Wednesday, July 7, 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.