Kohlberg Kravis Roberts

Private Markets

KKR has raised 23 private and growth equity funds with approximately $102.9 billion of capital commitments through December 31, 2017. Its private equity investment strategy typically seeks to engage primarily in management buyouts, build-ups, or other investments with a view to acquire a controlling or significant influence. The firm has sourced several smaller growth equity investments and expanded the business by launching dedicated growth equity funds.

KKR's first dedicated growth equity fund, launched in 2016, invests in the technology, media and telecommunications sector, primarily in the United States, Canada, Europe and Israel. In 2016, KKR also launched its second dedicated growth equity fund to pursue investments in the health care sector, also primarily in the United States. As of December 31, 2017, they have received $2.0 billion of capital commitments to these strategies.

In 2017, they further expanded on their private equity business by making their first core equity investment, targeting investments that have a longer holding period and a lower risk profile.

Energy

KKR's energy business aims to deliver current returns to fund investors through distributions generated by producing and selling oil and natural gas reserves and capital appreciation, and targets real asset investments across the upstream and midstream segments of the oil and gas industry. KKR invests in these energy strategies primarily through the KKR Energy Income and Growth Fund. As of December 31, 2017, they have received $2.9 billion of capital commitments to their energy funds and $1.0 billion of capital commitments to this strategy through separately managed accounts.

Infrastructure

KKR's infrastructure platform seeks to achieve returns including current income through the acquisition and operational improvement of assets important to the functioning of the economy. The platform has made investments in parking, alternative energy, district heating and contracted electricity generation, water and wastewater, locomotive transportation, midstream and telecommunications infrastructure. As of December 31, 2017, KKR had received $4.1 billion of capital commitments to its infrastructure funds and $1.1 billion of capital commitments to this strategy through separately managed accounts and co-investment vehicles.

Real Estate

KKR's real estate platform targets real estate equity primarily in the United States and Western Europe. The firm's equity investments include direct investments in real property, debt, special situations transactions and businesses with significant real estate holdings. As of December 31, 2017, KKR has received $3.9 billion of capital commitments through its real estate equity investment funds.

KKR's real estate credit platform provides capital solutions for complex real estate transactions with a focus on commercial mortgage-backed securities, whole loans and subordinated debt. As of December 31, 2017, KKR managed approximately $2.2 billion of assets in its real estate credit strategy, which include KKR Real Estate Finance Trust Inc. ("KREF"), a NYSE-listed real estate investment trust ("REIT"), and $1.1 billion of capital commitments through a real estate credit fund.

Public Markets

Credit

KKR's credit business invests capital in leveraged credit strategies, including leveraged loans, high-yield bonds, opportunistic credit and revolving credit strategies, and alternative credit strategies, including special situations and private credit strategies such as direct lending and private opportunistic credit (or mezzanine) investment strategies.

Hedge Funds

KKR's hedge fund business consists of strategic manager partnerships with third-party hedge fund managers in which KKR owns a minority stake. As of December 31, 2017, the strategic manager partnerships with third-party hedge fund managers accounted for $26.2 billion of AUM.

BDCs

In December 2017, FS Investments and KKR announced they are pooling together more than $18 billion in private capital to invest in mid-sized businesses, in a push to do bigger deals which are out of reach for other alternative lenders.^[15]

Capital Markets

KKR's capital markets business mainly arranges debt and equity transactions for the firm, its portfolio companies, and third parties.^[16] KKR's capital markets group raised $815 million of debt needed to close the purchase of Mills Fleet Farm in 2016.^[17]

Principal Activities

The Principal Activities segment uses KKR's balance sheet assets to support its investment management and capital markets businesses. KKR uses this capital for general partner commitments and to establish a track record for fundraising purposes in new strategies, such as the approximately $1 billion invested in KKR's real estate business as of 2017.^[18]

