it was, with a US backlash against private equity very similar to the one that has occurred here in Britain and a number of congressional attempts to crack down on private equity's supposed tax perks.

More worrying still, there has been a marked deterioration in the benign credit conditions which have fed the private equity boom. A number of the refinancings which underpin private equity takeovers have had to be pulled in recent weeks. Even so, KKR seems determined to test the waters further by pushing ahead.

Despite all this, there is self-evidently still an appetite both to finance private equity deals - witness Blackstone's $26bn bid for Hilton Hotels - and for private equity IPOs. Credit markets are a bit more difficult than they were, but even in the US they are plainly not in a state of such crisis that they undermine the raison d'être of the leveraged buyout scene - or not yet at least. For instance, Carlyle has had no difficulty in finding bankers willing to fund the £5.6bn buyout of Virgin Media, despite already quite high levels of leverage within the company.

It is, of course, equally possible to view this continued appetite for buyouts as evidence of the glass being half empty rather than half full, as I am attempting to argue. On this view, Hilton Hotels and Virgin Media represent the market's final death throes. Yet it doesn't feel like that to me. The world economy remains strong with no obvious prospect of derailment ahead, while rapid growth and innovation in financial markets seem to be succeeding as hoped in maintaining relatively stable credit conditions.

There's probably worse to come from the sub-prime shock, which seems to be on a long fuse, yet it is still only a few lone voices in the financial press and the City - and they tend to be the perennial prophets of doom - that believe it will result in a wider and fully-blown credit crunch. If they are right, then obviously all bets are off. But for the moment, the glide path for the KKR IPO looks relatively clear.

Little sign yet of progress at ITV

ITV was putting as positive a spin on it as possible, but there is no getting away from the damage to advertising revenue in the core ITV1 franchise evident in yesterday's trading update. The channel is continuing to lose audience share and advertising revenue at an alarming rate.

In the first half, net advertising revenue at ITV1 was down 9 per cent. Growth in digital channels and GMTV compensated a bit, but, even so, the company as a whole was still down 5 per cent against a decline for UK television as a whole of just 0.3 per cent.

The situation on audience share - down 5.6 per cent in the first half for ITV1 - is equally worrying. Under the Contract Rights Renewal regime agreed with regulators when ITV was allowed to merge into a single company, advertisers are able to cut the amount they pay for air time according to how much audience share the channel achieves. ITV is desperately trying to wriggle out of these obligations, but for the moment it must live with the ugly consequences for revenues.

Michael Grade has been in the job as chief executive for only six months so far, so he can hardly be blamed for the latest outbreak of red ink. He's made some good hires, and the rhetoric, with its emphasis on investment in programming, is certainly encouraging. Already there are signs of success, though these cannot be directly attributed to him. Britain's Got Talent managed to deliver the highest average audiences of any television entertainment programme so far this year.

Yet the jury is going to remain out for quite a while. TV is a long lead-time industry, with programming often taking up to a year between commissioning and broadcast. Mr Grade is without doubt an industry classic, a pristine vintage of the silver cloud variety so beloved of his father. The worry is that he may as a consequence be too old to hack it in the new media landscape opening up before him.

The root of ITV's problems is massive underinvestment, starting more than 10 years ago. ITV has also been late into virtually every new media development that's going. A huge catch-up is now required to save the brand from sinking into eventual obscurity. Few have a better record on programming and scheduling than Mr Grade. But in the Web 2.0 world we now live in, is this any longer relevant? I guess we are about to find out.

Mistaken identity at Virgin Media

Here's an unkind joke currently doing the rounds in the City about Stephen Burch, chief executive of Virgin Media. There are apparently two Stephen Burchs operating in the US cable industry. When the Vietnam war veteran was plucked from Comcast Cable, the headhunters mistakenly got the wrong one.

Following the approach from Carlyle, Virgin's advisers, Goldman Sachs, have been trying to generate an auction. Unfortunately for them, they recently conducted their own valuation which showed fair value for the UK cable giant to be $33 a share, or spot-on what Carlyle is conditionally offering.

Mr Burch does not appear to have made much progress in the one and a bit years he's been in the job, which possibly explains why his board had been back in touch with the headhunters even before Carlyle entered the scene.

Is it wise for Carlyle to be proposing to leverage up UK cable so soon after it was last sunk by the weight of its own debts? Those who argue it isn't haven't figured on the scope for refinancing on better terms large parts of the existing debt mountain, or the scope for asset disposals, including Flextech and the recently acquired Virgin Mobile. Both these assets could find themselves on the block, along with Mr Burch, who emerges from the wreckage with a profit of more than $10m on his share options. Not bad for a case of possible mistaken identity.

Will InterContinental follow Hilton?

The Blackstone bid for Hilton Hotels has inevitably turned the takeover spotlight back on Britain's InterContinental Hotels, where the Barclay brothers have been stake-building. Might InterContinental be the next target? Don't bet on it. Hotels are thought a property-rich industry with obvious appeal to the remortgaging techniques of private equity. But actually InterContinental has already sold off most of the property and returned the money to shareholders, leaving the company largely a manager of other people's assets. Indeed, it has already pushed far more aggressively down this road than Hilton, which may mean it is not as attractive to private equity.

j.warner@independent.co.uk