Sep 15, 2022 · 45m · capital-allocators
SPECIAL ANNOUNCEMENT: Private Equity Deals Podcast
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In the debut episode of the Private Equity Deals podcast, host Ted Seides interviews KKR's Pete Stavros on the operational transformation and exit of C.H.I. Overhead Doors. The discussion explores KKR's implementation of lean manufacturing, disciplined deal execution, and a pioneering broad-based employee ownership model that generated life-changing wealth for frontline workers.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 14.9% of the talking time here. How this is scored →
Ted as informed peer 4.7 Guest teaching 3.3 Guest disagreement 0.3 Ted pushing back 0.1
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 43:05 Critique of Executive Compensation Models
Pete directly challenges conventional private equity compensation models, arguing that the industry massively overpays senior management while diminishing returns and creating risk aversion.
Hardest push from Ted ▶ 9:53 Challenging Prior PE Owners' Operational RigorTed presses Pete on why three previous private equity owners failed to identify seemingly basic operational and procurement improvements.
Biggest teaching moment ▶ 43:05 The Diminishing Returns of Executive EquityPete systematically reframes Ted's question by breaking down the behavioral psychology of compensation, demonstrating why pushing equity down to hourly employees yields far greater financial and cultural ROI.
Ted holds their own ▶ 30:55 Dissecting the Employee Option Pool MathTed drills into the exact math and equity pool structure required to generate million-dollar payouts across an 800-person industrial workforce.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Mandatory Disclaimer and Compliance Notice | 3 | 1 | 0 | 0 | Ted opens with a standard framing question asking for KKR's elevator pitch and operational scale. Pete provides a factual overview of KKR's transformation from a traditional PE buyout firm to a diversified global asset manager. | |
| Transformation Ethos and C.H.I. Overhead Doors | 4 | 3 | 0 | 0 | Ted inquires about the core ethos behind the strategy and the operational history of C.H.I. Overhead Doors. Pete details the company's competitive advantage over legacy competitors due to flexible manufacturing and high product customization. | |
| Assessing Baseline Economics and Diagnosing Operational Gaps | 6 | 4 | 1 | 1 | Ted asks how KKR found untapped potential in an asset previously owned by multiple PE firms. Pete walks through diligence clues such as lack of procurement leadership, steel deflation capture gaps, and unstructured sales organizations. | |
| Preemption Strategy, Multi-Stage Bidding, and Deal Close | 5 | 3 | 1 | 0 | Ted probes the preemption dynamics and multi-stage bidding process. Pete explains the psychological game of convincing sellers to abandon an auction process through credibility and definitive pricing deadlines. | |
| Operational Improvements and Executive Leadership Upgrades | 4 | 3 | 0 | 0 | Ted asks about post-acquisition operational playbooks and executive upgrades. Pete outlines hiring operational leadership from Danaher and targeting high OSHA incident rates and scrap rework. | |
| Fostering Employee Engagement and Lean Manufacturing Practices | 5 | 4 | 0 | 0 | Ted asks how management moved from diagnosing disengagement to building actual cultural buy-in. Pete describes baseline surveys, Kaizen events on the shop floor, and balancing board-level accountability with operational support. | |
| Strategy Deployment, COVID-19 Impact, and Divestment Strategy | 5 | 2 | 0 | 0 | Ted asks how initiatives were prioritized and managed through COVID-19 and eventual exit planning. Pete explains strategy deployment tools (Hoshin Kanri) and KKR's discipline around exiting once 80% of value creation goals are met. | |
| Implementing Broad-Based Employee Ownership at C.H.I. | 5 | 4 | 0 | 0 | Ted directs the conversation toward the broad-based employee ownership program. Pete details the mechanics of the option pool, under-promising on returns, worker-directed capital investments like air conditioning, and final payouts averaging $175,000. | |
| Success Factors for Scalable Shared Ownership Models | 5 | 3 | 0 | 0 | Ted digs into the subtle criteria needed for employee ownership models to succeed. Pete identifies passionate leadership, meaningful payout scale (at least 6-12 months income), and reasonable workforce stability as essential prerequisites. | |
| Exiting C.H.I. to Strategic Acquirer Nucor | 5 | 4 | 0 | 0 | Ted asks about selecting Nucor as an acquirer and Pete's personal origin story behind broad ownership. Pete shares how his father's blue-collar construction struggles and early career ESOP work shaped his philosophy. | |
| Industry Collaboration and Measuring Ownership Works Results | 4 | 3 | 0 | 0 | Ted asks how this philosophy expanded into the non-profit Ownership Works initiative and what measurable results have shown. Pete outlines cross-industry collaboration and the stark bifurcation between firms that deeply engage versus those that take a checkbox approach. | |
| Rethinking Equity Distribution Beyond Senior Management | 5 | 5 | 2 | 0 | Ted asks how equity incentives below the C-suite directly move company performance. Pete argues passionately that society and PE misallocate equity by over-incentivizing top executives while ignoring the massive return potential of front-line workers. |
Statements from this episode (36)
Stavros: Going public did not change KKR's investing culture
“So I would say for an investor at the firm, being public really hasn't changed much other than giving the firm access to permanent capital that we can then go use to build out and seed new strategies.”
