Barbarians at the Gate

Barbarians at the Gate: The Fall of RJR Nabisco
By Bryan Burrough and John Helyar
Published in 1989
582 Pages
Thibault’s Score: 4/5

Barbarians at the Gate: The Fall of RJR Nabisco is probably the world’s best known book about private equity leveraged buyouts. It covers the insane bidding war between KKR, Forstmann Little & Company, Shearson Lehman Hutton, and others.

Several things struck out to me as I embarked on my journey through the world of late 1980s private equity.

First, the level of greed and decadence of RJR Nabisco’s last CEO Ross Johnson is truly staggering. The worst left wing stereotypes about cruel, sociopathic, and greedy CEOs are all embodied in the person of Johnson. Johnson was shamelessly looting Nabisco’s coffers, spending incredible amounts of money on private jets, country clubs, and mistresses.

The next oddity is that the private equity was not taking the stock public and doing an IPO. The private equity firms of the 1980s seem to in fact be doing the opposite of what modern firms do - they were taking RJR Nabisco’s already public stock private. I don’t really understand the economics of LBOs, and why PE firms would benefit from taking the stock private.

Finally, the behavior of the private equity fund managers described in the book doesn’t mesh well at all with the behavior I have observed in PE people during my day to day life. My image of private equity is that of extremely serious people very concerned about metrics and data. The private equity GPs of the 1980s are backstabbing frat bros with billions of dollars at their hands. The sheer scale of the disinformation tactics and treachery they displayed when interacting with each other is truly incredible.

I don’t understand why the share price went up from $75 to $112. To me it seems like the whole deal was a fiasco. I am shocked that KKR has survived, especially because it seems to me like the most expensive deals are always the worst ones.

Barbarians at the Gate is probably the most widely read and recommended book in the history of private equity. I am not sure if it merits that title, because if it does, then it doesn’t bode well for the rest of the private equity literature. That being said, it succeeds in the sometimes irreconcilable tasks of being both incredibly informative as well as incredibly entertaining.

Much about the world of private equity remains a mystery to me. But the case study of the decline and fall of RJR Nabisco is definitely worthwhile. I recommend this book to anyone who wants to learn more about private equity.

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