Last Updated on October 10, 2025 by Jason Andrew
When most people think of private equity – they think of Barbarians at the Gate.
Wall St guys in suits about to squeeze every last penny they can out of a company.
Pack on debt. Slash jobs. Juice margins. Then sell to the next highest bidder.
But when PE works, it can be life changing for everyone involved in the business. From the office receptionist, to the factory floor workers, to the delivery drivers. Everyone can win.
The secret? Employee ownership.
In 2015, KKR acquired CHI overheads and did just that – granting an employee ownership plan.
The result was extraordinary.
The business returned 10x KKR’s invested capital over 7 years.
But more importantly – it was life changing for the employees. The average employee took home $175k, and some hourly workers were even able to make $500k – $1m through the deal.
Incredible.
For these workers in the heartland of America, this is more money than they have seen in their entire lives.
So what can we learn from the KKR story of CHI?
Let’s break it down.
What is CHI Overheads?
Well, for starters, they’re the definition of an unsexy business. They manufacture doors just like this for everyday American homes.
That’s right. KKR returned 10x on a garage door business. This wasn’t some rocket ship tech company.
Their business is split between a residential segment and a commercial door segment, and most of their products are in the $1k – $6k range.
Interestingly, their products are all manufactured from steel (although some look like wood), and are very high quality.
They are based in Arthur Illinois, and a significant proportion of their workforce are from the Amish community.
Deal Breakdown
In 2015, CHI came up for sale through an M&A process.
What’s so interesting here is that the business had 3 previous private equity owners (Friedman Fleischer & Lowe, JLL Partners and Long Point Capital & NMP Capital).
It’s generally a bad sign when PE starts playing pass the parcel with businesses.
After all – there is usually only so much low hanging fruit that can be implemented to improve returns.
But CHI was an exception.
Despite having previous PE owners – the business was not being run very efficiently.
Pete Stavros, the KKR honcho who ran the deal process, realised they had a gem on their hands because the business had done well under previous owners without much operational excellence.
Asking the usual questions, they quickly realised there was lots of things they could implement to improve the business:
“Who’s your head of procurement? – ‘we don’t have one’
Tell us about your last three sales effectiveness initiatives? – ‘we don’t really do that here’
Then you look at the org structure of sales and there’s one person who everyone is reporting to – there was no structure” – Pete Stavros on Capital Allocators
Despite this lack of structure in the business, the previous owners had still gotten a 2-3x MoM return. That was the nail in the coffin.
KKR knew they wanted the business, so they pounced, put in a healthy offer at 13x EBITDA and offered to close within 72 hours – pre-empting the process.
This feels expensive (there is no way a garage door company would transact for 13x in Australia), but speaks to the depth of the US market and the level of competition.
They got their hands on the business for $685m. A good business at a fair price.
The alpha in this deal for KKR was that other investors had written off the deal. Not only are most investors hesitant to buy from other PE buyers (rightly so), but garage doors didn’t have some unique growth story to create an inflection in the business.
“The fact that it was a garage door company held it back a bit (in the eyes of investors)”
The ESOP Plan
Okay. Let’s get to the good part.
So how did the ESOP plan work?
Well it turns out that the guy running the deal at KKR, Pete Stavros, was a big advocator for letting employees have equity in the business.
Pete didn’t come from money. His Dad had worked as a road paver for a construction company in Chicago when he was younger.
What he realised listening to his Dad was that there was no incentive for him to work any harder.
He didn’t get paid to do a high quality job. He only got paid by the hour.
If his Dad worked too fast, and he was too productive, his hours would go down and his paycheck would go down.
So at CHI, they gave roughly ~3.5% of the company to regular employees (on top of the usual management compensation plan).
For workers making, <$100k, this equity was granted as a free equity benefit on top of their base wages.
This nuance is quite important.
Low wage employees weren’t needing to ‘buy in’ and risk not putting food on the table for their families.
For workers making more than $100k per year, they could also choose to trade off some direct cash compensation for more equity upside.
The Power of Ownership
Okay. So how do you go from employee ownership to a 10 bagger?
