5 minutes with... Jacques Garaïalde: Guiding companies along the private route

When a company is facing a major transition, it may be appropriate to partner with a private
investor to make the necessary long term changes. That is where private equity comes in, says
Jacques Garaïalde, a managing director of KKR

When a company is facing a major transition, it may be appropriate to partner with a private investor to make the necessary long term changes. That is where private equity comes in, says Jacques Garaïalde, a managing director of KKR

Could you describe your career, please?
I worked at the Boston Consulting Group for 18 years, between 1982 and 2000. I moved up the ranks, being a partner and then head of France. In 2000, I left consulting to become the head of technology investments at the Carlyle Group. In 2003, I was approached by KKR and decided to join the leader in the Private Equity domain.

Could you describe the type of companies that you partner with?
Amongst others, we work with companies that larger corporations might want to divest from, or with family businesses helping them to move into the next stage of development.

Non-core affiliates of larger corporations often come last in the line-up for investments. So managers in these businesses are happy to see people like us becoming shareholders, developing businesses the way they should be developed in terms of geographic expansion, acquisition and product development. Family-owned companies need new capital to grow. This is not always evident with a wide family-based shareholder structure and we can be part of the solution.

So you come in when change is needed?
Yes, whenever there is a big transition required for a company and a current ownership structure does not allow it. We become partners of these companies, providing capital, operational expertise and a global network. And we work closely with the management to be a guide and sounding board on where to go, bringing the resources on board, defining priorities, and supporting the action plan. It is a sort of active shareholder position, working in partnership with the management in order to make that transition. And that can be with a minority or a majority stake. We are flexible with regard to that.

In periods of change, private equity might be a good partner. A strong shareholder base with large operational expertise certainly helps a company to go through such a period.

What proportion of your investments are in private companies versus listed companies?
Probably 80% of our cases have been investments in private companies.

We have invested in cases where a public company was struggling and where we felt the private route might work better, which is called a Public-to-Private situation. A good example of that is Alliance Boots, a famous British company which was on the stock market. We partnered with a major shareholder and entrepreneur to take it private and to drive all the changes needed to make Alliance Boots a global healthcare champion, with a speed and intensity that might not have been possible if the company had still been public.

We see it happen again and again. Private equity is valuable when it can partner with a company to go through a very significant step, be it geographic expansion, becoming independent from the mother company, consolidating the space, facing a sudden change like globalisation – all cases where it can be better to have a strong shareholder on board with whom you can work and manage the change.

You are long-term investors, clearly?
We typically invest in a company for seven years. You really need that time to make changes in the companies in which we invest.

How has private equity evolved?
What has not changed, is the ultimate red-face test: are we able to deliver superior, long-term, sustainable financial returns for our investors? In our business, we have to go back every few years to ask investors to commit new capital. If they think we’re unlikely to deliver long-term returns, the funding stops – plain and simple.

What also does not change is the accountability, intrinsic to our investment model. We always coinvest a substantial amount of our own funds and we share pain and gain with the investors who have entrusted us with their capital. We don’t win if our investors don’t win. And we ask the top managers of our companies to do the same.

Those basic mechanics have not changed, but the public context in which we operate has changed. Stakeholders, from employee representatives to governments, scrutinise whether and how the interests of the world of investment are aligned with theirs.

Alignment of interests is also about treating environmental, social and governance issues, which are material in the investment process, with the same diligence as any other financial or operational performance indicator.

At KKR we launched a programme to make sure that the companies in which we invest have best practices in terms of eco-efficiency.

What sort of relationship do you keep with companies when you have brought them to the stock market?
Very often when we IPO1 a company, we do not sell shares. By selling new shares, the company gets cash, sometimes to pay off part of its debt or to make acquisitions. Very often we remain involved with our partner-companies for several years following the IPO. Take the company called Legrand in which we invested in 2002, IPO-ed in 2006 and still today we have a third of what we invested.

How has private equity adapted to globalisation?
KKR was purely American up to 15 years ago. We opened offices in Europe twelve years ago, then in Asia six years ago. So now we have a global team of around 900 people.

Our team in China makes local investments but also helps our European companies to look for Chinese partners. I think that is pretty unique with KKR. Our global team really has that double focus: invest locally, and at the same time help companies from other regions to be successful in that local market. It creates a pretty powerful network that our companies have access to.

It is important that the CEOs of our portfolio companies feel: “it makes a hell of a difference being supported by KKR, rather than tackle the world by oneself.” -

Interview by Nicolas Kochan


<img1202|left>Un article issu de INFO Magazine,
November/December 2011
une publication de la Chambre de commerce et d’industrie française en Grande Bretagne

Hannah Meloul-Medioni
Corporate Communications Executive
Tel : +44 207 092 66 48
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