Investment Approach

Kohlberg typically makes investments in North American-based middle market companies with enterprise values between $100 million and $1 billion, providing equity capital of $50 million to $300 million from the Kohlberg funds and as necessary we have and can augment our equity scale capability with co-investment from Limited Partners in Kohlberg Funds. We seek to generate attractive rates of return for our investors by partnering with management teams to execute transformational business strategies at portfolio companies.  Our strategies include implementing many or all of the following core tenets: best-practice programs to reduce costs and improve efficiency; investment in revenue-building opportunities (R&D capabilities, new product development and introduction, manufacturing capacity additions, new market expansion); working capital reduction and non-core asset divestitures; and aggressive add-on acquisition programs (historical average of two add-ons per platform investment).  In employing our value creation strategies, generally we use a lower degree of financial leverage than that employed by many other private equity firms and rely more on asset selection (industry, management teams and situations) and transformation through strategic plan implementation to generate returns.

Kohlberg devotes careful attention to industry selection and sub-sector investment thesis development, due diligence, transaction execution, and investment monitoring.  Primary responsibility for each potential investment is assigned to a transaction team led by an Investment Partner and joined by an Operating Partner.  These responsibilities begin at the transaction sourcing stage, where Kohlberg’s long operating history and distinguished reputation, combined with the broad networks of our Investment Partners and Operating Partners, lead to a consistently deep and relevant flow of potential transactions.  Moreover, Kohlberg differentiates itself in the middle market through its White Paper program of industry sub-sector research and transaction development.  Through our White Paper effort, our Investment Partners, working closely with a dedicated Operating Partner with expert sector knowledge, identify attractive sub-sectors within our five core industry verticals that match well with our sector views, the firm’s investment history and the skills and expertise of our investment team.  We then perform exhaustive research on the particular sub-sector to develop a proprietary investment thesis.   Following presentation and approval of a completed White Paper, which will include a list of investment targets, our teams begin proactive origination to secure a compelling acquisition candidate through which to effect the White Paper thesis. Although this process tends to have a longer gestation cycle, through it we are able to better control our deal sourcing destiny, smoothing out the otherwise opportunistic and episodic market deal flow with more relevant opportunities. In addition, our White Paper process focus allows us to align our transaction flow closely with our sector views and portfolio construction objectives, while also leveraging our up-front industry work to prevail in competitive situations. 

Once a potential investment has been identified, our team works with management to achieve in-depth understanding of the company’s business and markets, including evaluating and quantifying opportunities for increasing revenue and profitability.  They also perform extensive business, legal and accounting due diligence, culminating with the preparation, in close collaboration with management, of a detailed five-year business plan. The management of each portfolio company is responsible for achieving the performance targets set forth in this plan. Although we establish a close working relationship with each portfolio company, Kohlberg’s professionals are careful to respect the division of responsibilities between investors and operating management. 

© 2019 Kohlberg & Company, L.L.C.

Photography courtesy of C. Bernstein & MGF