The New Financial Capitalists: Kohlberg Kravis Roberts and the Creation of Corporate Value

by George P. Baker, George David Smith

A widespread misunderstanding concerning leveraged buyouts (LBOs) is the belief that they accomplish little but the ruin of companies and the loss of employment. How else could it be? Until recently, journalists, including much of the business press, have depicted LBO specialists as generally greedy, if not sinister, forces whose activities compound the dislocations of modern American economic and social life. This kind of criticism reached a crescendo in the press and in Congress at the end of the 1980s, and Kohlberg Kravis Roberts found itself in the middle of the controversy. Based on interviews with partners of the firm and on unprecedented access to KKR's records, George P. Baker and George David Smith have written a definitive account of how KKR has approached LBOs in a book that will appeal to the specialist and general reader alike. The authors focus on KKR's founding, evolution, and innovations as ways to understand issues in modern American business. In examining KKR as a unique form of enterprise--one that subscribes to a set of alternative perspectives on business and value creation--the book bridges the gap between public perception and academic knowledge of how financial innovation impacts economic life. The firm's approach to leveraged buyouts was an important aspect of the corporate restructuring and governance reforms in the American economy from the mid-1970s through 1990 (the years of what some have called the "leveraged buyout movement"). KKR and other companies fundamentally altered the prevailing perception of the role of debt in the modern American corporation and established an alternative model for organizing and managing corporate enterprises. KKR financed the companies it acquired with high levels of debt, while linking their ownership to management. It then imposed rigorous monitoring by the board of directors over the companies in its portfolio. This combination of factors forced managers to concentrate not on growth but rather on how to achieve value through whatever means was most appropriate to the company's circumstances. The purpose of the leveraged buyout was to realize, or "create," value in companies by reforming their management systems. KKR's approach to restructuring the relationship between owners and managers in a highly leveraged firm rested on a basic principle: Make managers owners by making them invest a significant share of their personal wealth in the enterprises they manage, and they will have stronger incentives to act in the best interests of all shareholders.

Genres: Finance, Business, Nonfiction

272 pages, Hardcover

First published October 13, 1998

Reviews

[Sheela · Rating 3 out of 5]

I was a little disappointed with the book. To be fair, it was very well researched and was not tied down with jargon, however, it felt like a love letter to KKR. I would have liked a more critical look at some of their failures, as well as reactions to public outcry over some of their takeovers like Safeway. The book was still very interesting, but I wouldn't call it an unbiased look at their history of leveraged transactions.

[Max Hoffman · Rating 3 out of 5]

It’s fine. It’s a really niche book that is hyper focused on one company (KKR) and its practices and history. Some of the case studies were interesting. The book is fairly short (~200 pages) but probably could’ve been even shorter with less technical jargon

[Antonio Porras · Rating 5 out of 5]

Great story about one of Wall Street's very own...KKR.

[Matt Austin · Rating 4 out of 5]

This was a great book from start to finish and it helps shed more light on the modern day LBO. In particular, the authors discuss the long-term success of KKR. LBOs are often frowned upon, but this book shows why they can actually be helpful in turning around a company, increasing shareholder wealth, and maximizing investor returns. In addition, the authors provide a great analysis of the shifts in Capitalism, credit booms, and the downfalls of LBOs.

I highly suggest this book. It's a quick read and is very insightful.

[Nablamax · Rating 5 out of 5]

Interesting read, really shows how leverage and debt improve market efficency if done right.

Authors tried their best to hide the emotional impact of the LBO's "slice and dice" on customers and employees. I would rather have them show some intelectual honesty and label it "cost of doing business". I'm fine with that.

[DJ Satoda · Rating 4 out of 5]

Fantastic profile on one of the most innovative and important firms in the history of American business.

Definitely worth a read, although worth noting that the authors really dive deep on the financial nuance / structures of KKR’s deals, which is definitely interesting for some but may be TMI or hard to follow for others

[Alex]

The New Financial Capitalists : Kohlberg Kravis Roberts and the Creation of Corporate Value by George P. Baker (1998)

[Jose · Rating 4 out of 5]

Great reading about the beguining of private equity firms. KKR, for instance was born within investment banking.

[Harsh Thaker · Rating 5 out of 5]

KKR - Financial Engineering Marvel !