KKR in 2003

Ravi Madapati
Faculty Member
Icfai Knowledge Center

Investment Strategy^[1]

The real leverage is in the leverage of ideas, and that is where KKR has often pulled far ahead of its competitors.

-Joseph A Grundfest^[2] Professor of Law,Stanford Law School,Former Commissioner,US SEC

KKR’s goal was to achieve high rates of return by investing large amounts of capital for long-term appreciation. KKR believed in moving fast, remaining flexible and adapting to changing market conditions.

The diverse nature of its investments over time reflected the versatility of the partners. KKR executed management buyouts of large, mature companies; took leveraged “build-ups” from having no assets at all into the Fortune 500. The company made acquisitions in traditional industries. It created stand-alone, independent companies from large corporate parents; and made equity infusions to restructure highly leveraged public companies. Success in private equity investing also depended on cultivating and nurturing acquisitions. KKR became an active, principal investor in the businesses it bought. KKR believed the closing of an acquisition was only the beginning of the process of delivering value.

Deal Origination

KKR evaluated hundreds of potential investments each year. Once an opportunity had been identified, KKR pursued a number of strategies to secure a transaction. Whenever possible, KKR worked with companies and managers on an exclusive basis to develop transactions. On other occasions, KKR used the auction process, which, despite the drawbacks of competitive bidding, had led to several major successes over the years. Critical to consummating investments was KKR’s ability to move quickly and decisively to analyze and assess potential investments. KKR had developed unique capabilities for conducting due diligence, combining its deal making strengths with an effective legal and accounting support team. Management teams at existing KKR companies often provided assistance by lending their expertise and judgment in identifying and assessing opportunities. Together, these capabilities enabled KKR to analyze large, multi-faceted, multi-billion dollar enterprises that few others would be able to review adequately.

Structuring and Financing Transactions

KKR’s significant presence in the capital markets enabled it, to engineer large, most complex and profitable deals in the marketplace. No buyout group had more experience in raising bank debt, high-yield debt or equity in the marketplace. Because of the scope of its activities, KKR typically received the best possible financing terms. It was also the recipient of virtually all ideas, both new and proven, from financing sources.

Overseeing Portfolio Companies

KKR at Crossroads

The Road Ahead

[1] This section borrows from the corporate website of KKR, www.kkr.com.

[2] KKR: The Leverage of Ideas, March 1996.