Founding and early history

While running the corporate finance department for Bear Stearns in the 1960s and 1970s, Jerome Kohlberg, and later Henry Kravis and George Roberts, completed a series of what they described as "bootstrap" investments beginning in 1964–65. They targeted family-owned businesses, many of which had been founded in the years following World War II which by the 1960s and 1970s were facing succession issues. Many of these companies lacked a viable or attractive exit for their founders as they were too small to be taken public and the founders were reluctant to sell out to competitors and so a sale to a financial buyer could prove attractive.^[19]

Henry Kravis speaking at the World Economic Forum in 2009

Their acquisition of Orkin Exterminating Company in 1964 is among the first significant leveraged buyout transactions. In the following years the three Bear Stearns bankers would complete a series of buyouts including Stern Metals (1965), Incom (a division of Rockwood International, 1971), Cobblers Industries (1971), and Boren Clay (1973), as well as Thompson Wire, Eagle Motors and Barrows through their investment in Stern Metals. Despite a number of highly successful investments, the $27 million investment in Cobblers ended in bankruptcy.^[20]

By 1976, tensions had built up between Bear Stearns and Kohlberg, Kravis and Roberts, which led to the formation of Kohlberg Kravis Roberts & Co. in that year. Most notably, Bear Stearns executive Cy Lewis had rejected repeated proposals to form a dedicated investment fund within Bear Stearns and Lewis took exception to the amount of time spent on outside activities.^[21]

The new KKR completed its first buyout, that of manufacturer A.J. Industries, in 1977. KKR raised capital from a small group of investors including the Hillman Company and First Chicago Bank. By 1978, with the revision of the ERISA regulations, the nascent KKR was successful in raising its first institutional fund with over $30 million of investor commitments.^[22] In 1981, KKR expanded its investor base when the Oregon State Treasury's public pension fund invested in KKR's acquisition of retailer Fred Meyer, Inc. Oregon State remains an active investor in KKR funds.^[19]

KKR closed out the 1970s completing the public-to-private buyout of Houdaille Industries in 1979.^[23] Among the firm's most notable acquisitions during the 1980s buyout boom were the following:

Buyout of RJR Nabisco

After the 1987 resignation of Jerome Kohlberg at age 61 (he later founded his own private equity firm, Kohlberg & Co.), Henry Kravis succeeded him as senior partner. Under Kravis and Roberts, the firm was responsible for the 1988 leveraged buyout of RJR Nabisco. RJR Nabisco was the largest buyout in history at that time, at $25 billion ($31.1 billion, including assumed debt), and remained the largest buyout for the next 17 years. The deal was chronicled in Barbarians at the Gate: The Fall of RJR Nabisco, and later made into a television movie starring James Garner.^[31]

In 1988, F. Ross Johnson was the president and CEO of RJR Nabisco, formed in 1985 by the merger of Nabisco Brands and R.J. Reynolds Tobacco Company, a leading producer of food products (Shredded Wheat, Oreo cookies, Ritz crackers, Planters peanuts, Life Savers, Del Monte Fruit and Vegetables, and Snickers Chocolate) as well as Winston, Camel and Salem cigarettes. In October 1988, Johnson proposed a $17 billion ($75 per share) management buyout of the company with the financial backing of investment bank Shearson Lehman Hutton and its parent company, American Express.^[32][33]

Several days later, Kravis, who had originally suggested the idea of the buyout to Johnson, presented a new bid for $20.3 billion ($90 per share) financed with an aggressive debt package.^[34][35][36] KKR had the support of equity co-investments from pension funds and other institutional investors. Investors included Coca-Cola, Georgia-Pacific and United Technologies corporate pension funds, as well as endowments from MIT, Harvard and the New York State Common Retirement Fund^[37] However, KKR faced criticism from existing investors over the firm's use of hostile tactics in the buyout of RJR.^[38]

KKR proposed to provide a joint offer with Johnson and Shearson Lehman but was rebuffed and Johnson attempted to stonewall KKR's access to financial information from RJR.^{[39][40][41][42]} Rival private equity firm Forstmann Little & Co. was invited into the process by Shearson Lehman but attempted to provide a bid for RJR with a consortium of Goldman Sachs Capital Partners, Procter & Gamble, Ralston Purina and Castle & Cooke.^[43]

