Key Takeaways
- • Investopedia's overview profiles seven of the largest and most famous leveraged buyouts (LBOs), in which acquirers finance most of the purchase price with borrowed money, typically secured against the target's assets.
- • The 2007 Alltel deal, valued at about $27.5 billion by Goldman Sachs Private Equity and Texas Pacific Group (TPG Capital), was the largest U.S. telecom buyout at the time; the target was later sold to Verizon Wireless.
- • The 2006 HCA Healthcare buyout carried a total transaction cost of $33 billion, and the 2007 TXU Corp acquisition, valued at $45 billion, is described as the largest buyout in history.
- • The 2007 First Data Corp deal valued at $29 billion and the 2006 Harrah's Entertainment buyout at $27.8 billion (including $10.7 billion of debt) rank among the largest private equity transactions in technology and gaming.
- • RJR Nabisco, bought by Kohlberg Kravis Roberts & Co. for $25 billion in the late 1980s, remains the reference case for hostile, contested LBOs, according to the article.
Summary
A leveraged buyout is the acquisition of a company using a large share of borrowed funds, with the target's assets often serving as collateral. According to Investopedia, LBOs are commonly carried out by private equity firms and can be financed with up to roughly 90% debt, allowing large acquisitions with limited acquirer capital. Repayment typically comes from the acquired company's future cash flows or from asset sales, and deals are profitable when the target's return exceeds the cost of debt. The article notes that LBO activity peaked in the 1980s, slowed in the 1990s, and recovered in the early 2000s on low interest rates and easy lending.
The article profiles seven transactions. Alltel was acquired in 2007 by Goldman Sachs Private Equity and TPG for about $27.5 billion, the largest U.S. telecommunications buyout at the time. Goldman Sachs and TPG later sold Alltel to Verizon Wireless, a joint venture of Vodafone and Verizon Communications. Hospital Corporation of America was taken private in 2006 by HCA founder Dr. Thomas F. Frist Jr., Kohlberg Kravis Roberts & Co., Bain Capital and Merrill Lynch Global Private Equity in a deal with a total transaction cost of $33 billion. HCA later returned to public markets in 2011 and trades on the NYSE.
TXU Corp, the Texas power company now known as Energy Future Holdings, was the subject of a 2007 private equity acquisition valued at $45 billion, which the article describes as the largest buyout in history. The consortium drew in investment banks including Citigroup and Lehman Brothers alongside KKR, TPG and Goldman Sachs. In 2007, KKR acquired First Data Corp in a $29 billion deal that included restricted shares, stock options and debt, and that featured a 50-day "go-shop" period permitting competing proposals. Harrah's Entertainment was acquired in 2006 by Apollo Global Management and TPG for $27.8 billion, including $10.7 billion of debt; the company was renamed Caesars Entertainment in 2010.
The Equity Office Properties buyout was won by Blackstone Group after a bidding contest with Vornado Realty Trust. Blackstone raised its offer from $48.50 to $55.50 per share after Vornado proposed $52 per share, and the total transaction cost was $39 billion. The RJR Nabisco takeover, in which KKR acquired the tobacco and food company for $25 billion in the late 1980s after a contested fight, is described as the most controversial and aggressive hostile takeover in private equity history. Its enterprise value was estimated at $31 billion at the time, roughly $65 billion in today's terms, according to the article. The episode was chronicled in "Barbarians at the Gate." The article concludes that while many large LBOs have been significant in value, only a select few have proven successful.
The article profiles seven transactions. Alltel was acquired in 2007 by Goldman Sachs Private Equity and TPG for about $27.5 billion, the largest U.S. telecommunications buyout at the time. Goldman Sachs and TPG later sold Alltel to Verizon Wireless, a joint venture of Vodafone and Verizon Communications. Hospital Corporation of America was taken private in 2006 by HCA founder Dr. Thomas F. Frist Jr., Kohlberg Kravis Roberts & Co., Bain Capital and Merrill Lynch Global Private Equity in a deal with a total transaction cost of $33 billion. HCA later returned to public markets in 2011 and trades on the NYSE.
TXU Corp, the Texas power company now known as Energy Future Holdings, was the subject of a 2007 private equity acquisition valued at $45 billion, which the article describes as the largest buyout in history. The consortium drew in investment banks including Citigroup and Lehman Brothers alongside KKR, TPG and Goldman Sachs. In 2007, KKR acquired First Data Corp in a $29 billion deal that included restricted shares, stock options and debt, and that featured a 50-day "go-shop" period permitting competing proposals. Harrah's Entertainment was acquired in 2006 by Apollo Global Management and TPG for $27.8 billion, including $10.7 billion of debt; the company was renamed Caesars Entertainment in 2010.
The Equity Office Properties buyout was won by Blackstone Group after a bidding contest with Vornado Realty Trust. Blackstone raised its offer from $48.50 to $55.50 per share after Vornado proposed $52 per share, and the total transaction cost was $39 billion. The RJR Nabisco takeover, in which KKR acquired the tobacco and food company for $25 billion in the late 1980s after a contested fight, is described as the most controversial and aggressive hostile takeover in private equity history. Its enterprise value was estimated at $31 billion at the time, roughly $65 billion in today's terms, according to the article. The episode was chronicled in "Barbarians at the Gate." The article concludes that while many large LBOs have been significant in value, only a select few have proven successful.
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