Well – that’s the power of ownership.
In the factory of Geena Grant, Factory worker at CHI, “It’s easy to spend somebody else’s money. But when you work for it, and you own it. There’s a difference”.
It’s pretty hard to get low cost workers to care about making great products when they get none of the upside in the company. It’s much easier when incentives are aligned.But you can’t just hand out equity and expect earnings to magically triple.
KKR was very hands on with getting their employees engaged.
They would host quarterly ‘owner’ meetings for all of their employees that allowed them to see revenue and earnings growth – to show the employees what could happen if they worked together.
On top of this – they also surveyed employees to work out where they wanted to invest in the business. What they found was interesting – the employees wanted better investment in health & wellness.
At the time 14/100 workers at the Factory would get injured every year. On top of this, the factory in Illinois was stinking hot in summer – with no air conditioning, and the workers were being fed prison quality food at lunch.
So they asked for:
- Air conditioning in the factories
- Healthier food at lunches
- A medical centre for workers to get free health checkups
In other words – they listened to employees and gave them what they wanted.
From Ownership to Earnings Growth
Getting employees to buy in had a huge impact financially.
At the time of acquisition – the business had ~21% EBITDA margins, with low 30% Gross Margin and mid single digit revenue growth (5-8%) YoY.
But after KKR’s hold period:
- EBITDA increased nearly 4x organically
- EBITDA margins expanded from 21% to 30%+
- Revenue grew by ~120% through facility expansion (new Indiana plant) and operational efficiencies
There wasn’t one silver bullet here. Just a lot of lead bullets.
Operationally, KKR was very smart about implementing changes to the business.
- There were improvements across the way trucks were being loaded to deliver product to customers
- Scrap waste in the business was reduced, boosting margins
- Changes to the packaging to improve quality
- Working capital optimisations were made to the business
As the business started to perform well, they were able to start pay dividends to the employees – paying out roughly ~$9,000/employee over the hold period.
Pushing to Exit
After holding the business for 7 years, KKR ran a process to sell the business.
It found a great home at Nucor Steel, one of the largest steel manufacturers in the US.
What’s more, it sold for for $3 billion, representing a 10x return on KKR’s original equity investment.
Fortunately, the business didn’t end up in the hands of a set of corporate raiders to destroy the culture built at the company.
Depending on how long employees at the company had been working – the payouts of workers varied from 20k all the way up to north of $1m – with the average employee receiving $175k.
It’s pretty incredible what impact this had on the lives of these workers, and their local community.
There’s a great video showing their reaction to the news of their payouts after the business was acquired worth watching.
For an industry renowned for bad behaviour, destroying business and cutting jobs – this story rings different.
CHI vs Standard Stock Grant Plan
I know what you’re thinking – if employee equity is so effective – why doesn’t every PE firm use it?
Typically – management equity plans in PE deals are structured so that management will own ~8-12% of the business and the PE firms will hold the rest.
Management usually pays a nominal amount (1x their salary) for this equity stake at a discounted price – allowing them to ‘buy in’, and incentivising them to grow the business for the PE firm.
The CEO would then take ~40% of the total equity pool granted to management.
The difference in this deal is that on top of the 8-12% management dilution, there is another 3-4% dilution due to the employees.
So the question becomes if an incremental 3% – 4% dilution will yield a higher return to the PE shop?
In this case – that answer was a resounding yes. Obviously, this isn’t going to be true in all cases, particularly if the equity doesn’t actually get employees to work harder.
But if the CEO get’s ~4% of the business, why shouldn’t blue collar workers also get some upside?
With the success of the CHI deal, KKR has rolled out this employee stock grant strategy across all of their North American Private Equity deals.
The Future of PE
The KKR CHI deal has lots of pushback.
The workers got a great payout – but KKR and their investors were the ones who took home the lion’s share of the profits.
But, I think the more important takeaway is that giving all employees equity (not just fancy execs) can really change people’s lives, and deliver great returns.
If everyone started thinking more like an owner, the world would be a lot better place.
