George Roberts

George Roberts is a pioneering American financier and a co-founder of the global investment giant Kohlberg Kravis Roberts & Co. (KKR). Alongside his cousin Henry Kravis and their mentor Jerome Kohlberg, Roberts transformed the landscape of corporate finance by popularizing the Leveraged Buyout (LBO). This aggressive strategy involves acquiring a company using a significant amount of borrowed money, often using the target company's own assets as security. KKR's audacious, and at times controversial, approach reached its zenith with the 1988 takeover of RJR Nabisco, a corporate saga immortalized in the bestselling book and movie, Barbarians at the Gate. Roberts, known as the quieter, more operations-focused partner compared to the high-profile Kravis, was instrumental in building KKR from a small boutique firm into a private equity behemoth. His career demonstrates the immense wealth that can be created by combining borrowed capital with sharp operational improvements, a high-stakes version of buying an undervalued asset and fixing it up.

Roberts and Kravis began their careers at Bear Stearns in the 1960s and 70s, working under Jerome Kohlberg. There, they developed what they called “bootstrap” investments, where they helped families buy out larger shareholders. This was the seed of the LBO. Seeing the immense potential, the trio left in 1976 to form KKR with just $120,000 of their own capital. They initially specialized in friendly buyouts, but their methods would soon become far more aggressive as they targeted larger and more complex companies.

The KKR model was deceptively simple but revolutionary. It was a repeatable process for taking over companies and creating value through financial and operational engineering.

• Step 1: Identify the Target. They looked for stable, cash-rich, but often underperforming, public companies with lazy balance sheets or sleepy management.
• Step 2: Raise the Capital. They would create a shell company and raise a colossal amount of debt from banks and, famously, by issuing junk bonds with the help of financiers like Michael Milken.
• Step 3: The Buyout. Using this mountain of cash, they would buy all the company's stock, taking it from a public entity to a private one, free from the quarterly pressures of the stock market.
• Step 4: The Turnaround. Once in control, KKR would ruthlessly cut costs, sell off non-core assets, and focus management on a single goal: generating cash flow to pay down the massive debt.
• Step 5: The Exit. After several years, with the debt reduced and profitability improved, they would sell the now leaner company or take it public again via an Initial Public Offering (IPO), reaping a massive return on their small initial equity investment.

In 1988, KKR embarked on the most famous and ferocious LBO in history: the battle for food and tobacco giant RJR Nabisco. The company's own CEO, F. Ross Johnson, first proposed taking the company private, sparking a wild bidding war. Roberts and Kravis entered the fray, eventually triumphing with a bid of $25 billion (over $60 billion in today's money), making it the largest takeover of its time. The deal was a public spectacle of enormous egos, staggering sums of money, and cutthroat tactics that captivated Wall Street and Main Street alike.

The RJR deal became a symbol of 1980s corporate excess. KKR had to load the company with so much debt that it teetered on the brink of bankruptcy. While they eventually turned a profit, the returns were far less than anticipated and the struggle was immense. The public backlash was fierce, painting LBO artists as “corporate raiders” who destroyed companies and jobs for personal gain. This event brought intense scrutiny to the private equity industry and served as a powerful lesson on the immense risks of over-leveraging, even for a company with strong brands and cash flow.

George Roberts, along with Kravis, successfully navigated KKR through changing times. They diversified away from pure LBOs, expanding into a multi-strategy global investment firm dealing in credit, real estate, infrastructure, and growth equity. This evolution shows an ability to adapt, moving from being “barbarians” to established pillars of the financial system. Roberts has also become a significant philanthropist, founding organizations like the Roberts Enterprise Development Fund (REDF) to support social enterprises.

While the high-flying world of LBOs seems distant from traditional value investing, the core principles championed by Roberts and KKR offer timeless lessons for the ordinary investor.

• Cash Flow is King: An LBO is impossible without a target that generates predictable, robust cash flows to service its debt. For any investor, focusing on businesses with strong and sustainable cash generation is a cornerstone of a sound investment.
• Be an Active, Not a Passive, Owner: KKR didn't just buy companies; they fundamentally changed them. They brought in new management and forced operational discipline. This hands-on approach to unlocking value is a powerful mindset for investors who research and engage with the companies they own.
• Respect Leverage: Leverage (debt) is a double-edged sword. It can magnify returns spectacularly, but it can also wipe you out. The near-disaster of RJR Nabisco is the ultimate cautionary tale. A margin of safety is crucial when debt is involved.
• Patience Pays: Private equity deals are not quick flips. KKR holds its investments for years, allowing time for operational turnarounds to take hold. This long-term perspective is a core tenet shared by all successful value investors, who ignore short-term market noise in favor of long-term business performance.