Originally published in Nikkei Asia's “Henry Kravis: My Personal History"
Chapter 12
Acquiring seven Siemens subsidiaries in one fell swoop
In 1994, George Roberts (KKR co-founder) and I started discussing plans to expand our buyout business into Europe. At that time, KKR's investments were limited to the United States.
It was time to think about what was next. Both George and I are curious people who are always on the lookout for new opportunities to make sure we are progressing -- personally and professionally. At the time, many European companies seemed undervalued compared to their U.S. peers.
I had previously spent time in Europe when then-Federal Reserve chairman Paul Volcker put on credit controls to combat inflation in the US. We were trying to acquire a company called Foremost McKesson and we couldn't raise the money for the financing, so we went to London in 1980 to see if we could raise money there and, frankly, we couldn't, which prevented us from completing the deal. But we knew Europe still held a lot of opportunity, so I continued traveling there to build my network of personal contacts.
George and I decided to establish a local unit in London in 1994. However, we were so nervous we opted for a company name that was completely different from KKR.
We were unsure if a U.S. investment company with footholds only in New York and San Francisco could be successful in Europe. And if we failed under the KKR name, it would damage the brand we had worked so hard to build in the U.S.
After acquiring a handful of companies in Britain, including the publisher Newsquest, and gaining confidence, we established an office in London in 1999 and put up the KKR sign. We also considered setting up offices in Paris or Berlin to build a presence in a major European commercial hub other than London, where many of our European competitors were also based. While our employees wanted to work in the British capital back then, and it was also easier to raise money in the financial capital, it wasn't long before we opened an office in France, in 2005, with Germany and others following later.
Another big decision was who we should pick to head our European business. Should we hire someone from the outside who was familiar with Europe, or should we send someone who was immersed in KKR's culture? After much discussion, we decided to promote a young partner who raised his hand and expressed his ambition to take the position.
We chose someone who knew KKR and could make sure that, as we expanded, we would retain the firm's culture. So, we moved an existing employee to ensure a strong cultural foundation and then hired local Europeans to ensure we also had the right local approach. This successful approach has been applied in other regions as well.
One of the most memorable early deals was the acquisition of seven subsidiaries of German conglomerate Siemens in 2002. This was the first time we had acquired a group of companies together, including in the U.S.
It all started when the CFO of Siemens, who I had called on, asked us to consider acquiring nine of their subsidiaries as a package.
In 2000, Siemens acquired automotive parts and other businesses from German telecommunications giant Mannesmann, but these included businesses that were not part of Siemens' core competency. The company was under strong pressure to sell them and reduce the debt that had ballooned as a result of the acquisition.
After careful examination, we found seven of the nine companies to be attractive. I made a proposal: "It will take time to sell each company individually. Would you allow us to buy them all at once?"
Siemens agreed. We acquired the seven companies by creating a holding company, reformed them and achieved a great return. We would later recommend this approach to large Japanese companies with many subsidiaries.
Since entering Europe, we have acquired approximately 200 companies and today manage approximately $92 billion of assets in the region. We've expanded to nine offices in Europe and are recognized as a very "local" global firm.
The breadth of resources we have in the firm makes us an attractive partner to founders, entrepreneurs and management teams. We offer more than just capital and can help existing owners drive growth and effectuate change through internationalization, mergers and acquisitions, and digitalization.
A good example is our partnership with French content production platform, Mediawan, which we combined with the German industry leader, Leonine, earlier this year to create a leading pan-European studio, while also expanding into the U.S. by acquiring a significant stake in U.S. production company Plan B, backed by Brad Pitt, Dede Gardner and Jeremy Kleiner.
Looking back on our acquisition track record in Europe, I realize that we didn't need to take "baby steps" and enter the market under a different name to hide and protect the KKR brand. Neither George nor I recall the name we used until we researched it for this series. It was Glenisla Group.