Ultimately the Forstmann consortium came apart and did not provide a final bid for RJR.^[44]

In November 1988, RJR set guidelines for a final bid submission at the end of the month.^[45] The management and Shearson group submitted a final bid of $112, a figure they felt certain would enable them to outflank any response by Kravis and KKR. KKR's final bid of $109, while a lower dollar figure, was ultimately accepted by the board of directors of RJR Nabisco.^[46] KKR's offer was guaranteed, whereas the management offer lacked a "reset", meaning that the final share price might have been lower than their stated $112 per share.^[47]

Additionally, many in RJR's board of directors had grown concerned at recent disclosures of Ross Johnson's unprecedented golden parachute deal.^[48][49] Time Magazine featured Johnson on the cover of their December 1988 issue along with the headline, "A Game of Greed: This man could pocket $100 million from the largest corporate takeover in history. Has the buyout craze gone too far?".^[50] KKR's offer was welcomed by the board, and, to some observers, it appeared that their elevation of the reset issue as a deal-breaker in KKR's favor was little more than an excuse to reject Johnson's higher bid of $112 per share. Johnson received $53 million from the buyout.^[51] KKR collected a $75 million fee in the RJR takeover.^[52] At $31.1 billion of transaction value (including assumed debt), RJR Nabisco was, at the time, by far the largest leveraged buyout in history.^[53]

In 2006 and 2007, a number of leveraged buyout transactions were completed which surpassed the RJR Nabisco leveraged buyout in terms of nominal purchase price. The deal was first surpassed in July 2006 by the $33 billion buyout of U.S. hospital operator Hospital Corporation of America, in which KKR participated. However, adjusted for inflation, none of the leveraged buyouts of the 2006–07 period would surpass RJR Nabisco.

Early 1990s: The aftermath of RJR Nabisco

KKR's headquarters in the Solow Building at 9 West 57th Street in New York City

The buyout of RJR Nabisco was completed in April 1989 and KKR would spend the early 1990s repaying the RJR's enormous debt load through a series of asset sales and restructuring transactions.^[54][55][56] KKR did not complete a single investment in 1990, the first such year since 1982. KKR began to focus primarily on its existing portfolio companies acquired during the buyout boom of the late 1980s. Six of KKR's portfolio companies completed IPOs in 1991, including RJR Nabisco and Duracell.^[19]

As the new decade began, KKR began restructuring RJR. In January 1990, it completed the sale of RJR's Del Monte Foods to a group led by Merrill Lynch. KKR had originally identified a group of divisions that it could sell to reduce debt.^[57] Over the coming years, RJR would pursue a number of additional restructurings, equity injections and public offerings of stock to provide the company with added financial flexibility. KKR contributed $1.7 billion of new equity into RJR in July 1990 to complete a restructuring of the company's balance sheet.^[19] KKR's equity contribution as part of the original leveraged buyout of RJR had been only $1.5 billion.^[58][59] In mid-December 1990, RJR announced an exchange offer that would swap debt in RJR for a new public stock in the company, effectively an unusual means of taking RJR public again and simultaneously reducing debt on the company.^[60]

RJR issued additional stock to the public in March 1991 to further reduce debt, resulting in an upgrade of the credit rating of RJR's debt from junk to investment grade. KKR began to reduce its ownership in RJR in 1994, when its stock in RJR was used as part of the consideration for its leveraged buyout of Borden, Inc., a producer of food and beverage products, consumer products, and industrial products.^{[61][62] [63][64]} The following year, in 1995, KKR would divest itself of its final stake in RJR Nabisco when Borden sold a $638 million block of stock.^[65]

While KKR no longer had any ownership of RJR Nabisco by 1995, its original investment would not be fully realized until KKR exited its last investment in 2004. After sixteen years of efforts, including contributing new equity, taking RJR public, asset sales and exchanging shares of RJR for the ownership of Borden, Inc., KKR finally sold the last remnants of its 1989 investment. In July 2004, KKR agreed to sell its stock in Borden Chemical to Apollo Management for $1.2 billion.^[66]