Stavros: KKR Rejects Deals Lacking Clear Transformation Catalysts
“The ethos of our strategy in US private equity is around transformations. We're looking for good companies that we can inflect in a meaningful way and transform maybe operationally, maybe through acquisition or growth, maybe strategic repositioning, top gradin…”
Stavros: About a Quarter of C.H.I.'s Workforce Is Amish
“This is Amish country about quarter of the workforce is Amish.”
Stavros: Incumbents Couldn't Match C.H.I.'s Flexible Model Without Rebuilding Plants
“CHI was able to start its operating model from scratch, and they built a really flexible operating system where they could deliver on very short lead times, very high variety. It was just not possible for a competitor to adapt unless you were going to shut dow…”
Stavros: C.H.I. had 21% EBITDA margins and mid-single-digit growth at acquisition
“The rough economics of CHI overhead doors when we bought it were 20% or so EBITDA margins. I think they were 21% gross margins in the low thirties, solid mid single digit growth. It had been a steady, slow market share gainer.”
Stavros: Unmeasured engagement and avoided eye contact signal plant disengagement
“Engagement was not measured. That's always a dead giveaway when you ask what the engagement scores are like, and they're just not even measured. So there was no input coming from the workforce. And even walking through a manufacturing plant when people don't m…”
Stavros: KKR wrote a $250M equity check for C.H.I. Overhead Doors
“Even when we bought this was really a mid-cap deal for us, and we had always had a thought we would start a mid-cap strategy, so we were happy to do it, but this was a two hundred and fifty million dollar equity check, and our fund sizes are many, many billion…”
Stavros: KKR preempted C.H.I. auction by offering a 72-hour contract
“At first round bids, we had a final round type offer. Our price was certain. We submitted a term sheet on a contract and we said, we'll sign this in 72 hours.”
Stavros: I did four annual shop-floor Kaizen events and toured Toyota plants
“I myself used to do four Kaizen events every year, a week of time working on a shop floor. We would go to Japan for 10 days at a time, and we would have the founders of the Toyota production system take us around to a dozen of the world-class lean plants in th…”
Stavros: KKR raised preemptive C.H.I. bid four times to $680M
“So we bid six hundred and twenty-five million and said we could sign in 72 hours. And they said, that's great. Glad you love it. We're not in that big of a hurry. We suggest you keep playing out the process. Six 50. Six 70. Six 80. I remember I sent an email, …”
Stavros: Private equity buyers must stick to 'final offers' to preserve market credibility
“Whenever you say this is it, it's kind of got to be it.”
Stavros: Preemptive buyout bids succeed more in shaky markets than hot markets
“If it's a super hot market, sellers are like, why would I do this? Who knows what's going to come out of the woodwork? If it's a little shakier and people see real value in speed and certainty, it's more likely to work out.”
Stavros: C.H.I.'s OSHA recordable incident rate was 14 per 100 workers
“The injury recordable incident rate, which is OSHA's key metric of safety, was 14 at the time, so what that means is for every hundred people in the plant, how many people per year were getting hurt? It was 14 out of a hundred per year.”
Stavros: Plant safety issues and product quality problems closely parallel each other
“And it's interesting how much you will find parallels between safety issues and quality problems, because they both speak to the process in your plants.”
Stavros: PE sponsors cannot dictate actions if holding management accountable for results
“You can't tell people what to do because you can't hold them accountable. So what we try and say is here's the opportunity we see. All we care about is getting the opportunity, and we want to get it in the right way.”
