Investment Processes
Each year our investment teams review hundreds of potential
acquisition opportunities. Only a handful ultimately become
KKR portfolio companies.
KKR’s comprehensive due diligence process includes
assessments of a company’s management team, market position,
and prospects for growth. Our investment professionals spend
a significant amount of time with senior managers to understand
fully the opportunities and risks of a business and their
vision for the company going forward. We visit plants and
other facilities to review the business with manufacturing
executives, purchasing managers, marketing people, and sales
personnel – among others. We talk to customers, suppliers,
and industry experts. This approach to due diligence reflects
our conviction that long-term value creation is the consequence
of an investment thesis based on detailed industry and operational
knowledge rather than financial engineering.
When an investment team concludes that a business is worthy
of serious consideration, the opportunity is presented to
the firm’s Investment Committee. Reviewing all proposals
globally, the Investment Committee brings discipline and organization
to decision-making about new investments. The committee consists
of Messrs. Kravis and Roberts and several of the firm’s
most experienced investment professionals. Between the first
Investment Committee presentation and a final investment decision,
a deal team makes several presentations to the committee,
providing updates on due diligence and seeking advice on valuation
and tactics for negotiating.
Capstone often assists the Investment Committee by providing
an additional assessment of a particular company and the competitive
dynamics of the market in which it operates. By identifying
opportunities for increasing revenue and cash flow during
the due diligence phase, KKR and its portfolio companies are
able to drive growth and improvements as soon as a deal closes.
Once KKR has acquired a company, the firm’s Portfolio
Management Committee begins its work of reviewing and monitoring
performance. The group consists of senior KKR investment professionals
and senior advisors to the firm, with Capstone participating
in the work of the committee. Like Investment Committee meetings,
Portfolio Management Committee meetings are highly interactive,
and the discussions of operational issues are one of the ways
that KKR’s senior executives and advisors pass on accumulated
knowledge to the firm’s younger professionals.
A key responsibility of the Portfolio Management Committee is reviewing the 100-day plan for new acquisitions.
Each plan sets forth the steps that KKR and company management have agreed are necessary to achieve immediate operational
goals. Our 100-day plans are very detailed and assign specific responsibilities to managers, KKR professionals,
and Capstone executives.
Three months after a transaction closes, the deal team returns
to the Portfolio Management Committee to present a progress
report and plans for the rest of the year. The team also submits
monthly and quarterly financial reports, and sometimes a senior
executive of the portfolio company, typically the CEO, presents
an update to the committee.
Creating significant value in a portfolio company generally
takes several years. The Portfolio Management Committee works
with each deal team to determine the optimum timing and structure
for exiting an investment. The strength of the company and
the effectiveness of its management are central concerns in
this decision. KKR’s longstanding relationships with
the investment banking community and corporate buyers enhance
our ability to complete IPOs, secondary offerings, and sales
to strategic buyers.
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