Early 1990s: Investments

In the early 1990s, the absence of an active high yield market prompted KKR to change its tactics, avoiding large leveraged buyouts in favor of industry consolidations through what were described as leveraged buildups or rollups. One of KKR's largest investments in the 1990s was the leveraged buildup of Primedia in partnership with former executives of Macmillan Publishing, which KKR had failed to acquire in 1988.^[67] KKR created Primedia's predecessor, K-III Communications,^[68] a platform to buy media properties, initially completing the $310 million divisional buyout of the book club division of Macmillan along with the assets of Intertec Publishing Corporation in May 1989.^[69][70]

During the early 1990s, K-III continued acquiring publishing assets, including a $650 million acquisition from News Corporation in 1991.^[71] K-III went public, however instead of cashing out, KKR continued to make new investments in the company in 1998, 2000 and 2001 to support acquisition activity.^[72] In 2005, Primedia redeemed KKR's preferred stock in the company but KKR was estimated to have lost hundreds of millions of dollars on its common stock holdings as the price of the company's stock collapsed.^[70]

In 1991, KKR partnered with Fleet/Norstar Financial Group in the 1991 acquisition of the Bank of New England, from the US Federal Deposit Insurance Corporation.^[73] In January 1996, KKR would exchange its investment for a 7.5% interest in Fleet Bank.^[74] KKR completed the 1992 buyout of American Re Corporation from Aetna^[75] as well as a 47% interest in TW Corporation, later known as The Flagstar Companies and owner of Denny's in 1992.^[76] Among the other notable investments KKR completed in the early 1990s included World Color Press (1993–95),^[77] RELTEC Corporation (1995) and Bruno's (1995).^[78]

1996–1999

By the mid-1990s, the debt markets were improving and KKR had moved on from the RJR Nabisco buyout. In 1996, KKR was able to complete the bulk of fundraising for what was then a record $6 billion private equity fund, the KKR 1996 Fund.^[79] However, KKR was still burdened by the performance of the RJR investment and repeated obituaries in the media.^[80] KKR was required by its investors to reduce the fees it charged and to calculate its carried interest based on the total profit of the fund (i.e., offsetting losses from failed deals against the profits from successful deals).^[19]

KKR acquired Regal Cinemas in 1998, only to see the company in bankruptcy by 2000

KKR's activity level would accelerate over the second half of the 1990s making a series of notable investments including Spalding Holdings Corporation and Evenflo (1996),^[81] Newsquest (1996),^[82] KinderCare Learning Centers (1997),^[83] Amphenol Corporation (1997),^[84] Randalls Food Markets (1997),^[85][86] The Boyds Collection (1998),^[87] MedCath Corporation (1998),^[88] Willis Group Holdings (1998),^[89] Smiths Group (1999), and Wincor Nixdorf (1999).^[90]

KKR's largest investment of the 1990s would be one of its least successful. In January 1998, KKR and Hicks, Muse, Tate & Furst agreed to the $1.5 billion buyout of Regal Entertainment Group.^[91] KKR and Hicks Muse had initially intended to combine Regal with Act III Cinemas, which KKR had acquired in 1997 for $706 million^[92] and United Artists Theaters, which Hicks Muse had agreed to acquire for $840 million in November 1997. Shortly after agreeing to the Regal takeover, the deal with United Artists fell apart, destroying the strategy to eliminate costs by building a larger combined company.^[93] Two years later, in 2000, Regal encountered significant financial issues and was forced to file for bankruptcy protection; the company passed to billionaire investor Philip Anschutz.^[94]

2000–2005

Shoppers Drug Mart, the Canadian pharmacy was one of several successful buyouts in the early 2000s^[95]

At the start of the 21st century, the landscape of large leveraged buyout firms was changing. Several large and storied firms, including Hicks Muse Tate & Furst and Forstmann Little & Company were dragged down by heavy losses in the bursting of the telecom bubble. Although, KKR's track record since RJR Nabisco was mixed, losses on such investments as Regal Entertainment Group, Spalding, Flagstar and Primedia (previously K-III Communications) were offset by successes in Willis Group, Wise Foods, Inc., Wincor Nixdorf and MTU Aero Engines, among others.^[19]

