The Hindu Business Line : Investment Nuggets

Known as King of the Leveraged Buyout (LBO) space, Henry R Kravis is the co-founder of leading private equity firm Kohlberg Kravis Roberts & Co, better known as KKR. After working at various jobs in New York City 217;s financial sector, he and his first cousin George R. Roberts joined the staff of Bear Stearns, working under Jerome Kohlberg Jr. In 1976, the three men left Bear Stearns to set up their own investment company where Kravis helped develop the acquisition concept known as the leveraged buyout (LBO). In most cases, KKR put up ten per cent of the acquisition price from its own funds and borrowed the rest from investors by issuing high-yield bonds.

Here are few of his takes on sound investments and the ‘KKR’ approach:

“We’ve got a portfolio of companies that range all the way from hotels to television stations and cable TV companies, oil and gas, consumer products, and industrial products. If there’s anything that I want to know more ab out, I have the opportunity. It’s right in our portfolio. I can spend time at the factory or with the management and learn as much as I want. You can’t get bored doing that.”

“Perhaps the most important result of our deliberations was the realisation that we needed to deepen our expertise in specific industries. The days of financial engineering were over, and we had to start thinking and acting more like ‘industrialists’. Selecting quality opportunities and paying reasonable prices remained an important part of our work, but the focus of our firm had to move from buying a company to making an acquired company more valuable. Our job had to begin the day we bought the company.”

“ny fool can buy a company, just pay enough. The hard and important part of our job was what we did with the company to create shareholder value once we acquired it.”

“We feel it is very important to focus on the detailed operations of an industry rather than merely the financial engineering.”

“Capital is commodity and, unlike previous decades, leverage alone will not drive returns. Nonetheless, I believe that the right capital structure for a transaction is as important as ever. We are very careful to avoid burdening our c ompanies with excessive levels of debt. When we set the capital structure, the right level of debt enables a company to invest for growth and to weather economic downturns.”

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