Henry Kravis, founding partner of Kohlberg Kravis Roberts, didn't want the cameras to be rolling on his speech at the Committee of 100's "Bridge to Change" conference yesterday. But we were taking notes, on some very interesting comments not just about private equity in China, but about what he calls "the golden age" of private equity globally.
Kravis directly addressed criticisms that there is too much leverage employed these days to get deals done. He may not be a statistician, but he had some fascinating figures to prove that actually, more equity is being put up by private equity firms these days.
- In 1987, the average deal was paid for with 7% equity and 93% debt.
- In 2006, the average deal was paid for with 33% equity and 66% debt.
His bottom line: there has been a five-fold increase in the amount of equity needed today to get deals done.
Kravis gave an interesting glimpse in what happens once deals get done, and it's all in the 100-day plan. That goes into effect the day the deal closes. It's a detailed operational plan drawn up and executed with the help of management. Gone, Kravis says, are the days of showing up at a company with a briefcase full of money -- because there were probably five other guys who brought a briefcase of cash before you. A successful deal is all about extracting value through improving operations.
He also pooh-poohed the notion that there is a bubble in buyouts. Assuming even a $1B deal goes sour, that's a 2% loss in a portfolio of $50B. Hardly the end of the world, Kravis says.
For more on what Kravis said on private equity in China, here's my coverage of the conference yesterday.