Leveraged buyout

leveraged buyoutsLBOleveraged financeleveraged buy-outleverage buyoutbuyoutsyndicated leveraged financebuyout erabootstrap-financebought out
A leveraged buyout (LBO) is a financial transaction in which a company is purchased with a combination of equity and debt, such that the company's cash flow is the collateral used to secure and repay the borrowed money.wikipedia
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Management buyout

management buy-outmanagement buy outMBO
Such seller notes are often employed in management buyouts or in situations with very restrictive bank financing environments.
Management and leveraged buyouts became phenomena of the 1980s.

Private equity

private-equityequityPrivate equity investor
In addition to the amount of debt that can be used to fund leveraged buyouts, it is also important to understand the types of companies that private equity firms look for when considering leveraged buyouts.
Common investment strategies in private equity include leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital.

Financial sponsor

financial buyerfinancial sponsor coverageprivate-equity firm
The term LBO is usually employed when a financial sponsor acquires a company.
A financial sponsor is a private equity investment firm, particularly a private equity firm that engages in leveraged buyout transactions.

Victor Posner

Similar to the approach employed in the McLean transaction, the use of publicly traded holding companies as investment vehicles to acquire portfolios of investments in corporate assets was a relatively new trend in the 1960s, popularized by the likes of Warren Buffett (Berkshire Hathaway) and Victor Posner (DWG Corporation), and later adopted by Nelson Peltz (Triarc), Saul Steinberg (Reliance Insurance) and Gerry Schwartz (Onex Corporation). Among the most notable investors to be labeled corporate raiders in the 1980s included Carl Icahn, Victor Posner, Nelson Peltz, Robert M. Bass, T. Boone Pickens, Harold Clark Simmons, Kirk Kerkorian, Sir James Goldsmith, Saul Steinberg and Asher Edelman.
He was a pioneer of the leveraged buyout.

Jerome Kohlberg Jr.

Jerome Kohlberg
The leveraged buyout boom of the 1980s was conceived in the 1960s by a number of corporate financiers, most notably Jerome Kohlberg, Jr. and later his protégé Henry Kravis.
Jerome Kohlberg Jr. (July 10, 1925 – July 30, 2015) was an American businessman and early pioneer in the private equity and leveraged buyout industries founding private equity firm Kohlberg Kravis Roberts & Co. and later Kohlberg & Company.

Kohlberg Kravis Roberts

KKRKohlberg Kravis Roberts & Co.KKR & Co.
By 1976, tensions had built up between Bear Stearns and Kohlberg, Kravis and Roberts leading to their departure and the formation of Kohlberg Kravis Roberts in that year. In 1989, KKR closed in on a $31.1 billion takeover of RJR Nabisco.
Their acquisition of Orkin Exterminating Company in 1964 is among the first significant leveraged buyout transactions.

Harold Simmons

Harold
Among the most notable investors to be labeled corporate raiders in the 1980s included Carl Icahn, Victor Posner, Nelson Peltz, Robert M. Bass, T. Boone Pickens, Harold Clark Simmons, Kirk Kerkorian, Sir James Goldsmith, Saul Steinberg and Asher Edelman.
Harold Clark Simmons (May 13, 1931 – December 29, 2013) was an American businessman, investor, and philanthropist whose banking expertise helped him develop the acquisition concept known as the leveraged buyout (LBO) to acquire various corporations.

William E. Simon

William SimonBill SimonWilliam E. Simon Foundation
In January 1982, former U.S. Secretary of the Treasury William E. Simon and a group of investors acquired Gibson Greetings, a producer of greeting cards, for $80 million, of which only $1 million was rumored to have been contributed by the investors.
Simon was a pioneer of the leveraged buyout (LBO) in the 1980s.

Trans World Airlines

TWATranscontinental & Western AirTranscontinental and Western Air
Carl Icahn developed a reputation as a ruthless corporate raider after his hostile takeover of TWA in 1985.
Carl Icahn acquired control of TWA and took the company private in a leveraged buyout in 1988.

Barbarians at the Gate: The Fall of RJR Nabisco

Barbarians at the GateBarbarians at the Gate.the best-selling book of that name
The event was chronicled in the book (and later the movie), Barbarians at the Gate: The Fall of RJR Nabisco.
Barbarians at the Gate: The Fall of RJR Nabisco is a book about the leveraged buyout (LBO) of RJR Nabisco, written by investigative journalists Bryan Burrough and John Helyar.

Forstmann Little & Company

Forstmann LittleForstmann Little & Co.
A fierce series of negotiations and horse-trading ensued which pitted KKR against Shearson Lehman Hutton and later Forstmann Little & Co. Many of the major banking players of the day, including Morgan Stanley, Goldman Sachs, Salomon Brothers, and Merrill Lynch were actively involved in advising and financing the parties.
Forstmann, Little & Company was a private equity firm, specializing in leveraged buyouts (LBOs).

Buyout

bought outbuy-outbuy out
LBOs can have many different forms such as management buyout (MBO), management buy-in (MBI), secondary buyout and tertiary buyout, among others, and can occur in growth situations, restructuring situations, and insolvencies.
Leveraged buyout

Orkin

Orkin Exterminating CompanyI’m Otto, the Orkin Man
Their acquisition of Orkin Exterminating Company in 1964 is among the first significant leveraged buyout transactions.
Rollins' purchase of Orkin became known as the first leveraged buyout to be made in the United States.

