How We Work Across Businesses

Playbook
Chris Hsu
Brian Dillard
Justin Sabet-Peyman

Amy Stuart
Paul Sigfusson

July 18, 2012

CONFIDENTIAL

Executive Summary
This is an introductory guide to the different types of activities and
transactions you might be involved with at KKR
We have characterized the different transaction types as plays
and this is an introductory playbook
Today will discuss a common set of plays, but these six are by no
means the full range of activities you will be involved with at KKR
The next page provides a rough overview of the commercial
transactions we tend to undertake, with a highlight on the plays we
will be discussing today
After the six generic plays, we have two more in-depth case
studies, which we will discuss as a panel
We encourage questions and interactive discussion throughout the
next two hours

Six Types Of Core Commercial Activity

New Deals / Opening Positions

Selling / Closing Positions

PE Buyout

IPO

KAM Deal

Sale of whole company Non-IPO

Hybrid (e.g. Kodak)

Operating Improvements
100-day plan creation & execution
KKR Capstone involvement
Active ongoing governance
Interim management
Client and Partner Interactions

Refinance e.g. amend and

extend
Add-on equity
Hybrid e.g. Sealy
Syndication

Fundraising

Equity syndication

Deal-specific communication

Debt syndication

Ongoing partner communication

Balance Sheet Improvements

The New Deal Process (PE Buyout)

1

Deal Team monitoring company

notices opportunity, assigns Deal
Team, performs initial diligence

1.

Deal Team identifies opportunity for a potential PE transaction, probably

a buyout. Deal Team established, after consultation with [staffing] to
determine Associate staffing. Perform initial round of more detailed
outside-in diligence to confirm hypothesis. Develop initial back-of-theenvelope LBO model to confirm returns range. Initial meeting with CEO
if fits the process.

2.

Deal Team prepares initial memo for IC 10 pages or less, with deal
thesis, relevant company and industry background, available financials,
returns summary, and next steps (including budget)

Deal Team goes to IC with initial

memo to seek approval for pursuing
and continued work

a. Receive an NDA from the Company and work with KCM and Simpson Thacher
to markup and finalize for signature by a Member
3.

If IC agrees to continue

To the extent that the IC deems it appropriate to proceed the deal team
kicks off a more detailed diligence process based in part on the IC's
guidance. Many possible options route usually includes:
a. Make initial contacts. For example: company CEO, board, company bankers.
Third-party specialty advisors if needed, usually on an exploratory basis.
Internally, deal team contacts:

i.

Deal Team kicks off more detailed

diligence, contacts internal & external
parties

ii.
iii.
iv.
v.

b. Begin discussions with external banking advisors and financing sources joint
w/ KCM if the Deal Team signs off and the full team is over the wall

Deal Team goes to IC, joined by relevant

internal parties (KCM, KKR Capstone,
CPG, Sr. Advisors, etc)

c. Conduct more in-depth management discussions

d. Create more detailed financial model, driving toward indicative valuation
4.

KCM Capital Markets industry contact is notified to work along side deal team in order to
identify the most efficient manner to finance the potential buyout, and execute the
financing. (Please consult the syndication playbook to the extent that there is the possibility
of the need for an equity or debt syndication)
- KCM will also coordinate the wall crossing of KAM with compliance
KKR Capstone, if there is a meaningful operational improvement angle
CPG determine LP sensitivities, fund details, potential LP/client co-invest from SMAs /
other accounts, etc.
Sr. Advisors, KAM, PA if needed for specific aspects of deal

Deal Team prepares more fulsome IC memo, generally seeking approval

for indicative bid. Relevant internal parties KCM, KKR Capstone, CPG,
Sr. Advisors, PA join as needed. Become the Extended Deal Team.

The New Deal Process (PE Buyout)

5.