Additionally, KKR was one of the few firms that was able to complete large leveraged buyout transactions in the years immediately following the collapse of the Internet bubble, including Shoppers Drug Mart and Bell Canada Yellow Pages.^[19][96] KKR was able to realize its investment in Shoppers Drug Mart through a 2002 IPO and subsequent public stock offerings.^[95] The directories business would be taken public in 2004 as Yellow Pages Income Fund, a Canadian income trust.^[97]

KKR led a consortium in the buyout of Toys "R" Us in 2004

In 2004 a consortium comprising KKR, Bain Capital and real estate development company Vornado Realty Trust announced the $6.6 billion acquisition of Toys "R" Us, the toy retailer. A month earlier, Cerberus Capital Management, made a $5.5 billion offer for both the toy and baby supplies businesses.^[98] The Toys 'R' Us buyout was one of the largest in several years.^[99] Following this transaction, by the end of 2004 and in 2005, major buyouts were once again becoming common and market observers were stunned by the leverage levels and financing terms obtained by financial sponsors in their buyouts.^[100]

In 2005, KKR was one of seven private equity firms involved in the buyout of SunGard in a transaction valued at $11.3 billion. KKR's partners in the acquisition were Silver Lake Partners, Bain Capital, Goldman Sachs Capital Partners, Blackstone Group, Providence Equity Partners, and TPG Capital. This represented the largest leveraged buyout completed since the takeover of RJR Nabisco in 1988. SunGard was the largest buyout of a technology company until the Blackstone-led buyout of Freescale Semiconductor. The SunGard transaction was notable given the number of firms involved in the transaction, the largest club deal completed to that point. The involvement of seven firms in the consortium was criticized by investors in private equity who considered cross-holdings among firms to be generally unattractive.^[101][102]

Since 2005 and the Buyout Boom

In 2006, KKR raised a new $17.6 billion fund the KKR 2006 Fund, with which the firm began executing a series of some of the largest buyouts in history. KKR's $44 billion takeover of Texas-based power utility TXU in 2007 proved to be the largest leveraged buyout of the mid-2000s buyout boom and the largest buyout completed to date.^[103] Among the most notable companies acquired by KKR in 2006 and 2007 were the following:

Other non-buyout investments completed by KKR during this period included Legg Mason, Sun Microsystems, Tarkett, Longview Power Plant, and Seven Network. In October 2006, KKR acquired a 50% stake in Tarkett, a France-based distributor of flooring products, in a deal valued at about €1.4 billion ($1.8 billion). On November 20, 2006, KKR announced it would form a A$4 billion partnership with the Seven Network of Australia.^[117] On January 23, 2007, KKR announced it would invest $700 million through a PIPE investment in Sun Microsystems.^[118] In January 2008, KKR announced it had made a $1.25 billion PIPE investment in Legg Mason through a convertible preferred stock offering.^[119]

In addition to its successful buyout transactions, KKR was involved in the failed buyout of Harman International Industries (NYSE: HAR), an upscale audio equipment maker. On April 26, 2007, Harman announced it had entered an agreement to be acquired by KKR and Goldman Sachs.^[120] As the financing markets became more adverse in the summer of 2007, the buyout was on tenuous ground. In September 2007, KKR and Goldman backed out of the $8 billion buyout of Harman. By the end of the day, Harman's shares had plummeted by more than 24% upon the news.^[121]

Selected Kohlberg Kravis Roberts 2006–2008 Investments

Hospital Corporation of America 

NXP Semiconductors 

Dollar General 

Alliance Boots 

TXU 

Sun Microsystems 

Legg Mason 

Initial public offering

In 2007, KKR filed with the Securities and Exchange Commission^[122] to raise $1.25 billion by selling an ownership interest in its management company.^[123] The filing came less than two weeks after the initial public offering of rival private equity firm Blackstone Group. KKR had previously listed its KPE vehicle in 2006, but for the first time, KKR would offer investors an ownership interest in the management company itself. The onset of the credit crunch and the shutdown of the IPO market dampened the prospects of obtaining a valuation attractive to KKR. The flotation was repeatedly postponed, and called off by the end of August.^[124]

