George R Roberts: Don’t Miss Opportunities
Stanford Business School
March 11, 2008
Transcript:
Student: Welcome George R Roberts to the GSB and thanks for coming, we’re happy to have you. I’m going to start by taking us back to the 70’s, it’s a little a bit of theme around here today.
George R Roberts: Looks like a good theme.
Student: In 1976 you and your cousin Henry Kravis decided to leave your cushy banking jobs at Bear Stearns and start a new firm in an industry that didn’t even really exist. So, what were you thinking?
George R Roberts: Well it seemed like a good idea at the time. No, the facts of people borrowing money to buy companies is not new and original. In fact, one of the largest buyouts, especially if you projected out to today’s value, was the buyout and the merger that created US Steel, which JP Morgan did back in, I think it’s 1906. And that transaction back there I think was about a billion one in value, which was, quite frankly 7 percent of the total US GMP at the time. And it was financed with some gold-backed bonds, some convertible securities. JP Morgan and his buddies all bought some penny stock and then they sold it to the market at dollars. And that’s where the term “watered stock” came in because that’s what they did. Eventually there were laws against it, so what we were doing was not new. The new part of it was really making management partners in what we did. While I was at Bear Stearns, quite frankly, when I was in law school I worked, and we had done probably 12 or 15 management buyouts at Bear Stearns. The firm at the time really didn’t want to invest capitol in that area, and so Henry, Jerry and I borrowed the money for the equity to do it. Now the deals were quite a bit smaller, and at the time very difficult to put together. Finally we had built up enough creditability with some banks and some insurance companies and some wealthy families. In 1975 we were able to buy a collection of 9 businesses from Rockwell. We paid 105 million dollars for it, we were able to get that transaction done, it took about a year to do it. We called everybody that we knew, and we needed everybody that we knew to put up the money to do it. That really convinced us that, hey we could do this on our own. So we didn’t just wake up one day and say “Hey, this is a good idea lets go do it.” We had the training and the experience. We had some experience of some deals not working out. Quite frankly, you learn more from those than you do your successes. And we had a reputation of fair dealing and integrity that we had established with some key financial institutions in order to do it. And then the final thing is in 1974 and 1975, the US had gone through a tough economic period of time.
Stanford Business School
March 11, 2008
Transcript:
Student: Welcome George R Roberts to the GSB and thanks for coming, we’re happy to have you. I’m going to start by taking us back to the 70’s, it’s a little a bit of theme around here today.
George R Roberts: Looks like a good theme.
Student: In 1976 you and your cousin Henry Kravis decided to leave your cushy banking jobs at Bear Stearns and start a new firm in an industry that didn’t even really exist. So, what were you thinking?
George R Roberts: Well it seemed like a good idea at the time. No, the facts of people borrowing money to buy companies is not new and original. In fact, one of the largest buyouts, especially if you projected out to today’s value, was the buyout and the merger that created US Steel, which JP Morgan did back in, I think it’s 1906. And that transaction back there I think was about a billion one in value, which was, quite frankly 7 percent of the total US GMP at the time. And it was financed with some gold-backed bonds, some convertible securities. JP Morgan and his buddies all bought some penny stock and then they sold it to the market at dollars. And that’s where the term “watered stock” came in because that’s what they did. Eventually there were laws against it, so what we were doing was not new. The new part of it was really making management partners in what we did. While I was at Bear Stearns, quite frankly, when I was in law school I worked, and we had done probably 12 or 15 management buyouts at Bear Stearns. The firm at the time really didn’t want to invest capitol in that area, and so Henry, Jerry and I borrowed the money for the equity to do it. Now the deals were quite a bit smaller, and at the time very difficult to put together. Finally we had built up enough creditability with some banks and some insurance companies and some wealthy families. In 1975 we were able to buy a collection of 9 businesses from Rockwell. We paid 105 million dollars for it, we were able to get that transaction done, it took about a year to do it. We called everybody that we knew, and we needed everybody that we knew to put up the money to do it. That really convinced us that, hey we could do this on our own. So we didn’t just wake up one day and say “Hey, this is a good idea lets go do it.” We had the training and the experience. We had some experience of some deals not working out. Quite frankly, you learn more from those than you do your successes. And we had a reputation of fair dealing and integrity that we had established with some key financial institutions in order to do it. And then the final thing is in 1974 and 1975, the US had gone through a tough economic period of time.
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