Wednesday, 7 July 2010

KKR goes public at last

In the rarified world of Private Equity, the firm of Kohlberg, Kravis and Roberts occupies a special place. KKR, as the firm is called, achieved legendary status very early on in its life. The firm came into existence in 1976, but its real fame and notoriety came in 1988, when it orchestrated the largest leveraged buyout of that time, the hostile acquisition of RJR Nabisco.

The RJR Nabisco transaction was a definitive moment in business history. It was so huge that at that time it was by far the largest M&A transaction that was ever done – a position that it occupied for more than a decade. Adjusted for inflation, it is still the largest leveraged buyout ever. The story has been immortalized in the best selling book, Barbarians at the Gate . The book reads like a thriller - you can buy it here or here ; it’s a classic must read book. The madness of 1988 was covered in my post here, sometime ago.

From that day on, KKR has come to epitomize all the public perceptions of private equity. Greed, excess, secrecy, enormous power, fear, are the adjectives that come to mind. Corporate raiders, who buy up companies, saddle them with debt and break them up – that’s the perception. As always, perceptions are not always right, but there is an element of truth to them.

KKR remained a secretive organization. Being private, they needed to disclose nothing. They have continued to be active ; completing at least one transaction every year , bar 1990, although something like RJR Nabisco is never likely to be repeated. Of the original partners, Kohlberg left very early on, but the cousins, Henry Kravis and George Roberts continue to run them virtually exclusively. There remains a mystique and aura around these two men – they can create a feeling of terror in boardrooms when they set their sights on a company.

All this is about to change. They are going public with an IPO and listing on the New York Stock Exchange. Now they will be open to public scrutiny, just like any other company. The press has gleefully reported , from their first SEC filing, how much each of them earned last year – a paltry $44m together . The aura, and even fear, will be dented significantly – there’s nothing better than transparency to prick the bubble of mystique. Metaphorically, Henry Kravis, whom even the mighty was in awe of, will now have to sit at a company AGM and listen to the old foggy , who has 1 share in the company, rant and rave at the quality of the snacks served. An experience like that will bring you to the ground with a thud.

Their most visible rivals, Blackstone, caught the timing exactly right, when they took their firm public in 2007, just before the crash came. KKR missed the bus that time, but are going public now. Private Equity remains a thinly regulated field in many countries. As more firms list, that will change. Transparency is the best form of accountability there is. But, I must confess a voyeur’s sense of childish glee at the thought of peeking inside the mysterious KKR.


ambulisamma said...

//But, I must confess a voyeur’s sense of childish glee at the thought of peeking inside the mysterious KKR.

This one line says it all.

zeno said...

As soon as i saw the title, KKR, Barbarians at the gate came to my mind and there it is :). What a book it is! I would say the best ever thriller i have ever read and the way the book chronicles the entire RJR fiasco[if i may call it] The best ever business reporting.
Too bad no one could write about Sathyam saga in a similar fashion :(
I think, In the biggest LBO, no one stood to gain much except for Ross Johnson!

Interview of Ross Johnson,9171,956416,00.html
Time's Coverage,9171,956435,00.html
[Links are for people who were learning the alphabets when this happened]

On their earnings,it just shows that huge revenues/sales doesn't means high profits.

Ramesh said...

@ambulisamma - On the dot .....

@zeno - Wow; you are very well read. Bravo ! Ross Johnson didn't make too much money. Some, but not a lot. The real winners were the shareholders of RJR Nabisco - they made a pile.

Anonymous said...

KKR na udanay naan kooda Kolkata Knight Riders pathiyo nu nenachen...ipdi emaaathitele

zeno said...

Thanks to the office library ;)Not to mention my fantasy dreams for IB after reading it :P :D
Then so finally Ross did a good job :)

KC said...

Never heard of KKR or the book but your post says it all. Wonderfully said "Transparency is the best form of accountability there is". The economic downturn has broken my corporate backbones but to some advantage of general public/ corporates it has also brought transparency. However terrifying Henry Kravis and George Roberts may be, time is nobody's friends. Good for them that they decided to go public. Somebody said "Blessed are the flexible ones for they shall not be bent out of shape".

Ramesh said...

@Gils - Thalaivare - Kolkata Night Riders yaaru ??????

@Zeno - Oh Yes, Ross Johnson did a great job. In those days few corporate heads cared about shareholder value. While the book focussed on his greed (which of course existed), it did injustice to the final outcome - Ross Johnson did a great deal for his shareholders, which was what he was paid to do.

@Kapil - That's a quotable quote - Blessed are the flexible ones... ". Very nice.

Vishal said...

Never heard of the story as well as the firm. To be honest, Kolkata Knight Riders came to my mind for a moment when I read the title.

It is really easy for a private firm to cover so many things under the carpet. The regulations are not robust enough to catch them up timely as you rightly said. Perhaps, accountability has a different connotation in private world of busniess.

As more and more scrutiny happens, there would be more startling facts coming out from the mysterious KKR.

KC said...

from vishal's comment - Coincidentally after readiing KKR, from the opaque memories i thought of Shah Rukh Khan and then thought its not making sense. After reading your comment it struck to me why i couldn't think of Kolkata Knight Riders because of my little interest in cricket.

But your posts are very enlightening Ramesh. I am too glad to express my happiness.

Ramesh said...

@Vishal - KKR is no different from many firms. Its just that secrecy gave it a mystique, which was fuelled by that book. Otherwise every bit as boring as everybody else, I guess !!

@Kapil - We both didn't think of Kolkata Knight Riders because living abroad we weren't subject to the barrage that was IPL3. Even though I followed it on the net, it wasn't the same as being subject to 24/7 mania.

Sandhya Sriram said...


like GILS and Vishal - I could only think of Kolkata Knight Riders. will try to catch hold of this book for sure!!

but IPL is no less a black viel. there is a huge game of politics, power, money playing behind. and this KKR and the lot will never go public :-)

Ramesh said...

@sandhya - If you ever pick up the tag of the gender stereotypes, this must feature ; you know more about IPL than most men !!

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