b-school, Business, Economy, Macroeconomy, MBA, Microeconomy, Private Equity, Thoughts

Kohlberg, Kravis & Roberts, the three men behind private equity’s star KKR

As you probably know, private equity firms are hot. And as they get more and more funds (remember how the Chinese government decided to invest in Blackstone) they become even more desirable.

KKR used to be the Holy Grail of private equity. KKR stands for Kohlberg, Kravis & Roberts and was founded in 1976 by Jerome Kohlberg, Henry Kravis and George Roberts. KKR specialised in leveraged buyouts and starred with the buy of RJR Nabisco in 1988 for $31.4 billion. There’s a must-read book about this buyout: Barbarians at the gate, by Bryan Burrough and John Helyar. And a movie too.

Blackstone has broken that record this year- yes 2007- and gone from princess to queen, but that’s a story for another day.

You could say that they used junk bonds to buy underperforming companies, reworked their balance sheets, and sold them for profit, maybe as a whole, maybe not.

But who where those entrepreneurs that decided to create KKR? Where are they now?

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The first, Jerome Kohlberg, was born in 1926. Unsurprisingly, he was working with Roberts and Kravis in Bear Stearns, worldwide investment banking and securities trading and brokerage firm. He left KKR in 1987 –that is one year before the Nabisco takeover- but he didn’t retire until 1994 when he created the Kohlberg Foundation. His wife has a restaurant, the Flying Pig, in Mount Kisco, NY. His fortune is approximately $1.2 billion.

Henry Kravis was born in 1944. Economist and Columbia MBA, in KKR he was the key to developing the LBO, leveraged buyout, concept, acquiring corporations they thought were under their potential, putting 10% of the price and financing the rest through junk bonds. (At that moment the concept of junk bond was still undefined, they were just high-yield bonds). The concept included selling whatever assets that could be valuable and leaning the company to a maximum before selling again with huge profits. He directed the Nabisco takeover after Kohlberg’s parting, creating the legend for KKR. He also participated in buying huge brands like HCA Inc., Texaco, Gillette, Playtex, Beatrice, Safeway, Borden and Samsonite. He is a prominent Republican and a strong supporter of G. W. Bush. (What a coincidence: Nabisco also began donating great amounts to the Republicans after the takeover) His fortune is approximately $1.5 billion.

George Roberts was born in 1945. Cousin of Henry Kravis, Law Graduate. Mentored too by Jerome Kohlberg in Bear Sterns, he cofounded KKR, participated in the Nabisco takeover –he is one of the main characters of Barbarians at the gate– until he exited in 1987. He’s been active ever since, participating in the Toys’r’us takeover by $6.6 billion with Bain Capital this year and SunGard Data Systems for $10.6 billion with Blackstone. His fortune is approximately $2.5 billion.

Well, he is the richest of all three so maybe he has something to tell. This text is from his acceptance speech at the 1998 Man of the Year’s award from the Culver Military Academy:

“I’m often asked by people, especially younger people, what do you have to do to be successful. And I assume they’re asking not what you have to do to make money, but what do you have to do to be a successful individual. Coming out here, I jotted down several examples that I’d like to share with you.

“You’ve got to work hard at whatever you do. So if you’re going to work hard and put everything you have into what you’re doing, you better find a job and a career that you love to do, because if you don’t you have no chance.

“Set your goals. Set goals that are unrealistic in some cases. Be prepared to be disappointed. One of the goals I set for myself when I came to Culver was to get into Yale. I got turned down. One of the goals I set for myself when I graduated from CMC was to get into either Stanford Law School or Stanford Business School. I got turned down. Set your goals high; reach, that way you improve our muscle tone. Don’t be afraid to fail. Our society won’t penalize you if you fail honorably, and by that I mean with integrity and honesty. Everyone who has done anything in life has failed at something. And there will be nobody in this room who is any different.

“Keep a sense of humor, that’s probably the most important thing. Be prepared to laugh at yourself a little bit, your mistakes. And when things really get tight and tense and everything else, laugh a little bit.

“Keep a perspective of what’s really important. For me, that’s been my health, the health of my family, and those intangible things that don’t involve material objects.

“Raise a family, because that’s the only way you’re going to learn to love somebody or some group more than yourself.

“Rely on yourself with both your brain and your heart. Don’t blame others for the mistakes that happen. Learn from them yourself and go on.

“And lastly, help others that are less strong and less fortunate than yourself, because you will get back many, many, many fold what you have done for yourself.”

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4 thoughts on “Kohlberg, Kravis & Roberts, the three men behind private equity’s star KKR

  1. D.T.L.F. @ INSEAD says:

    Roberts’ spiel reminds me of Seth MacFarlane’s commencement speech at Harvard, only a little less funny.

    RYC: I don’t watch television, and haven’t in years.

  2. Pingback: Cerberus Capital Management: another style for private equity « Gabriel’s scarcity rent

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