Deal Team quarterbacks effort and all

expanded Deal Team resources have
defined roles from diligence
through ownership

PE Deal Team quarterbacks all efforts of Expanded Deal Team to take deal from
diligence to approval and acceptance to contract executed to closing. Specific
roles tend to be:
a.

Deal team work progresses in phases based on the lifecycle of the deal process.
Throughout the diligence process, the deal team will remain in close contact with the
related KKR teams to ensure effective coordination:
i.

ii.
iii.

Repeat process until final bid

approved by IC and accepted by
company or IC stops process.

iv.

If successful

b.

KCM focuses on assisting with financing negotiations, structuring, spearheading any

syndication processes, and in general working to garner the most efficient access to
capital for the deal

c.

CPG coordinates all communication of the transaction to LPs (generally post

announcement)

d.

KKR Capstone generally focuses on detailed business diligence, focused on assessing

the top 2 or 3 key drivers of value creation and underwriting the value to be achieved
from those to be included in the business case by the deal team.

e.

PA, Sr. Advisors, etc. Help as needed on specific, focused aspects of the transaction

LP Communication/Capital Call

Deal Team
Team will
willsend
send aa short
short email
email at
Deal
the
of the
transaction
the end
end of
the transaction

Continued engagement
engagement of
Continued
of
management post
postLBO
LBO
management

The first step is business diligence and working closely with the management team and
internal (e.g. Senior Advisors, portfolio companies, Capstone) and external (consultants,
strategic partners, banks) sources
Depending on the investment opportunity, the upfront diligence can include additional
business diligence workstreams such as corporate carveout and backoffice standup
The business diligence will inform the financial model to develop multiple operating
scenarios including a base, upside and downside cases
The deal team also manages and coordinates all of the other deal related workstreams that
occur anytime pre-announcement, post-announcement and post-close. These generally
include financing (debt and equity), legal (purchase agreement, legal diligence, credit
agreement, anti-trust approvals), accounting and tax (quality of earnings, purchase price
adjustment, tax structure, cash repatriation, tax basis), employment agreements and
management incentive plan, etc.

6.

Diligence, valuation, IC meetings, and bids repeat until a final bid is approved by
the IC and accepted OR IC stops the process.

7.

Deal Team works with CPG and Finance to prepare transaction summary
explaining the deal, capital call notice for funding, LP announcement
(simultaneous w/ public deal announcement), call w/ CPG and PA teams etc.

8.

Deal Team should send a concise email to all execs summarizing the transaction
and key highlights

9.

Post transaction close Deal Team and KCM to remain engaged with management
in order to facilitate efficient access to capital markets

The Deal Process (KAM Deal)

1

1.

As part of the industry analysts ongoing monitoring of their universe of credits and
management team discussions, the analyst will identify a potential opportunity (could
be new issue, secondary or a proprietary origination)

2.

Once the opportunity has been identified, analyst qualifies the opportunity with
appropriate PMs

Industry analyst identifies potential

investment opportunity

a.

Initial opportunity qualification with

Portfolio Manager

3.

Initial discussion with Firm resources

(PE, Capstone, KCM, etc.)

KAM team assembles the appropriate

deal team

Deal team perform initial due

diligence

Deal Team reviews final diligence

with IC and, if approved, executes
the transaction/trade

Post qualification, the industry analyst reaches out to the various key teams within the
firm to 1) understand what relevant knowledge the firm possesses and 2) make any
key stakeholders aware of the potential opportunity
a.

Private Equity deal teams are usually the first call from a diligence perspective

b.

Public Affairs and Capstone also play key roles in the diligence of many opportunities

c.

In proprietary transactions, KCM may be key if some part of the security needs to be
syndicated

d.

In all cases, the KAM team will check with compliance prior to reaching across the wall to
ensure there are no public/private conflicts

4.

Once the opportunity has been vetted, the KAM team (industry analyst and PM) will
assemble the appropriate deal team (potentially including KCM, Capstone or other
resources)

5.

