As KKR, a private equity firm, prepared to take Gardner-Denver, one of its portfolio companies, public in mid-2017, a discussion arose on the Gardner-Denver board about the implications of granting approximately $110 million in equity to its global employee base as part of its innovative “broad-based employee ownership program.”
KKR (formerly known as Kohlberg Kravis Roberts & Co.) had bought equipment manufacturer Gardner-Denver in July of 2013 for $3.9 billion. The acquisition had been headed by Pete Stavros, a partner and head of the Industrials group. Three years earlier, Stavros and his team had set aside stock options as part of its 2013 Stock Incentive Plan – with the expressed intention of converting the options to stock and then distributing to all employees at the time of the IPO.
Gardner Denver’s board was comprised of both KKR and non-KKR executives. Those who hailed from outside of KKR were unfamiliar with KKR Industrials’ program for broad-based ownership and were interested in better understanding the implications of the program now that it was imminent. First and foremost, the board was interested in evaluating the potential benefits and limitations of the program. Was the generous equity package that Stavros proposed be allotted to 6,100 employees the wisest move and the right timing for Gardner Denver and its new shareholders? If so, what was the optimal way to implement the program across 70 to 80 countries in which Gardner-Denver operated worldwide? What changes would need to occur in the Gardner Denver culture to pull off a program of this magnitude, with no real precedent outside of KKR Industrial’s experience? And how much operational improvement would Gardner Denver need to achieve such that the program would pay for itself, given the level of dilution associated with it? Yale Case 20-039.