The 1988 buyout of RJR Nabisco certainly holds a vaunted place in the history of private equity, marking both the culmination of the so-called “junk bond era”and the beginning of the industry's longstanding struggle with its public image.
But the deal and the bestselling book that chronicles its execution, Barbarians at the Gate, have also occupied a unique place in academia, gracing the syllabuses of countless business school courses across the US as required reading for MBA students.
The Stanford Graduate School of Business, Harvard Business School, the William S. Spears School of Business at Oklahoma State and the Tuck School of Business at Dartmouth are just a handful of schools that have currently or in recent years featured the book in courses ranging from corporate governance to executive leadership to leveraged finance.
Professor Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Tuck, has been assigning the classic text since 1996 in his popular private equity finance class.
“We were giving them access to this private world that otherwise is not easy to penetrate,”says Blaydon, who in addition to his position at Dartmouth also holds board seats on Borealis Ventures, Merrill Lynch Private Equity Partners and Altus Capital Partners. “The book is a great read and it's the kind of thing that our students get excited about.”
Blaydon employs the deal as a teaching tool in several different ways. From a technical perspective, the sheer mechanics of how KKR finally arrived at RJR's final $31.1 billion price tag provides a useful illustration of calculating adjusted present value, an essential tool for any aspiring student leaning towards a career in private equity.
“It's a wonderful exercise for the students to show explicitly how and why putting debt on a deal actually adds economic value and increases the enterprise value,”said Blaydon. “It's an academic enterprise but it's on the iconic leveraged buyout of 20 years ago.”
Beyond providing a good example of the ‘nuts and bolts’ of a multi billion leveraged buyout, Barbarians, authored by former Wall Street Journal reporters Bryan Burrough and John Helyar, provides an exhaustively detailed portrait of some of the most compelling personalities in private equity – most notably Kohlberg Kravis Roberts cofounder Henry Kravis.
Since first hitting bookstores in 1989, Barbarians' depiction of Kravis and KKR is still perhaps the most intimate account of the man and the firm, providing students with a detailed look at what has now become one of the most iconic figures on Wall Street.
“If someone is a major business figure and is known for having been a big success, they come very close to MBA students to being automatically accorded hero status,”says Blaydon. “And Henry Kravis is definitely in that category. When Barbarians came out, that was the first time that really the people in this industry got to be such widely known figures.”