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If you like Henry Kravis's story, you might also like:
Ray Dalio,
Michael Eisner,
Rudolph Giuliani,
Stephen Schwarzman,
Carlos Slim,
Dennis Washington
and Sanford Weill

Henry Kravis's recommended reading: Escape From Freedom

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KKR & Co.
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Henry Kravis
Henry Kravis
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Henry Kravis Interview (page: 4 / 5)

Financier and Investor

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  Henry Kravis

What keeps you going?

Henry Kravis: I like to succeed. I don't want to fail. And I said to you earlier, the fear of failure drives a lot of people. That probably is part of what drives me. I know there will be things that I'll fail at, but overall I don't want to be a failure. And I come back to the challenge again. You know, why am I in a hurry? Why do I work as hard as I work? I do it because I enjoy it. I don't have to do it, obviously. But I enjoy it. I enjoy creating something -- financial creation. I'm not an artist or a musician, but creating something that hasn't been done before, I enjoy that. We have a lot of people at this firm, and we are all built more or less alike. We love to succeed. There is nothing that gives greater pleasure than success.

[ Key to Success ] Passion

How do you measure success? How do you measure achievement?

Henry Kravis: I measure it by accomplishing the goals I set out for. They can be goals that are monetary goals. They can be goals that are personality-related. I'm going to get this person, this manager, to think differently. I'm going to get this person to start thinking longer term. I'm going to get this person to be more competitive, to have a different purpose. If I can accomplish those kinds of goals, that's success. Money? That's a way to keep score. Its important, but believe me, its not the end-all at all. You get to a certain level, and how much money can you spend? What's more important is, I don't want to let down our people here. I don't want to let down the people in the field. We have owned 38 different companies.

Today, we have a portfolio of some 15 or 16 companies. We have hundreds of thousands of employees in these different companies, with about 40 billion dollars in revenue. They are counting on us. These people's livelihood depends, in part, upon decisions that we make. I don't want to let those people down. I want to do what I hope is the right thing. Yes, there is some pain going through it. Yes there is some terminations early on, but in the long run, if we can make a company more competitive, and leaner, and more profitable, they eventually are going to hire more people, because they are going to grow. And they are going to be able to make acquisitions, down the road, sensible acquisitions.

[ Key to Success ] Vision

That's another success. That's another goal we set out for ourselves. If we can accomplish that, and make even a handful of companies more successful, and more competitive, then those can be used as models as we go forward.

Why the leveraged buyout? What inspired that role you seem to have assumed in American economic life?

Henry Kravis: I wanted to pick a niche. When we started in the late '60s. we bought family companies that said, "Look, I've got an estate problem. I've got a son in the business, maybe he's good, maybe he's not good, I really don't want to sell out to big XYZ company because I like the fact that our company has been a family company for 50 years. I don't want to go public, I don't want to have a public company."

We created this concept, letting the management basically have their cake and eat it too. Let its owner sell out and, at the same time, continue on in a management role, with an ongoing equity stake. The family may have owned 100 percent of the company initially, and we may buy the company and let him and his family own 20 percent of it and continue to run it. He's solved his estate problems, he's solved the succession problem in part, because we are there now, and he doesn't have to make the tough decision. A lot of fathers can't make that decision. They know their son or daughter is not really up to the task, but they don't want to be the one to make that decision. They want somebody in between to make that decision. They can say, "It wasn't my decision. I sold the company, and it really was up to KKR, or whoever else bought the company." So LBOs in those days were called management buyouts, because the management was such an integral part of it. The concept was really developed to take care of estate problems.

From that point, it grew to buying divisions and subsidiaries of public companies, when a public company decided it didn't want a business any more, but they didn't want to sell it to a big company. It was a way for the management to become an owner, run their own show. That led to the first public company buyouts. was Our first acquisition of a publicly owned company was A.J. Industries on the New York Stock Exchange in 1977. The purchase price was $26 million. That's how it developed.

You made some of the biggest deals in the history of this country. What were you thinking about? In RJR Nabisco, you were sitting around the table talking about billions of dollars. What's going through your mind?

Henry Kravis: It's funny. I never thought that was such a big deal when we made the offer. It wasn't until I woke up after we bought it and thought, "That was really a big deal." That wasn't the issue. That isn't how we look at things. We didn't say, "Gee, we want to buy the biggest company in the world, so we've got to own this company." No. If the company didn't make sense, or the price didn't make sense, or we couldn't do the financing on the proper terms, we wouldn't have done it. It would have been as simple as that. We had other issues on our minds.

First of all was the smoking issue. No one at KKR smoked. And so we had to wrestle with that. Did we want to own a company that was in the tobacco business? If we end up buying a company of this size, and this visibility, it had to work. Because it is under a microscope, and everybody in America is waiting for this thing to fail. And we never doubted that it would succeed. We knew that it would succeed. We wanted to make sure the capitalization of the company was proper so that if there was a hiccup in the earnings, it had a fallback.

