**Morgan Stanley Exits Financing Role in Karo Healthcare Acquisition**
Morgan Stanley has stepped back from its role in financing KKR & Co.’s acquisition of Karo Healthcare, a Swedish consumer-health company, as reported by sources familiar with the situation. The investment bank was initially advising Karo’s owner, EQT AB, and had partnered with Jefferies Financial Group to provide approximately €1.1 billion ($1.2 billion) in staple financing for potential bidders. This type of financing is pre-arranged to facilitate acquisitions, although it does not guarantee that the banks will secure the deal, as other lenders may offer more attractive terms.
Despite Morgan Stanley’s withdrawal, Jefferies remains involved in the financing process alongside several other banks. Representatives from Morgan Stanley, Jefferies, and KKR declined to comment on the matter, and EQT did not respond to requests for information.
The current market climate has made banks more cautious about taking on risk, particularly in light of the economic disruptions caused by U.S. tariffs. Lenders are eager to avoid being left with “hung” debt, which occurs when they cannot offload underwritten loans by the time an acquisition closes. This situation was notably problematic three years ago when the invasion of Ukraine negatively impacted credit markets.
In the U.S., corporate debt sales have significantly slowed, and borrowers, such as flooring company Tarkett, are retracting deals in Europe’s leveraged finance market. Despite these challenges, banks are planning to sell the debt associated with KKR’s acquisition of Karo to private credit firms, similar to a previous transaction involving KKR’s purchase of the Spanish fertility clinic chain Ivirma Global in 2022.
KKR’s acquisition of Karo is valued at over €2.5 billion, and the deal is progressing despite the turbulent market conditions. Karo operates in a resilient sector, employing around 460 people and selling products in more than 90 countries. The company is known for its E45 dermatology brand and offers a range of products, including those for coughs, colds, and vitamins. Citigroup Inc. is serving as the financial advisor to KKR for this transaction.
**FAQ**
*What is staple financing?*
Staple financing is a pre-arranged funding option provided by banks to facilitate acquisitions, helping potential buyers secure necessary capital while increasing the likelihood of a successful deal.