Stavros: Direct investor involvement inside operations makes board meetings much more productive
“I do think it's helpful if you have involvement from the people who have made the investment, who chair the board, who sit on the board, to also be in the business. By the way, it makes the board meetings way more productive when people are like, I know exactl…”
Stavros: PE deal speed prevents precise pre-acquisition operational data analysis
“You have to move so quickly to win in this world. So you have clues. But you don't have the access to data and the time if you're going to be effective in winning these assets to be like, well, I got to get to the one decimal place.”
Stavros: C.H.I. EBITDA Grew Organically from $60M to $130M
“We went from 60 of EBITDA in 1516 was great, 17 was great, 18 was great, 19 was great. We were, I don't know, 130 of EBITDA from 60. All organic, no acquisitions.”
Stavros: KKR Exits Investments Once 80% of Plan Is Achieved
“Likewise, on the exit side, once we've achieved 80% of what we came to do, we start to head for the exits, as long as the markets are reasonable. We're not trying to say, well, now's the perfect time to sell, but as long as you look at the markets, you say it'…”
Stavros: KKR Bought C.H.I. at 13x and Exited at 14x EBITDA
“I think we paid 13 times on entry and on exit 14 times or something. There was not a huge uplift in multiple.”
Stavros: C.H.I. Employee Ownership Paid $175K Average, Up to $1M
“So the end payouts ended up being 175,000 on average, and we had hourly workers and truck drivers make almost a million dollars.”
Stavros: Frontline Equity Must Be Free, Never Shifting Risk to Workers
“And you can't ask people who make less than a 100,000 dollars to invest in the company. That needs to be an entirely free incremental benefit. This is not about shifting risk onto workers.”
Stavros: C.H.I. Frontline Workers Received $9,000 in Interim Dividends
“Over the years, we paid four dividends. Those dividends amounted to about 9000 dollars per employee.”
Stavros: Stock Grants Alone Do Not Change Frontline Worker Behavior
“It's not just you hand out stock and people all of a sudden change behaviors. It's a lot of work, a lot of communication, financial education.”
Stavros: Employee equity programs need at least six months of upside
“For this to work, people need to see a path to at least six months of their income with upside, hopefully a year of income on average.”
Stavros: 600 C.H.I. employees received a 3.5% option pool
“I think it was three and a half percent of the company in options. Of the 800 folks, maybe the top 200 got outright grants, made meaningful investments in the company, and were traditional management equity plan participants, as you would normally think of it.…”
Stavros: Acquirers valuing employee culture will pay the winning price
“The people who value this culture are the ones who are going to pay the high price. So somebody who's maybe more of a slash and burn corporate buyer, I'm going to make this up. We didn't have one of those in the field, but they're not going to pay the winning …”
Stavros: Nucor plant workers made roughly $35k in profit sharing last year
“If you look at their financials, I think their manufacturing plant employees made last year on top of their wages, like 35,000 dollars in profit sharing, a lot of money.”
KKR has 25 active broad-based employee ownership programs across US portfolio
“We started that about 12 years ago. Extended that across our entire industrials portfolio over a period of time, so we've done it maybe 12 times with manufacturing businesses, and then in total today have 25 live cases of this across all of our different verti…”
Stavros: About 20 PE firms have committed to Ownership Works
“So we've got about 20 private equity firms signed up, and by signed up, I mean they're committed to doing this at least a few times in their portfolio, following our standards, and then sharing some data back to the nonprofit so we can track where's the money …”
Stavros: Ingersoll Rand reduced quit rates from 20% to 2%
“It was Ingersoll Rand where the quit rate went from 20% a year to two percent, and the engagement scores went from the 19th percentile to the 90th.”
KKR Prepaid for Goldman Sachs Financial Coaching for C.H.I. Workers
“I think we've gotten it right on the back end in terms of when we sold the business, prepaying for financial coaching with Goldman Sachs, prepaying for tax help to make sure people appropriately and timely file their taxes.”
Stavros: C.H.I. Grew Revenue 120% While Scrap Rose Only 7%
“Revenue was up a 120%. You took all this market share, lead time advantage versus the competition gapped out massively. Despite the 120% revenue growth, scrap only grew seven percent.”
Stavros: Executive performance declines at high compensation due to risk aversion
“As comp goes up, I do think performance goes up. People are less likely to quit. It levels off faster than we think that they have enough because people don't really work for money. And then I think performance declines. People get risk aversed. If somebody's …”
Stavros: Private equity makes a mistake by concentrating equity in management
“I think private equity is making a mistake by aggregating all the economics in such a sliver of the company. We would all be better off as investors put aside the good to society by more evenly distributing it because the senior people are going to quickly tap…”