The companies that have gotten into trouble are those that have razor thin margin for error. Murphy's law -- something is going to go wrong. Things never work out exactly as you plan them. You've got to make room for the possibility that things will not be exactly as you had hoped or as you had planned. We built that into that capital structure. Visibility was a big issue with us. What did it mean to our families? What did it mean to our private life? Particularly George Roberts and myself. It was something that both of us wrestled with a lot. How was Washington going to view this? How would this be accepted by senators and congressmen? Were they going to be after us because we had made this large acquisition? We didn't start it. It was started by the management of the company. We came in and succeeded in buying it. These were the things that went through our minds, much more than "Gee, it's $25 billion." We said, "Because it's $25 billion, and because we are borrowing $14 billion from the banks in bank debt, then if this fails, we don't want to be the ones known to brought down the banking system. We have to make this work."

On that day, at that moment, when the bid was accepted, when the deal was closed, how did you feel?

Henry Kravis: There really were two days, two points in time that were very important. One was the day after a very long, long day and all night we had been up. We thought we had an agreed-upon deal. The other group came back and started raising their bid. That threw the board of directors into turmoil. They spent from eight in the morning until seven that night debating. Did they want to take Ross Johnson/Shearson's offer, or did they want to take the KKR offer. I felt enormous relief whey came out and said alright. You won. They'd come out earlier and said, "We will pay you an enormous fee (I think it was something like 250 million dollars) to give us two more weeks to decide who to pick." We didn't blink an eye. We said, "Absolutely not. You've got until today and that is it. We want to own this company. We are not in it for the fee business. We are in it because we want to own this company. We are not giving you any more time at all." That was all documented in Barbarians At The Gate. In hindsight, we stuck to our principles. We are in the business of buying companies and owning the equity, and putting our own money up, and making the company better. That's the opportunity we wanted. We stuck to it, and we ended up being successful in buying the company. I felt great relief and great excitement for our whole team, because this firm was brought so much closer together. Our advisors were brought much closer together with us. Particularly Dick Beattie, who was our lead counsel. He's the chairman of Simpson, Thatcher, and Bartlett, and just a wonderful human being. And that was great pleasure for us. Our accountants lived with us, from Deloitte, Haskins and Sells. So that was all great excitement and relief. The second time was the day that the tender offer was actually accepted and we had enough shares in and we actually took control of the company.

I guess there was a third period, which was in between, which was the day that the bank financing had to be in, and we were concerned. Would we get enough bank financing? I had gone all over the world. I was in Europe, and I had been in Japan, and in the States with a couple of my associates, raising this bank financing. And it was the day that that had to come in, and we had large amounts of commitments coming in. And we far exceeded what we had thought, and that was a great revelation. Because if we didn't get that, we didn't know what we were going to do. We went to every bank in the world practically of size.

What did you say to your father that day, when the deal was done?

Henry Kravis: The day that the bid was accepted was the day before my mother's 80th birthday. I was supposed to go down to Florida, and I had to call them, and I said, "I can't come down the night before, because we are in the middle of this thing, but we will be down for your birthday." It was just great joy, and great excitement for me to call them, and to tell them that the bid had been accepted. And to call my wife and my children and tell them. That brought to me a great emotional feeling from within. That the people I love most in the world, were as excited as I was about that.

When you have a bid accepted, or you get a transaction closed, the actual closing is anticlimactic. It's the time that the bid is accepted, or the time that you get the financing, as in the case of RJR. In the others it wasn't as big a concern because they were smaller, and there was a lot of money available in those days. How times have changed today. I remember we were buying Storer Communications, and we had a bid that had been accepted, and a signed contract, and out of left field comes another group, and they made a higher bid and started a tender offer.

Henry Kravis Interview Photo
The board called a halt to both of us, and said we are going to have you both down to Miami, and we are going to decide. We changed our bid, and I said to the board, you have until five o'clock today to accept our offer. One of the directors of Storer said to me, "What happens if we go past five? I said, "You go past five, our offer is withdrawn. Because at five o'clock, I am leaving here and getting on an airplane to Nairobi. My wife has been in Africa five days ahead of me., I was supposed to have gone with her. Because you have now opened the bidding up again, after we had a signed contract with you, she has gone ahead." This was a vacation that we planned for several years. And I said, "You can make your decision, you make up your mind in that period of time." If you give them more time, they are just going to fill the time anyway. So they said, "We will do the best we can."

Sure enough, at five o'clock they came back and said, "You won." And I said to our attorneys who were down there and a couple of my associates, "You've got to stay and get the contract signed again," and they said, "Fine, we'll do that." And I went out to the airport, and got on the British Airways flight, and I was sitting down, and just ordered a drink, and was just feeling great. Finally this big load off my shoulders. The stewardess came up to me, and she said, "Mr. Kravis, the captain would like to see you in the cockpit." So I went up to the cockpit, and the captain said to me, "The pilot of your plane is right off your wing, and he's got the group of your people from KKR and they want to talk to you." The captain, our plane came on the radio and said,

"Henry, I just wanted to let you know, the guys said we've got the transaction signed up and go have a great vacation, and relax." And it's a feeling, obviously, you can see, I get choked up even re-telling the story. Every time I talk about that. Or just that feeling, you know, up there in the air and that camaraderie, and just that excitement of wanting each other to know. It's all part of the teamwork. And it's one of the great pleasures I get as that team, and that teamwork.

[ Key to Success ] Passion

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