Among the towering legends of finance are such names as J.P. Morgan, E.H. Harriman, Andrew Mellon and Felix Rohatyn. But the list could arguably also include Henry Kravis, George Roberts and Jerome Kohlberg. Back in 1976, they created an innovative firm called KKR. And today, they realized one of the top dreams of all entrepreneurs: going public. Their firm is now trading on the New York Stock Exchange under the ticker KKR.
The leveraged buyout has been KKR's calling card. By using large amounts of debt, KKR purchases companies and then restructures their operations. Over time, KKR's investors reap significant returns from public offerings, recapitalizations and mergers.
While Kohlberg is no longer with the firm, Kravis and Roberts are still fully engaged (both are cousins and are 66 years old).
A Much-Expanded Business
Over the years, KKR has certainly undergone much change. First of all, the platform is much more global. It has offices in 14 major cities like New York, Menlo Park, Calif., San Francisco, London, Paris, Hong Kong, Tokyo, Beijing, Seoul, Mumbai and Dubai. This is critical as higher returns are often found in fast-growing emerging markets.
KKR has also expanded into new categories. For example, its Private markets segment helps manage and sponsor investment funds and co-investment vehicles. It has made a successful foray into direct investments in natural resources assets. Take KKR's deal for East Resources. Within about a year after the investment, KKR sold out to Royal Dutch Shell for a tidy $4.7 billion. KKR's take was $1.5 billion.
Another key business is the Capital Markets division. This group provides sophisticated financial advisory advice for debt and equity financings, underwritings and the structuring of new investment products.
Buyouts Today: Slow but With Bright Spots
Yet, the fact remains that KKR gets a large amount of its profits from buyouts. And despite slow activity in that segment, there are some bright spots. After all, valuations are much better, and KKR has enough capital to pull off deals.
What's more, the firm has proven adept at getting hefty returns from public offerings. Just look at recent deals like Dollar General (DG) and Avago (AVGO). These IPOs are up 32% and 50%, respectively.
Going into the fall, KKR has other strong IPO prospects like HCA and Toys R Us. By all accounts, it looks like these deals will get traction in the markets. If so, this could mean a nice boost in earnings and a catalyst to perhaps to move the fledgling stock price.
Investing in Startups
The lucrative and risky world of startups.View Course »