WSJ.com: Inside look at private equity

Posted Jan 3rd 2007 4:36PM by Tom Taulli
Filed under: Private Equity

The Wall Street Journal Online has a great piece [subscription required] on the legendary private equity firm, Kohlberg Kravis Roberts & Co.

The firm's first deal was in 1979; that is, the $355 million buyout of Houdaille Industries. Of course, now KKR is more accustomed to multi-billion dollar deals -- in 2006, the firm invested about $6.9 billion on 12 deals. What's more, it is eying markets in Europe and Asia.

Along the way, however, things were far from perfect. After all, its $35 billion buyout of RJR Nabisco almost ended in a complete disaster (back in the late 1980s).

Kravis and Roberts agreed to a rare interview with the WSJ.com.

As private equity gets bigger and bigger, the industry realizes it must be much more media savvy.

Kravis and Roberts make some very interesting points. For example, they believe that the growth in private equity is the result of management's desire to focus on the long-term -- not easy in the quarter-by-quarter mania of Wall Street.

This also means that a company can take tough medicine, such as selling-off divisions, firing employees and outsourcing.

In fact, Kravis and Roberts say that not much time is spent on the dealmaking. Rather, more time is spent on improving the operations of the company. Before KKR buys a company, there is an extensive business plan.

So, is there a bubble in private equity? Naturally, Kravis and Roberts say no, indicating that the debt ratios are still reasonable. And, even if there are some billion dollar deals that implode, it is still a small portion of the overall size of global private equity.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates DealProfiles.com.

Tags: George Roberts, GeorgeRoberts, Henry Kravis, HenryKravis, KKR