The following year, in July 2008, KKR announced a new plan to list its shares. The plan called for KKR to complete a reverse takeover of its listed affiliate KKR Private Equity Investors in exchange for a 21% interest in the firm.^[125] In November 2008, KKR announced a delay of this transaction until 2009. Shares of KPE had declined significantly in the second half of 2008 with the onset of the credit crunch. KKR has announced that it expects to close the transaction in 2009.^[126] In October 2009, KKR listed shares in KKR & Co. on the Euronext exchange, replacing KPE and anticipates a listing on the New York Stock Exchange in 2010. The public entity represents a 30% interest in Kohlberg Kravis Roberts. In October 2010, KKR acquired about nine members of Goldman Sachs Group proprietary trading team after entertaining offers from investment firms such as Perella Weinberg and Blackrock. With Goldman shutting down its proprietary trading operations, its executives, led by Bob Howard, will help KKR expand beyond leveraged buyouts into areas such as hedge funds.

2010 to present day

In January 2014, KKR acquired Sedgwick Claims Management Services Inc for $2.4 billion from two private equity companies - Stone Point, and Hellman & Friedman.^[127]

In June 2014, KKR announced it was taking a one-third stake in a Spanish energy business of Acciona Energy, at a cost of €417 million ($567 million). The international renewable energy generation business operates renewable assets, largely wind farms, across 14 countries including the United States, Italy and South Africa.^[128]

In August 2014, KKR announced it was investing $400 million to acquire Fujian Sunner Development, China's largest chicken farmer, which breeds, processes and supplies frozen and fresh chickens to consumers and corporate clients, such as KFC and McDonald's, across China.^[129]

In September 2014, the firm invested $90 million in a lighting and electrics firm Savant Systems.^[130]

In January 2015, KKR confirmed its purchase of British rail ticket website thetrainline.com, previously owned by Exponent. The purchase sum is unknown.^[131]

On October 12, 2015, KKR announced that it has entered into definitive agreement with Allianz Capital Partners to acquire their majority stake in Selecta Group, a European vending services operator.^[132]

In 2016, Kohlberg Kravis Roberts purchased 2 Hispanic Chains: Northern California Mi Pueblo along with Ontario, California–based Cardenas.

In February 2016, KKR invested $75 million in commercial real estate lender A10 Capital.^[133] On September 1, 2016, KKR announced that it had acquired Epicor Software Corporation, an American software company.^[134]

In October 2016, it was reported that KKR invested $250 million in OVH to be used for further international expansion.^[135] This funding round valued OVH at over $1 billion, making it a unicorn.

In December 2016, the Lonza Group announced it would acquire Capsugel for $5.5 billion from Kohlberg Kravis Roberts.^[136]

In February 2017 KKR were reported to be trying to take over the international market research company ARI GfK SE.^[137] In July of the same year KKR acquired WebMD Health Corp for $2.8 billion^[138] and in August acquired PharMerica for $1.4 billion including debt,^[139] Pepper Group for $518 million,^[140] Covenant Surgical Partners,^[141] and Envision Healthcare Corporations ambulance business for $2.4 billion.^[142]

In July 6, 2017 KKR announced it would merge Northern California Mi Pueblo and Ontario-Based Cardenas Market

On September 18, 2017, Toys "R" Us, Inc. filed for Chapter 11 bankruptcy, stating the move would give it flexibility to deal with $5 billion in long-term debt, borrow $2 billion so it can pay suppliers for the upcoming holiday season and invest in improving current operations.^{[143][144][145]}

On July 22, 2018, KKR & Co. announced it is taking over Taipei-based LCY Chemical Corp. in a deal valued at NT$47.8 billion ($1.56 billion US), part of a plan for more transactions involving controlling stakes in the Greater China region. ^[146]

In July 2018, it was announced that KKR sold Gallagher Shopping Park, West Midlands in the UK to South Korean investors, Hana for £175 million.^[147]