Back in mid 2007, something unusual happened. That is, major private equity funds couldn't get funding for their deals. Yes, it was an ominous sign, which propelled the credit crunch and led to a grinding recession.

Now, the doom-and-gloom is fairly pervasive. In fact, there's talk that private equity is headed for a mega bust.

But, might this be an exaggeration? This is the sentiment of one of the legends in private equity, KKR's Henry Kravis.

After all, private equity has survived some tough times, such as the early 1980s (the prime rate reached 21%, after all). Oh, and there was the S&L implosion during early 1990s.

Continue reading Henry Kravis waxes on private equity

Henry Kravis waxes on private equity originally appeared on BloggingStocks on Mon, 02 Feb 2009 14:58:00 EST. Please see our terms for use of feeds.

KKR is the firm that pioneered the private equity business getting its start in the mid 1970s. Over the years, the firm has established 14 funds and generated average returns of 20% (net of fees).

Lately, though, KKR has come under attack (as have many other private equity operators). So, when the firm's Private Equity Investors holding, which is publicly traded in Amsterdam, had its conference call recently, Henry Kravis talked about the state of private equity.

It was not an easy talk since the fund had to mark down the valuations of seven holdings. In fact, the return of the portfolio was a horrible -0.1% last year, and the fund is trading at a 38% discount to its net asset value.

Simply put, Kravis says that dealmakers will need to be creative. This means locating capital from alternative sources, such as private investors and hedge funds. There will also be more minority investments.

Kravis also stressed that KKR will continue to stick to its investment philosophy. This means focusing on companies that have stable revenues, diversified global platforms and room for operational improvement.

More importantly, Kravis said that the private equity business is about the long-term. If anything, the best opportunities are when markets are in the midst of dislocations - which is certainly the case now.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

KKR's Henry Kravis: experience shows that private equity works...over the long-term originally appeared on BloggingStocks on Mon, 03 Mar 2008 12:45:00 EST. Please see our terms for use of feeds.

The New York Times [registration required] reports that KKR partner, Henry Kravis, is belatedly and ineffectively entering the battle to keep Congress from raising his taxes. At issue is the 15% capital gains rate which private equity firms pay on the 20% of the profits their funds generate, known as carried interest. Congress wants to tax this 20% as ordinary income -- meaning Kravis and his pals would pay a 35% tax.

Despite his arguments about the jobs KKR created in Rep. Sander Levin's home state of Michigan and his claim that a tax increase could hurt the investment returns of the pension funds which invest in KKR, Kravis appeared not to have dissuaded Levin in his drive to raise the tax rate from 15% to 35%.

I wrote an e-mail to Rep. Barney Frank (D-MA) who chairs the House Financial Services Committee. My suggestion, on which I posted earlier, is that the real problem is that private equity firms and their bankers get rich by taking risks -- such as borrowing too much money -- and they often leave society to pay the costs of failed deals -- as they did with the $150 billion bailout of the junk-bond fueled collapse of the Savings & Loan (S&L) industry.

Continue reading Private equity's taxing matter

Private equity's taxing matter originally appeared on BloggingStocks on Wed, 11 Jul 2007 10:30:00 EST. Please see our terms for use of feeds.

On the heels of the Blackstone Group LP (NYSE: BX) IPO, which will raise over $4.1 billion, buyout firm Kohlberg Kravis Roberts & Co. is looking at a public offering of its own. The amount that would be taken in is a more modest $750 million.

Much of the media coverage surrounding the Blackstone deal revolves around how rich it will make the founders and management of the firm. Investors have to wonder if the company needs to actually raise money for the core business. Debt capital is readily available and many transactions were public companies are taken private only have a 10% equity component. The balance of the dollars are borrow.

KKR has a number of executives who have been with the firm for very long periods, and an IPO would let them realize the fruits of their efforts. KKR was founded in 1976. Since then the firm has completed more than 150 transactions with an aggregate enterprise value of over $279 billion. Founder Henry Kravis is one of the grand old men of the industry.

Several observers have speculated that IPOs of these private equity firms may mean a "top" for the industry, the smart money heading for the doors. But, that may be no more true for KKR or Blackstone than it was for a company like Google (NASDAQ: GOOG). The founders of the search engine company have been selling a portion of their shares for over two years. If the company were private, getting some return on their work would be much harder.

Douglas A. McIntyre is a partner at 24/7 Wall St.

KKR IPO for partners to cash out? originally appeared on BloggingStocks on Fri, 22 Jun 2007 09:42:00 EST. Please see our terms for use of feeds.

Texas Pacific Group's (TPG) David Bonderman and KKR's Henry Kravis got a civic lesson yesterday. These buyout wizards met with the Texas House Committee on Regulated Industries on the issue of TXU (NYSE:TXU). Four proposed board members of TXU were there too: Don Evans, former U.S. Secretary of Commerce; James Huffines, Chairman of Plains National Bank Central Region; Ambassador Lyndon Olson, a former member of the Texas Legislature; and William Reilly, former Administrator of the U.S. Environmental Protection Agency.

The message: don't pass legislation that would require a regulatory review of the mega deal.

Hey, but don't politicians like to intervene -- especially when it concerns what consumers may ultimately pay?

Definitely. And it does look like the legislation is getting traction.

This does not mean the deal is doomed. Basically, it looks like TPG and KKR will need to make even more concessions, such as selling off assets and not piling debt on the regulated business units. TXU will also need to report its quarterly filings to the SEC.

The big problem is that the legislation will probably delay the process even more. And that's why TXU's stock has been lagging.

While the buyout offer is $69.25, TXU's stock is currently trading at $63.90.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

More cracks in the TXU deal originally appeared on BloggingStocks on Wed, 21 Mar 2007 12:07:00 EST. Please see our terms for use of feeds.

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.

Continue reading WSJ.com: Inside look at private equity

WSJ.com: Inside look at private equity originally appeared on BloggingStocks on Wed, 03 Jan 2007 16:36:00 EST. Please see our terms for use of feeds.

Once upon a time, back in the late 1980s, management of RJR decided to buyout the company. It did not take long until other buyers came to the table - as the stock price soared. The deal eventually turned into history's biggest leverage buyout (LBO). The drama became a best-selling book, Barbarians at the Gate, as well as an HBO movie.

Could the same story be developing at HCA, which recently decided to an LBO? Well, according to a Wall Street Journal story, it appears that the Blackstone Group, which is a top private equity firm, is in the early stages of making a bid.

It would not be cheap. After all, it will need to top the existing offer of $21.3 billion. Even in the universe of master dealmakers, this is still a lot of dough.

Does this mean investors should buy HCA stock? Not really. Blackstone still needs to arrange financing, as well as bring other private equity firms to the table.

Besides, Wall Street pros are skeptical that a bidding war will break out, as the stock price is below the existing $51 offer.

I'm always leery to say "this time is different." But those who are running mega private equity firms are seasoned (such as Henry Kravis of KKR). Some still remember the excesses of the late 1980s and do not want to repeat them.

It's certainly good news for private equity firms, which are likely to get good deals on companies. But, as for public shareholders, they probably will not get nice premiums on these deals.

Barbarians storming HCA -- Should you buy the stock? originally appeared on BloggingStocks on Wed, 26 Jul 2006 09:28:00 EST. Please see our terms for use of feeds.