The Biggest Leveraged Buyouts


Private equity firms put together deals to purchase companies for their investors. It’s a proven way to generate healthy ROIs and many of these companies are handling billions of dollars in assets. The deals involve the acquisition of businesses of all kinds in every field and industry. Among the biggest of these acquisitions are the leveraged buyouts. In this type of deal, a significant amount of the purchase price is borrowed, or leveraged, using the assets of the company being acquired as collateral. Leveraged buyouts can be tricky to put together and have the challenge of operating the newly acquired company with a large amount of debt. Some of the most famous leveraged buyouts in history are still discussed in financial circles today.

1955 – MacLean Industries

Leveraged buyouts are commonplace today, with companies like Bernhard Capital Partners Management, founded by Jim Bernhard, putting them together on a regular basis. Everything has a beginning and the first leveraged buyout in history occurred in 1955. The acquisition price was $49 million, pocket change by today’s standards but a tidy sum back then. MacLean acquired the Waterman Steamship Company and in a stroke of brilliance used $20 million of the newly acquired company’s liquid assets to pay down the loan. It was a successful deal and went down in history as the first of its type.

1989 – RJR Nabisco

The most well-known of all leveraged buyouts is KKR’s purchase of tobacco/food conglomerate RJR Nabisco for $31.1 billion. It was a bold move that inspired a book and a film, “Barbarians at the Gate: The Fall of RJR Nabisco”. KKR prevailed over formidable competition from Shearson Lehman Hutton. The largest LBO in history at the time, it demonstrated what creative and motivated financiers could do with cheap credit.

2007 – Energy Future Holdings

This $45 billion leveraged buyout of Energy Future holdings was engineered by a consortium consisting of KKR, TPG Capital, and Goldman Sachs. It is perhaps better described as infamous rather than famous. Despite the brilliant and talented minds behind the buyout, it flopped badly. Oil prices were expected to rise to over $200 a barrel in 2007. No one anticipated the arrival of fracking which caused prices to plummet to $40 a barrel. The company attempted to restructure multiple times but ended up filing for Chapter 11 bankruptcy seven years later.

2007 – Petsmart

This $8.7 billion LBO involved much less capital than the others but is a great example of obtaining a company for a good price and employing a sound operational strategy immediately upon acquisition. Just one year after the buyout, Petsmart paid its shareholders $900 million in dividends. This rapid ROI happened in the midst of a recession. It showed great savvy in the realization that people love their pets and will spend money on them even during difficult economic times.

The world of high finance can be fascinating with mergers and acquisitions involving gargantuan sums of money. Many of the biggest deals in history have been leveraged buyouts. These ventures carry big risks as they start the new era with a sizeable amount of debt. They sometimes fail, often spectacularly. When they work, the results can be enormously profitable. They go down in history, remembered and discussed for decades, much the way sports fans talk about great games.

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