The Smash-and-Grab-Economy
After 16 years at the helm of Houdaille Industries, CEO Jerry Saltarelli wanted out. Since 1941, he’d poured his heart and soul into the company, starting out as a young lawyer and moving up the executive ranks. As CEO, he’d helped the company transform from a manufacturer of bumpers and shock absorbers into a nationwide construction and machine tools conglomerate.
With the company on solid footing, he was ready to retire, but there was a problem. Houdaille—cash-rich and with minimal debt—was the kind of company in vogue with the corporate raiders of 1970s Wall Street, and the New York Times declared that a takeover might prove “irresistible.” This would likely lead to restructuring and layoffs—bleeding the company of its value and tossing aside its way of doing business. Saltarelli wanted none of that. All he wanted was a way to sell his stake while keeping Houdaille independent, doing right by his colleagues, and protecting his legacy.
As he pondered his predicament, Saltarelli got a phone call from an unfamiliar trio of bankers. Jerome Kohlberg Jr., Henry Kravis, and George Roberts, friends from their time engineering deals at Bear Stearns, had started investment bank KKR just two years prior. They presented Saltarelli with a plan that they said could check all the CEO’s boxes: a leveraged buyout, or LBO. Saltarelli had to admit he’d never heard the term.
KKR arranged a meeting with Houdaille in Fort Lauderdale, Florida, where they explained how an LBO would work. Institutional investors would lend them money based on Houdaille’s healthy cash reserve, enabling KKR and
