Crossroads

At the intersection of technology, finance and the Pacific Rim.

Wednesday, July 29, 2009

KKR

The following was posted in FT Alphaville today:

"KKR is in advanced preparations for an IPO of stock in houseware and food retailer Dollar General, as the US buyout firm tries to solidify its reputation ahead of its own trip to the public markets, reports the WSJ. But in a twist, KKR will also be one of the lead underwriters on the deal, via a recent alliance with Fidelity Investments. It would be the first time KKR underwrote one of its own IPOs, a task it plans to share with Goldman Sachs and Citigroup, among others. Dollar General’s board will finalise the underwriter selection in coming days."

In addition, I received the following question from one of the class participants and my answer is posted below in capital letters:

Question: For PE investor 's perspective, To reduce the period when they can retrieve the investment is main interest. However, if they hurry to reduce this term, can there be any side effects? what sort of evil influences can be for the company?

ON FIRST STATEMENT, NOT ALWAYS. THEY ARE CONCERNED WITH ROI EACH YEAR. IF THE PROSPECT IS THAT IT WILL CONTINUE TO GO UP (AND THIS IS NOT RECOGNIZED BY POTENTIAL BUYERS) THEN THE TENDENCY WILL BE TO HOLD. THERE HAVE BEEN EXCESSES IN THE PE INDUSTRY (JUST LIKE ANY INDUSTRY) AND SOMETIMES COMPANIES ARE LEFT WITH ALL KINDS OF DEBT AND NO REAL PROSPECT GOING FORWARD. BUT IT IS AS I TRIED TO CONVEY IN THE CLASS--NOT JUST THE FAULT OF THE INVESTOR FOR OVER-LEVERAGING THE COMPANY, BUT ALSO THE FAULT OF THE COMPANY'S OPERATIONS--I.E. THEY HAVE NO COMPETITIVE STRENGTH TO GENERATE CASH FLOW. IF THEY DID, THEY COULD STILL GO INTO BANKRUPTCY, MELT THE DEBT DOWN AND RE-EMERGE STRONGER. THIS HAPPENS TIME AND TIME AGAIN. SOMETIMES, IT IS THE FAULT OF THE INVESTOR, SOMETIMES IT IS THE FAULT OF MANAGEMENT OR LABOR WHO DO NOT REALIZE THAT THEY NEED TO GENERATE A RETURN OR "BE GONE'.

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