'Barbarians' Henry Kravis and George Roberts were the 1980s poster boys for slash-and-burn leveraged buyout dealmaking. Now, with trillions pouring into private equity, KKR and its peers have little choice but to build up rather than break up.
crisis, surprisingly with one of its worst deals, for the Texas-based power producer TXU. The $45 billion buyout, inked in February 2007, was controversial from the start because of TXU’s expansion plans in coal. As KKR and its partners cut the deal, they reached out to the Environmental Defense Fund, an advocacy group that got McDonald’s to stop using polystyrene containers. Kravis and Roberts were interested in the connection between environmental efficiency and profits.
In 2010, a Chicagoan named Pete Stavros was made head of KKR’s industrial buyout division. Stavros, now 44, the son of a Greek-American construction worker and a first-generation college graduate, believed productivity and profitability would increase if you gave equity to hourly workers on manufacturing lines, truckers and other nonexecutive employees. At Harvard Business School, Stavros dedicated his thesis to the benefits of employee stock ownership.
While the amount invested in the Toys “R” Us severance fund was trivial for KKR’s partners, the fact that its large pension investors, like the state investment boards of Minnesota and Washington, insisted they do so wasn’t. It’s also about fees, which today are on a scale that makes RJR Nabisco’s $390 million in deal fees look quaint.
Remember the feel-good IPO of Gardner Denver in 2017? After charging the company $3.4 million a year on average in transaction and monitoring fees, KKR levied a special onetime termination fee of $16.2 million in conjunction with its IPO. High fees translate to generous compensation for KKR partners. Last year the firm paid out an eye-watering $1.5 billion in compensation to its 1,300 staffers.
“When you look at the complexity of what we do and how we operate around the world, you need two people,” Roberts says. The hard part will be maintaining KKR's entrepreneurial DNA as it expands as a publicly traded corporation.“If you think about what this firm was, it basically was started with three guys and a broom—Jerry, George and me,” Kravis says. By 1996, when KKR’s heirs, Nuttall and Bae, joined the firm, it employed about two dozen investors. Now dealmakers number 447, and two thirds of the firm’s 1,300 staffers don’t invest, instead tending to tasks like back-office, tax and legal.
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Gentlemen At The Gate: With Trillions Pouring In, KKR And Its Peers Must Build Up Rather Than Break Up'Barbarians' Henry Kravis and George Roberts were the 1980s poster boys for slash-and-burn leveraged buyout dealmaking. Now, with trillions pouring into private equity, KKR and its peers have little choice but to build up rather than break up.
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Gentlemen At The Gate: With Trillions Pouring In, KKR And Its Peers Must Build Up Rather Than Break Up'Barbarians' Henry Kravis and George Roberts were the 1980s poster boys for slash-and-burn leveraged buyout dealmaking. Now, with trillions pouring into private equity, KKR and its peers have little choice but to build up rather than break up.
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