THE MONEY NACHINE: How KKR Manufactured Power & Profits

By Sarah Bartlett
Warner Books, New York, N.Y., 1991. 335 pages, $24.95.

New York Law Journal, Friday, June 14, 1991
Reviewed By Colin Fergus And Jean M. H. Fergus

The history of KKR can be approached on a number of different levels. Sarah Bartlett in her book, The Money Machine: How KKR Manufactured Power & Profits, has chosen the most obvious and superficial. Indeed, not only does the book lack an index, thus thwarting those seeking quick satisfaction, the Notes and Acknowledgments sections reveal her heavy reliance on members of the media, as well as sources she cannot name "since public knowledge of their cooperation with this project could harm their professional careers." Two sources she does name, Hedi Kravis, Henry's ex-wife whose recent attempt to open up her divorce settlement was dismissed by the New York courts, and ex-KKR partner, Jerry Kohlberg, who recently settled his lawsuit against his former firm, appear to have provided much of her information, emphasis and tone. She writes: "In the end, I decided that individuals like Kohlberg and Hedi Kravis_ were credible sources." It is through their eyes that the story is told, a bias that Ms. Bartlett herself remarks as unfortunate. Given Ms. Bartlett's experience as a financial journalist, this result is disappointing and unexpected.

The story opens with a long chapter entitled simply 'Ray." It is about Ray Kravis, Henry Kravis's father, a financial genius in his own right. Ray Kravis is important to Ms. Bartlett in order to put Henry into context: "his father is a financial mogul, a tremendously successful businessman," a friend of Ray's is quoted as saving and Ms. Bartlett wants us to know that Henry grew up in a privileged environment.

Mr. Kravis senior is, of course, of some additional importance, both as Henry's father and as Ms. Bartlett suggests, his role model. However, his most direct connection to KKR is as the person responsible for introducing George Roberts, his nephew, to Bear Stearns. "Ray called his nephew and asked him if he'd be interested in working on Wall Street," an introduction for which Mr. Kravis is "still taking credit." More might have been made of the chance coincidence of timing and work habits that led to the summer intern's meeting with the head of corporate finance at Bear Stearns, Jerry Kohlberg. And much more might have been made of Mr. Kohlberg's development of the idea of "bootstrapping," as he initially called leveraged buyouts, and of Bear Stearns's early support and encouragement. Mr. Roberts's diligence, intelligence, and hard work were exactly the qualities Kohlberg was looking for, and when George left to go to San Francisco and recommended his cousin Henry as his replacement, the stage was set. Indeed, the secret to KKR's success may lie in the ability of these cousins to work in a close and laser-like alignment with each other and with their clients.

Ms. Bartlett spends 76 of her 335 pages bringing the reader to this point. To the years that the three spent at Bear Stearns crunching the numbers and logging thousands of miles selling the bootstrap concept, Ms. Bartlett devotes only seven general pages. In 1976, when the partners opened their firm, they had been able to prove that their idea was sound, that investors were willing to subscribe, and that a market existed for them to do deals. The partners may have had a long road ahead of them, but they knew there was a road, and to where it would lead.

January, 1984, KKR became known to a wide public in an article in Fortune magazine entitled "How the Champs Do Leveraged Buyouts." Many, if not most, of the elements, which would make KKR into the money machine of Ms. Bartlett's title were in place. Due to George Roberts's strong line into billions of dollars of public pension funds, "equity was not KKR's problem." The machine was running on all cylinders. Or was it? Jerry Kohlberg was taken ill at the end of 1983, complications developed, and for 18 months he was out of the picture. And this at a time when competitors were hard on the heels of the LBO pioneers. Ms. Bartlett gives Kohlberg's partners no credit for not only maintaining the machine in running order, but fine-tuning it to keep it at the front of the race. Instead, one is left with the impression that KKR was a perpetual motion machine, and that if anything, Kravis and Roberts debased the nobility of Kohlberg's initial concept by moving in the direction of less friendly deals, beginning with Beatrice, and by striking an alliance with Drexel, two steps Ms. Bartlett and Jerry Kohlberg condemn. The fact that, unlike many of their competitors, KKR were able to retain the total loyalty and devotion of their investors moves Ms. Bartlett not one whit.

Ms. Bartlett argues that, after Kohlberg left, KKR began a descent into corruption marked by a system of rewards spread among the bankers, lawyers, pension fund overseers, executives, journalists, and politicians with whom KKR had any dealings. Ms. Bartlett makes some very serious allegations that she does not substantiate. '"And anyway, did anyone actually violate any laws? My own view is that it would be difficult to prove in court. I do think, however, that [various relationships] all merit further exploration, " she concludes. Perhaps if Ms. Bartlett had spent more time exploring these issues herself, and less on the lifestyles of Henry Kravis and his relatives, the reader would be better positioned to evaluate these charges.

Ms. Bartlett snipes at other journalists, charging them with being 'bought" by KKR with access and scoops. In a revealing section, she deftly offers examples of how the same facts can be slanted to support a particular argument or position. One reporter for the Wall Street Journal is singled out. "A number of people in the LBO industry have commented on (his) apparent bias in favor of KKR," Ms. Bartlett writes. "I deal with the financial press a lot, but this guy always seems to be using information in ways that go beyond financial reporting," a competitor of KKR is quoted as saying. This last criticism may well apply equally to Ms. Bartlett.

Ms. Bartlett describes the "money machine" by telling her readers a lot about its drivers, something about its high octane fuel, but nothing about the machine itself. How did KKR operate? Reference is made to other partners, at least one is mentioned by name, but we get absolutely no feel for the enterprise that is KKR. It is as if one were to write about a law firm by describing the founder's background and discussing a few of the cases the firm has handled, without ever talking about the firm itself. Although an easy read, Ms. Bartlett's Money Machine never gets out of first gear.

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