Once the team has been assembled, an initial round of due diligence is performed

Deal team reviews the opportunity

with KAM investment committee

Deal team performs follow up due

diligence

In many cases, the analyst will also preview the opportunity with the IC to ensure any
specific issues/concerns are identified early

a.

The process, in general, is very similar to the process employed for PE investments

b.

In addition to diligencing the opportunity, the team will also work with the broader KAM
team to assess tax/structuring issues and identify the appropriate pool(s) of capital

c.

The specifics of the process will partially depend on the type of investment (e.g., mezzanine
vs secondary opportunity)

6.

Post initial diligence, the team presents its findings to the IC and agrees on next steps

7.

Follow up diligence is performed and usually includes final diligence on key business
items and finalization of key structuring issues and terms

8.

Once the follow up diligence is completed, the final findings are presented to the IC
and, if approved the transaction is executed
a.

In the case of a secondary trade, the trader will go out and try to source the security

b.

In the case of an originated transaction, the deal team proceeds to execute the transaction
on agreed upon terms and KCM will syndicate any excess (as appropriate)

The IPO Process

1

Deal Team to maintain contact with

KCM

Deal Team and KCM to maintain

regular dialogue with management

1.

Combined team to present plan to

management

Combined team to work together on

IPO process

KCM to manage IPO execution and

report to Deal Team

Post IPO Engagement

c.
d.

Public Buy-side dialogue

LP/SWF strategic investment dialogue

3.

Based on a combination of company progress, comparable company valuations, broader market

health, company management support regarding IPO readiness, and KCM guidance, the Deal
Team to make a determination as to whether it is appropriate to begin contemplating a public
market sale

4.

Deal Team to present their views to the IC with assistance from KCM

5.

To the extent that the IC provides the PE Deal Team with approval to move forward, the PE Deal
Team will work with KCM on the initial IPO plan, including:
a.
b.

Timing, including IPO checklist (key tasks and responsibilities to be completed by Company, PE Deal
Team, KCM, Counsel, Underwriters)
Comparable companies

c.
d.

Valuation
Optimal capital structure post-IPO

e.

Potential syndicate structure (considering sector/IPO experience, trading prowess, research prowess,
relationship with the Company, etc)

6.

KCM and the PE Deal Team will jointly present these views to Company management in order to
get organized and seek input

7.

PE Deal Team and KCM to work in conjunction on:

a. Positioning thesis

8.

Balance sheet focused transactions

IPO market updates

Deal Team and KCM to form a regular dialogue with Company management around the
aforementioned topics

Deal Team to present to IC

a.
b.

2.

Deal Team to continually assess

company progress and market

Deal Team + KCM to formulate IPO

plan

Deal Team to have constant contact with KCM post-close of transaction in order to facilitate future
capital markets transactions efficiently. Dialogue to include discussion of:

9.

b.
c.

S-1 drafting
Underwriter, Analyst and Roadshow presentations

d.
e.

Research analyst vetting

Buyside meetings

KCM to coordinate banks and provide management and the Deal Team with execution services
including views on:
a. Launch timing
b.
c.

Investor targets
Roadshow Q&A prep

d.

Pricing and allocations

Post-IPO, KCM and Deal Team to remain engaged with management in order to facilitate orderly
selldown of shares

The Balance Sheet Restructuring Process

Deal team decides to explore a potential
balance sheet restructuring

Deal Team makes initial contact with

KCM

1.

Deal Team identifies opportunity for a balance sheet restructuring (e.g. amend & extend,
refinancing, dividend recap, etc)

2.

The Deal Team should make initial contact with KCM as soon as the Deal Team is
considering a restructuring

3.

Deal Team should provide KCM with background material on the specific opportunity
(relevant financial impact, summary of capital structure including any relevant restrictions,
relevant banking relationships and conversations, etc)

4.

