Private Equity Business

Overview

We are a leading global alternative asset manager founded in 1976, with offices in New York, Menlo Park, San Francisco, London, Paris, Hong Kong, Beijing, Tokyo and Sydney.  We sponsor and manage funds that make investments worldwide in private equity and debt transactions on behalf of third-party investors and our firm.

Our private equity business involves sponsoring and managing a group of investment funds that make primarily control-oriented investments in connection with leveraged buyouts and build-ups and other similar investment opportunities. These funds, which we refer to as our “private equity funds,” currently consist of:

• A number of “traditional private equity funds” that have a finite life and investment period. These funds include the KKR 1996 Fund, the KKR European Fund, the KKR Millennium Fund, the KKR European Fund II, the KKR 2006 Fund, the KKR Asian Fund and the KKR European Fund III.
• KKR Private Equity Investors (KPE) which is listed on Euronext Amsterdam and has a perpetual existence and investment period. KPE is focused primarily on making private equity investments through or alongside our traditional private equity funds, but has the flexibility to make other types of ‘‘opportunistic investments,’’ including debt and public equity investments.

Although we also sponsor and manage credit strategy funds that may invest a portion of their capital in equity investments, including private equity, we do not consider these funds an integral part of our private equity business.

Private Equity Approach

Our approach to making private equity investments focuses on generating attractive returns by selecting high-quality investments that may be made at attractive prices, applying rigorous standards of due diligence, implementing strategic and operational changes that drive value creation in our portfolio companies, carefully monitoring investments and developing informed exit strategies. We believe that we have achieved a leading position in the private equity industry by applying a disciplined investment approach and by building strong partnerships with highly motivated management teams who put their own capital at risk. When making private equity investments, we seek out large capitalization companies with strong business franchises, attractive growth prospects, defensible market positions and the ability to generate attractive returns. We do not participate in ‘‘hostile’’ transactions that are not supported by a target company’s board of directors.

Sourcing and Selecting Private Equity Investments

We are frequently introduced to private equity opportunities through our network of contacts in the business and financial communities. We also proactively pursue business development strategies that are designed to generate deals internally based on the depth of our industry knowledge and our reputation as a leading financial sponsor.

To enhance our ability to identify and consummate private equity investments, we have organized our private equity professionals in industry-specific teams that focus on the industry sectors in which we are most active. Industry teams work together across our offices to share ideas and identify potential acquisition candidates. Former operating executives have recently joined our firm to augment our industry teams and lend an additional operating perspective to our investment analyses. We believe that our industry-specific expertise assists us in identifying suitable market opportunities and helps us as we work with company managers to develop value-creating strategies.

Due Diligence and the Investment Decision

In connection with our private equity investments, we conduct a detailed due diligence analysis. The objective of the due diligence process is to identify attractive investment opportunities based on the facts and circumstances surrounding an investment and to prepare a framework that may be used from the date of an acquisition to drive operational achievement and value creation. When conducting due diligence, our investment teams and professional advisors evaluate a number of important business, financial, tax, accounting, environmental and legal issues in order to determine whether an investment is suitable. We spend a significant amount of time meeting with a company’s management and operating personnel, visiting plants and facilities and speaking with customers and suppliers in order to understand the opportunities and risks associated with an investment proposal. Our due diligence practices are monitored by our equity investment committee and often provide insights for creating value once an investment is made in a portfolio company.

Building a Successful Business

Once an investment is made in a portfolio company, we and our operating consultants closely monitor the company’s performance with the objective of driving growth, enhancing profitability and optimizing long-term value for shareholders. We work closely with management teams to define strategic priorities and develop operating budgets, and we encourage our portfolio companies to invest for future competitiveness, improve operating efficiencies, make strategic acquisitions and incentivize employees by giving them ownership in the business. We establish clear monitoring guidelines to measure a portfolio company’s performance and frequently meet with members of management to review the company's financial and operating results and strategic priorities. Our investment teams and portfolio company managers appear before our portfolio management committee at regular intervals to report on their progress and to discuss potential areas of concern and proposed solutions for addressing issues that may arise.

Exiting  Investments

Because we approach our private equity investments with the goal of creating value over the long-term rather than realizing short-term gains through rapid dispositions, we generally hold portfolio companies for a number of years. When we decide to exit an investment, our objective is to structure the exit in a manner that optimizes returns for stakeholders and minimizes the impact that the exit may have on the portfolio company. We believe that our ability to successfully realize investments is attributable in part to the strength and discipline of our portfolio management committee and our longstanding relationships with corporate buyers and members of the investment banking and investing communities.

Case Study

For an example of the benefits that we believe result from our investment approach, please see the case study of our investment in the Willis Group.

Management of Our Private Equity Business in the United Kingdom

We provide management services to our private equity funds pursuant to management agreements. The services we provide include advising the general partners of our private equity funds with respect to origination, investigation, structuring, financing, acquisition, monitoring and disposition of investments. With respect to investments made by our private equity funds in the United Kingdom and Europe, we are assisted in the provision of management services by our wholly-owned subsidiary Kohlberg Kravis Roberts & Co. Limited, an English limited company, which we refer to as our “UK subsidiary.”

Our UK subsidiary is authorized by the Financial Services Authority in the United Kingdom (FSA) pursuant to the Financial Services and Markets Act 2000 (FSMA) and has permission to engage in a number of corporate finance activities regulated under the FSMA, including advising and arranging deals in relation to certain types of investments.  The following members of our firm are based in our London office, leading the team of investment professionals that work for our UK subsidiary:  Johannes P. Huth, Todd A. Fisher, Jacques Garaialde, Reinhard Gorenflos, Oliver Haarmann, Dominic P. Murphy, John L. Pfeffer and Clive Hollick.  For more detailed biographies of these individuals and our other senior executives in the United Kingdom, please click here.