Published On: Mon, Aug 11th, 2014

After Nearly 40 Years, KKR’s Henry Kravis Is Just Getting Started

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KKR’s co-chairman and co-chief executive, Henry Kravis, at the age of 70, is not showing any signs slowing down, but is always looking for the next breakthrough deal. As he told one client, the CEO of a struggling Spanish company, Uralita, which had been turned away by Spanish banks but looked to KKR for assistance, “I tell our guys, ‘Don’t ever go in and bait and switch. That is the worst thing you can do. If we tell you we are going to do something we are going to do it.”

KKR plays many roles for its clients, as a creditor, investor and syndicator. It has $102.3 billion assets under management and its private equity business owns or has stakes in 90 businesses with a total annual revenue of $200 billion. It currently has $10 billion on its balance sheet, much more than its closest competitors, and the amount gives KKR significant leverage. One of KKR’s most legendary successes was the $31 billion takeover in 1988 of RJR Nabisco, an event that inspired the bestseller Barbarians at the Gate. However, it also has had its share of failures, including the $48 billion takeover of Energy Future Holdings that filed for bankruptcy and many disappointments in the 2001 dotcom blowup.

Kravis maintains that KKR’s role is to help businesses improve and reach their potential, and rejects the allegation that firms like his are mainly concerned with slashing costs and jobs. Kravis, along with his wife, Marie-Josee, is president of ┬áthe Museum of Modern Art in New York, and the couple have made substantial donations to Sloan Kettering Cancer Center and Columbia’s business school, which is Kravis’ alma mater.

Firms like KKR have stepped into the void left by banks since the financial crisis, since now these banks face stiff regulations and high lending standards. KKR resists criticism that it is following the same ill-fated path as large banks, because it doesn’t have deposits or depend on short-term borrowing. Craig Farr, who is in charge of KKR’s asset management unit, said, “The alternative capital markets are doing just what regulators want, which is to find other sources of lending to middle-market companies to properly finance companies to grow and create jobs.” Many consider KKR as kind of a “merchant bank” in the role of advising and investing, “They are doing what investment banks did 30 years ago,” said Jon Mattson, partner at Trilantic Capital Management.

Kravis co-founded KKR in 1976, and in the 80s, it became synonymous with leveraged buyouts. In 2009, KKR made the transition to lending money to companies it didn’t own outright, and KKR is now extending its reach into Europe, where the financial crisis has left many companies in need of investment and assistance.

Kravis implies that KKR’s smaller size is an advantage; “Banks are huge. They’ve got thousands of salespeople and can underwrite a lot of things we just can’t do. We are not the next Goldman Sachs or J.P.Morgan. We are opportunistically doing what they did.” Kravis adds, “I think we are just in the second or third inning. I’ve worked harder than I’ve ever worked in my life.”

 

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