Sunday, February 01, 2009

On Private Equity: G.M.C. Fisher, KKR & Company

G.M.C. Fisher talked about his experience within the Private Equity industry at KKR & Co. His opening theme was that Cash Is King- the cornerstone of the Private Equity industry. It also dovetails with my own experience of dealing with and highlighting strategic risks with a supplier with cash issues that filed for chapter 11 bankruptcy.

KKR & Co.’s Integrated Model
He then focused on the firm’s integrated model of value creation. As a senior advisor, he believes advisors had a great deal of flexibility at KKR. The portfolio committee focuses on operational improvements and the investment committee focused on deal making. There is also an independent audit committee in place. The Capstone team at KKR performs the strategy function.

The key component of the operations strategy is the 100 day plan. Quarterly reviews serve as reality checks against overcommittment by an eager management team. Business transformation is quicker and easier in this context. Similar to conglomerates, the role of a Chief Talent or HR office is critical in a private equity company.

Fisher talked about the PanAmSat deal where Carlyle and KKR formed a consortium. In a portfolio company, the focus is on the assets of the company, and planning debt maturities (requires modeling at the tranche level).

The Questions
This leads to some questions about the investing process:
1. What would be the criteria for dropping a deal after the screening process indicates that the target would make an effective standalone investment? What would make KKR walk away from an opportunity where the numbers from the screening and the models indicate a strong investment opportunity?
2. Do PE companies increase employment?

The talk made me wonder how my company’s supplier, who I believed needed to be dropped from the supplier list, would flow through this organization structure as an investment. Are there companies out there you believe will gain from a private equity acquisition?

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

No comments: