Opinion
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…”
Assertion Supported
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.”
Insight
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.”
Insight
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.”
Disclosure
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.”
Disclosure
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'…”
Insight
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.”
Insight
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 …”
Insight
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 …”
Opinion
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.”
Insight
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…”
Insight
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…”
Disclosure
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, …”
Insight
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.”
Insight
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.”
Insight
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.”
Insight
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.”
Insight
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…”
Insight
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.”
Assertion Partly supported
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.”
Assertion Supported
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.”
Assertion Supported
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.…”
Assertion Supported
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…”
Assertion Supported
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.”
