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

Written by George P. Baker.

I bought it and read it on a kindle


The book describes KKR chronologically and from many angles. You get a rare insigth into the deals, structures and huge profits. The financial engineering is fascinating.

I learned about KKR from reading the book Barbarians at the Gate where the company plays a major part in financing a deal for RJR Nabisco, but that book ends where KKR begins to work their magic. KKR is a financial company which identifies companies that can be optimized. They put their money where their mouth is by buying the companies together with other passive investors, and they then attempt to repair the companies and sell them back.

KKR uses a technique of only paying for a small fraction of a company, but buying the rest with big loans secured against that same companies futures earnings. This is called a leveraged buy out.

This book takes the reader through how a leveraged buy out works in detail. You get to learn how they can work wonders and what makes them fail.

I was fascinated to learn that the big profits come not from doing the actual leveraged buy out, but rather the restructuring that follows and then selling the company back to the public or a new strategic owner. In short KKR earns money for their investors buy takeing over companies and paying for them with their own cashflows, while also increasing the value of the company.

Many examples of 40-50% yearly compunded returns testify to the talent on staff at KKR. They also mock the slow fat companies that were waiting for someone to come by and make them lean and effective organisations. But after restructung them they can continue to provide for their employees and community for a long time to come.

I realise that the book gives a one sided and positive view of the company, but I agree with the underlying idea, that the market itself is able to identify and repair companies that are slowly failing or run badly.

If you have an interest in big finance, then this is a great book. It is very detailed and focuses solely on KKR and the deals that they made. It goes through explaining leveraged buy out techniques, tax codes and company structures, but it is not a general introduction. If you are not already comfortable with these terms and concepts, then you should come back to read this book at another time.

Written by Vincens Riber Mink on 19 February 2016