Yesterday Dan linked to this WSJ interview with Henry Kravis and George Roberts, but I wanted to point out my two favorite parts. I was amazed that Roberts blamed “younger people at the firm” for one of KKR’s 1998 buyout of Regal Cinemas, which went bankrupt three years later:
WSJ: What’s been your least proud moment at KKR?
GR: When you take it as a collection of work as opposed to picking out one deal I’m proud of what we’ve been able to do. I’m not proud of the results of some investments, whether it’s back in the telecom days of “build it and it will come” — we drank our fair share of Kool-Aid then. Or when we didn’t heed our own advice and were persuaded by some of the younger people at the firm to buy Regal Cinemas.
Really? Blaming KKR’s weak turn-of-the-century days on listening to the “younger people?” Of course, the firm has emphasized over the years the way it learned from those mistakes by bolstering operational involvement in the companies it owns (and not hiring anymore know-it-all MBA grads). The change was so dramatic that that Fortune in 2005 declared the firm was “back.”
My other favorite part is of course Kravis’ answer to the same question, which blames the nature of private equity in general instead of Those Damn Kids. He says: “I wish we didn’t own any companies that failed. But that’s not our business. If that were our business we’d buy Treasurys.” To me, that answer implies that bankruptcies are just a necessary evil you have to deal with in this crazy world of private equity, while nicely glossing over the fact that he and his buddies invented private equity.
The rest of the article is a worthwhile read, especially for the guys’ declarations that they’ll keep refinancing portfolio debt until eternity if the capital markets stay open. Roberts points out that for KKR the debt markets have been open for the past five months, which is in line with what most buyout pros are saying (debt is available to large companies, but hasn’t trickled down into the middle market as much).
WSJ reporter Peter Lattman also includes a look at a vintage article on KKR’s first ever deal, the $25.6 million buyout of A.J Industries in the mid-70s. That deal, by the way, made KKR a profit of $66.3 million in its 1985 sale. And where is the first ever buyout deal now? No idea. The firm’s exit must have been a sale to a strategic buyer, as the name wasn’t disclosed in reports at the time and after some WSJ archive digging, I haven’t come across any evidence of the same A..J. Industries or Rokkor Holdings, as they renamed it.