Mezzanine capital

mezzanine debtmezzaninemezzanine financing
Junior debt (usually mezzanine capital): this debt usually has no securities and thus bears higher interest margins
In leveraged buyouts, mezzanine capital is used in conjunction with other securities to fund the purchase price of the company being acquired.

Corporate raid

corporate raidercapture raidcorporate raiding
During the 1980s, constituencies within acquired companies and the media ascribed the "corporate raid" label to many private equity investments, particularly those that featured a hostile takeover of the company, perceived asset stripping, major layoffs or other significant corporate restructuring activities.
In fact it is Posner, one of the first "corporate raiders" who is often credited with coining the term "leveraged buyout" or "LBO".

George R. Roberts

George Roberts
Working for Bear Stearns at the time, Kohlberg and Kravis, along with Kravis' cousin George Roberts, began a series of what they described as "bootstrap" investments.
Their acquisition of Orkin Exterminating Company in 1964 is among the first significant leveraged buyout transactions.

TPG Capital

Texas Pacific GroupTPGTRACE Group
At $31.1 billion of transaction value, RJR Nabisco was the largest leveraged buyout in history until the 2007 buyout of TXU Energy by KKR and Texas Pacific Group.
It is one of the largest private equity investment firms in the world, focused on leveraged buyouts, growth capital TPG also manages investment funds specializing in growth capital, venture capital, public equity, and debt investments.

The Wendy's Company

DWG CorporationTriarcTriarc Companies, Inc.
Similar to the approach employed in the McLean transaction, the use of publicly traded holding companies as investment vehicles to acquire portfolios of investments in corporate assets was a relatively new trend in the 1960s, popularized by the likes of Warren Buffett (Berkshire Hathaway) and Victor Posner (DWG Corporation), and later adopted by Nelson Peltz (Triarc), Saul Steinberg (Reliance Insurance) and Gerry Schwartz (Onex Corporation).
In 1997, Triarc acquired Snapple Beverages from Quaker Oats for $300 million, three years after Quaker Oats had purchased Snapple from leveraged buyout firm Thomas H. Lee Partners in 1994 for $1.7 billion.

Takeover

hostile takeoveracquisitionAcquired
During the 1980s, constituencies within acquired companies and the media ascribed the "corporate raid" label to many private equity investments, particularly those that featured a hostile takeover of the company, perceived asset stripping, major layoffs or other significant corporate restructuring activities.
Acquisitions financed through debt are known as leveraged buyouts, and the debt will often be moved down onto the balance sheet of the acquired company.

RJR Nabisco

Nabisco Holdings Corp.R.J.R. Nabisco
In 1989, KKR closed in on a $31.1 billion takeover of RJR Nabisco.
In 1988 RJR Nabisco was purchased by Kohlberg Kravis Roberts & Co. in what was at the time the largest leveraged buyout in history.

Public company

Publicpublicly tradedpublicly traded company
Similar to the approach employed in the McLean transaction, the use of publicly traded holding companies as investment vehicles to acquire portfolios of investments in corporate assets was a relatively new trend in the 1960s, popularized by the likes of Warren Buffett (Berkshire Hathaway) and Victor Posner (DWG Corporation), and later adopted by Nelson Peltz (Triarc), Saul Steinberg (Reliance Insurance) and Gerry Schwartz (Onex Corporation).
This is typically done through a leveraged buyout and occurs when the buyers believe the securities have been undervalued by investors.

Michael Milken

MichaelMichael P. MilkenMike Milken
Many of the corporate raiders were onetime clients of Michael Milken, whose investment banking firm, Drexel Burnham Lambert helped raise blind pools of capital with which corporate raiders could make a legitimate attempt to take over a company and provided high-yield debt financing of the buyouts.
This money-raising ability also facilitated the activities of leveraged buyout (LBO) firms such as Kohlberg Kravis Roberts and of so-called "greenmailers".

High-yield debt

junk bondjunk bondsjunk status
Many of the corporate raiders were onetime clients of Michael Milken, whose investment banking firm, Drexel Burnham Lambert helped raise blind pools of capital with which corporate raiders could make a legitimate attempt to take over a company and provided high-yield debt financing of the buyouts. In larger transactions, sometimes all or part of these two debt types is replaced by high yield bonds.
In a leveraged buyout (LBO), an acquirer would issue speculative grade bonds to help pay for an acquisition and then use the target's cash flow to help pay the debt over time.

Revco

Revco Drug StoresRevco Discount Drug StoresRevco Drug Stores, Inc.
By the end of the 1980s the excesses of the buyout market were beginning to show, with the bankruptcy of several large buyouts including Robert Campeau's 1988 buyout of Federated Department Stores, the 1986 buyout of the Revco drug stores, Walter Industries, FEB Trucking and Eaton Leonard.
In 1986, Revco was the target of a leveraged buyout.

Energy Future Holdings

TXUTexas UtilitiesTXU Europe
Additionally, U.S.-based private equity firms raised $215.4 billion in investor commitments to 322 funds, surpassing the previous record set in 2000 by 22% and 33% higher than the 2005 fundraising total The following year, despite the onset of turmoil in the credit markets in the summer, saw yet another record year of fundraising with $302 billion of investor commitments to 415 funds Among the mega-buyouts completed during the 2006 to 2007 boom were: Equity Office Properties, HCA, Alliance Boots and TXU.
From 1998 to 2007, the company was known as TXU Corporation until its $45 billion leveraged buyout by Kohlberg Kravis Roberts, Texas Pacific Group and Goldman Sachs Capital Partners.