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Welcome to Due Diligence, your briefing on dealmaking, private equity and corporate finance. This article is an on-site version of the newsletter. Sign up here to get the newsletter sent to your inbox every Tuesday to Friday. Get in touch with us anytime: Due.Diligence@ft.com

KKR enters a new era

Ross Johnson believed the rules of Wall Street were simple. “Never play by the rules,” the former RJR Nabisco chief executive once insisted. “Never pay in cash. And never tell the truth.”

But he forgot the most important rule of all: never mess with the Masters of the Universe.

Immortalised in Barbarians at the Gate, which chronicles the events behind the largest leveraged buyout of the time, Johnson became a symbol of corporate greed for his role in inciting and losing a fierce $25bn takeover battle against private equity group KKR in the late 1980s. (Alphaville’s Jamie Powell recounts some of the book’s best moments here.)

Meanwhile, the architects of the mega-deal, KKR’s Henry Kravis and George Roberts, began a rapid ascent, creating one of the most formidable financial empires Wall Street has seen and leaving a $4tn investment industry in their wake.

Henry Kravis and George Roberts of KKR © FT montage; Bloomberg

Nearly half a century later as Kravis and Roberts descend their thrones, their successors will inherit a firm deeply transformed from when it started, as DD’s Antoine Gara and Mark Vandevelde explore in this deep-dive.

KKR’s breakneck expansion over the ensuing decades has, ironically, enabled the buyout group to grow so large that on some measures it now outsizes the bursting conglomerates it once sought to dismantle.

The combined value of KKR and its publicly listed peers has more than tripled since the depths of last year’s market sell-off. That’s one reason why KKR now looks more like a pillar of the financial world itself, rather than an insurgent trying to knock the traditional power structures down.

It’s not alone. KKR’s rival Apollo Global Management has merged with Athene Holding, an insurance group that it created, to become a financial powerhouse that defies categorisation. And as Lex points out, Blackstone’s $700bn in assets outweighs that of both Apollo and KKR by hundreds of billions.

Incoming chiefs Scott Nuttall and Joe Bae are set to take over a far bigger brief than merely running one of the biggest buyout funds on Wall Street. Private equity now accounts for a little more than half of KKR’s $429bn portfolio of assets.

Nuttall and Bae, 48 and 49 years of age respectively, who started at KKR in their twenties, must steer a highly diversified institution with its fingers in the infrastructure, real estate, private credit and even insurance pots.

As for Johnson, who passed away in 2016, the years following the era-defining RJR Nabisco battle seemed to also set him on a path of transformation.

“Between the book and the movie, everyone knows who the hell you are. I mean, it’s been 20 years! But people, they think you’re a star,” he told the Barbarians at the Gate authors Bryan Burrough and John Helyar in the book’s epilogue.

Private equity takes on Sanjeev Gupta

“The strength of the wolf is the pack, and the strength of the pack is the wolf.”

That’s the motto that inspires American Industrial Partners, the private equity firm that has claimed control of one of Sanjeev Gupta’s best assets.

If it sounds familiar, the line pulled from AIP’s website is a reference to The Jungle Book, though the original version has the clauses the other way around so that the pack comes first.

AIP has no staff outside of New York, but four of its executives — Dino Cusumano, Danny Davis, Zac Carson and Max Holmes — turned up in northern France last week to tell 100 workers at Gupta’s Dunkirk aluminium smelter that their private equity group is now in charge.

Losing the Dunkirk aluminium smelter to private equity firm American Industrial Partners would represent a significant setback for metals magnate Sanjeev Gupta © FT montage; Bloomberg

(Don’t miss the FT’s latest on Gupta’s Mykonos birthday bash and the rest of our coverage here.)

AIP had started buying the smelter’s debt in April, when it was in talks with Gupta’s GFG about a sale of the Dunkirk plant and GFG’s aluminium mill in Duffel, outside Antwerp.

By July those talks had fallen apart, and Gupta was talking to Glencore about a possible alternative that could have allowed him to keep control.

Around that time, AIP bought a second chunk of the smelter’s debt. That would later provide the basis for it to foreclose and claim control, saying Gupta’s company had defaulted.

“A lot of people would have been interested in the asset, but the problem was that it wasn’t for sale,” said a senior figure at France’s economics ministry, whose approval is needed since the Dunkirk smelter is deemed a “strategic asset”.

AIP “were quick, and ready to pay 100 per cent of the price of the debt to take control”, the person said. “We had no objection.”

Gupta, on the other hand, did object. He has threatened legal action and said AIP’s argument about the default was “incorrect” and the buyout group was trying to snap up his business “on the cheap”.

The US private equity firm’s approach to Gupta stands in stark contrast to that of Credit Suisse, to which GFG owes $1.3bn. The Swiss lender has given him breathing space on legal action that could force some of his companies out of business, and this week agreed to accept a partial repayment and a commitment to repay the rest in the future.

