KKR: The Bear Stearns Bootstrap, Oregon Pension Money and the $109 RJR Bid

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KKR began at Bear Stearns in the 1960s and 1970s, where senior corporate finance banker Jerome Kohlberg Jr. and his younger colleagues, cousins Henry Kravis and George Roberts, saw that postwar family businesses had founders nearing retirement, no successors, no path to an IPO and no wish to sell to rivals. Their answer was the bootstrap investment, now called the leveraged buyout: put down perhaps 10 percent in cash, borrow the rest against the target's own assets and cash flow, then pay down the debt from its earnings. When Bear Stearns chief Cy Lewis refused to back an in-house fund, the three left in 1976. They planned to call the firm Kohlberg Roberts Kravis, but a PR adviser said KRK sounded bad, so it became KKR.

The 1979 public-to-private buyout of Houdaille Industries failed in a downturn, and the company was broken apart while secured lenders were largely protected. In 1981 KKR persuaded the Oregon State Treasury's pension fund to invest in its Fred Meyer buyout, opening institutional capital that funded Wometco, its first billion-dollar deal, Beatrice Foods for over $6 billion and Safeway for $5.5 billion. Kohlberg, who preferred friendly mid-market deals, resigned in 1987 at 61. In 1988 KKR won RJR Nabisco with $109 a share against Shearson Lehman's $112, helped by a reset provision guaranteeing its bonds and by board anger at CEO F. Ross Johnson's management package. At over $31 billion it was the largest buyout for 17 years, and the debt kept KKR busy until 2004.

• KKR closed no major new investment in 1990 and injected almost $2 billion of fresh equity into RJR.
• After RJR, KKR shifted to roll-ups and club deals, buying Toys "R" Us with Bain Capital and Vornado and SunGard with six other firms.
• For the $44 billion TXU takeover in 2007, KKR worked with environmental groups and canceled planned coal plants.
• KKR listed on the New York Stock Exchange in 2010.
• Kravis and Roberts stepped down as co-CEOs in 2021.