A member of the KCM team will be partnered with the Deal Team based on
regional/industry focus:

Deal Team provides KCM with summary

overview materials

a.
5.

KCM Assigns Deal Captain

Deal Team + KCM approach PMC / IC

6.

Deal Team works with KCM to execute

transaction

Deal Team coordinates with CPG, Legal

& Public Affairs

Deal Team will keep all internal

committees posted

Deal Team will send a short email at the

end of the transaction

7.

KCM US: Jeff Rowbottom, George Mueller, Cade Thompson; Europe: John Empson; Asia: Rex
Chung; India: BV Krishnan

Deal Team + KCM Deal Captain discuss opportunity and present their recommendation to
the PMC/IC
a.

Dividend Recaps should be presented to the IC and PMC

b.

Refinancings and standard amend & extend situations should be presented to the PMC

c.

To the extent that the relevant committee provides initial approval to proceed KCM will coordinate
with compliance to wall cross KAM

The Deal Team has primary responsibility for the restructuring plan, and will coordinate the
relevant internal groups to:
a.

Explore any potential legal considerations (Public Affiars/Legal/KCM)

b.

Determine the best strategy for optimal execution (KCM)

c.

Develop a syndication strategy, in the event one is needed. (KCM-CSC)

d.

Outline a restructuring timeline/action plan (KCM)

e.

Develop a game plan for approaching external financial institutions (KCM)

f.

Develop messaging for all investors (management, debt holders, LPs, etc) (KCM/CPG)

The Deal Team has responsibility for ensuring CPG, Legal and Public Affairs are briefed in
advance of transaction to ensure consistent communication with external stakeholders
(LPs, public investors, etc)
a.

CPG will take the lead coordinating with our LPs (see LP Communication Process)

b.

Public Affairs will take the lead coordinating with the portfolio company on relevant press releases

8.

As the process progresses the deal team, along with the appropriate internal groups, will
need to make regular appearances to brief the appropriate committees

9.

Deal Team should send a concise email to the investment professionals (All Executives
Private Side) and KCM (KCM Executives All) summarizing the transaction and key
highlights

The LP Communication Process

1

Communication on a new deal

Ongoing communication

Communication on exit

1.

Deal Team should contact CPG, PA and Finance about a new deal --- work
together on transaction summary (typically sent out at the time of the
capital call), capital call (at least 10 days to fund), press release (typically
use one from the company), LP communication etc.

2.

CPG will reach out on a quarterly basis to update/create one-pagers

which are distributed to LPs quarterly with our valuation. Additionally,
time to time CPG will reach out for specific data requests (for LPs,
portfolio company flash cards etc) but typically we will try to pull the
information directly from the PMC reports. Co-investors may require
separate reporting to be discussed in syndication section.

3.

Deal Team should contact CPG and PA to prepare a release to LPs and a
press release (typically use one from the company).

Regular marketing materials/

case studies

4.

From time to time CPG will need case studies for marketing decks or
longer presentations on specific companies for discussions with our LPs.
CPG will reach out to the appropriate parties as needed to obtain these
materials.

In the heat of an active

fundraise

5.

When we are actively fundraising CPG will need deal teams help in
confirming information for all of the marketing materials (PPM,
pitchbook, DD site etc). CPG will also include relevant deal team
members in client meetings to discuss their deals.

Annual meeting materials

6.

Annual meeting season is by far the busiest time for deal teams in terms
of LP communication. CPG will reach out to each deal team to prepare
slides, talking points and other materials for the event.

The Syndication Process

1

Deal Team contacts KCM at the appropriate time

Deal Team provides KCM with appropriate background info

KCM to formulate initial syndication plan in conjunction

with relevant internal parties

KCM and Deal Team to report back to IC

KCM and Deal Team then execute the transaction

KCM coordinates allocation discussion

Negotiation and Coordination of Ongoing Co-Investor Reporting

Note: Please reference additional slide materials on equity syndication process.

10