Industrial America: AIP’s companies

So what do we know about AIP? Well, the firm — no stranger to the controversy that can result from buying into struggling companies — typically sniffs for value in the neglected corners of America’s industrial economy.

That has produced mixed results. Its 2007 fund was in the top quartile compared to peers, but its three funds since then have all been third or fourth quartile, according to PitchBook.

Dig deeper with this report from DD’s Kaye Wiggins and Mark Vandevelde and the FT’s Sylvia Pfeifer and Anna Gross.

Can Hui Ka Yan’s billions spare him from the Evergrande crisis?

Evergrande boss Hui Ka Yan, once China’s richest man, used to be a symbol of success.

Just take a look at the impressive collection of luxury assets he amassed over the years, including lavish homes, Rolls-Royces and private jets.

Now Hui’s woes, as his real estate empire teeters on the brink of collapse, have cast an unfavourable light on his lavish lifestyle.

The troubled property tycoon is having to hunker down and face his company’s staggering $300bn of total liabilities amid intensifying scrutiny from China’s senior leadership.

Evergrande’s woes have thrown an uncomfortable spotlight on Hui Ka Yan’s lavish lifestyle, with some angry investors now demanding he personally pay them back © Bloomberg

Despite his penchant for spending exuberant sums via shell companies and rubbing elbows with celebrities, Hui had largely managed to evade a crackdown by authorities on his fellow billionaires in the name of “common prosperity”.

He’d been photographed with the Communist party’s ruling elite as early as July, long after his tech billionaire friend Jack Ma, with whom he co-owned the Guangzhou Evergrande football team, had temporarily vanished from the public eye.

But Evergrande has now been singled out as one of the worst offenders in Beijing’s efforts to rein in its leverage-fuelled property sector.

The group’s value has plummeted more than 80 per cent since July — dragging Hui’s 71 per cent stake with it. It’s unclear whether Hui’s $11.8bn in remaining wealth could fall vulnerable to angry investors demanding he personally pay them back, or other penalties from Beijing.

A screen grab taken from video showing Prince Andrew, left, Jack Ma, centre, and Hui Kan Yan in one of Evergrande’s hotels © qq.com

Meanwhile, Hui’s friends in high places have fallen from their pedestals. Ma has returned to the global stage devoid of his signature freewheeling bravado, while one of his flashiest allies, Britain’s Prince Andrew, confronts a scandal over his association with the late sex offender Jeffrey Epstein.

Even Hui’s longstanding ally Joseph Lau, the Hong Kong property magnate, has begun to offload his company’s stake in Evergrande.

What’s the fun in owning a 60-metre megayacht when there’s no one to come aboard?

Job moves

  • Slaughter and May has elected its current head of M&A Roland Turnill to succeed Steve Cooke as its next senior partner when he steps down in May 2024. He will work alongside the firm’s recently elected managing partner Deborah Finkler.

  • Former UK chancellor Lord Philip Hammond has joined UK cryptocurrency custody and trading group Copper as an adviser, becoming one of the best-known political figures to join the fast-growing digital assets industry.

  • Freshfields has lost two of its private equity partners, Keir MacLennan and Vincent Bergin, to Kirkland & Ellis.

  • Citigroup has appointed Rutger van Nouhuijs as head of banking, capital markets and advisory for Benelux based in Amsterdam. He was previously chief executive of corporate and institutional banking for ABN Amro.

  • Online fashion retailer Asos has announced the immediate departure of chief executive Nick Beighton.

  • Private equity firm Carlyle has appointed Ryan Selwood as its chief development officer, to work on growth initiatives and corporate M&A. He was previously head of direct private equity at the Canada Pension Plan Investment Board.

Smart reads

Untethered Tether has been lauded in the cryptocurrency world as a “stablecoin” because it is backed by traditional dollars. But with billions in reserves nowhere to be found, US authorities have begun to suspect a massive fraud. (Bloomberg)

Blank-cheques and basketball The pandemic put Houston Rockets owner Tilman Fertitta’s empire of restaurants and casinos in jeopardy. But a series of Spac slam dunks have helped the billionaire stage a comeback. (Forbes)

M&A uncorked The wine industry is experiencing a dealmaking renaissance as restaurants and bars reopen their doors to private capital groups and blank-cheque firms targeting vineyards and distributors. (Wall Street Journal)

News round-up

Japan’s $90bn university fund struggles to draw talent despite size (FT)

US-listed Chinese group Renren settles investor complaint for $300m (FT)

Carrefour calls off deal talks with Auchan (FT)

Credit Suisse report into Greensill failings hit by delays (FT)

Invesco steps up battle with Zee founders over Sony takeover offer (FT)

BP’s African middlemen: rules of engagement (FT)

Electric vehicle charging group Pod Point to list in London (FT)

US companies authorise more than $870bn in stock buybacks (FT)

ConsenSys funding round would value crypto start-up at $3bn (FT)

UK funds split over disclosing how much ‘skin in the game’ they have (FT)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com

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