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10 of the Most Famous Leveraged Buyouts (LBOs) in History

Show Notes Of Podcast

The Most Famous Leveraged Buyouts (LBOs) in History

  1. RJR Nabisco (1989): $31 billion
  2. McLean Industries (1955): $49 million
  3. Manchester United Football Club (2005): $790 million
  4. Safeway (1988): $4.2 billion
  5. Energy Future Holdings(2007): $45 billion
  6. Hilton Hotels (2007): $26 billion
  7. PetSmart (2007): $8.7 billion
  8. Alltel (2007): $25 billion
  9. Kinder Morgan (2006): $22 billion
  10. HCA Healthcare (2006): $33 billion

Leveraged buyouts are often a better idea in theory than in practice: It’s all very well to saddle a company with debt to take it over, the problem is that it also has to operate with that debt on its balance sheet in the years that follow.

Dozens of deals are testament to the fact that this fine balance isn’t always easy to achieve.

Below, we look at some of the most well-known LBOs in history and find that there are as many successes as failures to report since the first LBO over half a century ago.

Leveraged buyouts are often a better idea in theory than in practice: It’s all very well to saddle a company with debt to take it over, the problem is that it also has to operate with that debt on its balance sheet in the years that follow.

Dozens of deals are testament to the fact that this fine balance isn’t always easy to achieve.

Below, we look at some of the most well-known LBOs in history and find that there are as many successes as failures to report since the first LBO over half a century ago.

The Most Famous Leveraged Buyouts (LBOs) in History

  1. RJR Nabisco (1989): $31 billion
  2. McLean Industries (1955): $49 million
  3. Manchester United Football Club (2005): $790 million
  4. Safeway (1988): $4.2 billion
  5. Energy Future Holdings(2007): $45 billion
  6. Hilton Hotels (2007): $26 billion
  7. PetSmart (2007): $8.7 billion
  8. Alltel (2007): $25 billion
  9. Kinder Morgan (2006): $22 billion
  10. HCA Healthcare (2006): $33 billion
The Most Famous Leveraged Buyouts (LBOs) in History

1. RJR Nabisco (1989): $31 billion

“Recognize that ultimate success comes from opportunistic, bold moves which by definition, cannot be planned.”

Bryan Burrough, Barbarians at the Gate: The Fall of RJR Nabisco

Even after hundreds of LBOs in the three decades since, the RJR Nabisco LBO is easily the most well-known of all in the genre.

This is in large part due to the book and subsequent film that the deal spawned but also because of the sheer audacity of the deal. KKR’s move for RJR Nabisco showed that, with cheap credit, good financiers were capable of pulling almost anything off.

Virtually any firm could become the subject of an LBO. And in the years that followed, many of them did.

2. McLean Industries (1955): $49 million

Although by today’s standards, $49 million is small change for LBOs, it’s worth remembering first that the deal was conducted over 60 years ago. And second, that it is still considered the first even LBO.

While LBOs are standard fare now, at the time, this deal represented true financial ingenuity: As soon as the deal to acquire the Waterman Steamship Company concluded, McLean Industries used $20 million of the company’s own cash and liquid assets to pay down the loan - a simple stroke of genius dreamt up by the leaders of McLean Industries.

3. Manchester United Football Club (2005): $790 million

The Glazer family recently enjoyed sporting success with the Tampa Bay Buccaneers' second Super Bowl win, but for years, a different kind of football has brought them great success in the financial stakes: soccer.

In 2005, the Glazers saw the cash generating power of European soccer before even Europeans recognized it. They loaded Manchester United’s balance sheet with $660 million to acquire an asset that has subsequently been valued at over $2 billion.

And thanks to the power of LBOs, they were able to take control for less than $150 million.

4. Safeway (1988): $4.2 billion

The second appearance of KKR on this list says everything about the success of one of the world’s largest private equity firms when it comes to LBOs.

In 1988, Safeway had been suffering from financial difficulties, for a few years when KKR made an approach. Loading its balance sheet with debt upon the acquisition, it immediately began selling off non-performing assets - in fact, over half of its 2,300 stores.

This allowed it to pay down some of its debt and reach profitability. In 2021, the company still exists and have annual revenues in excess of $35 billion.

5. Energy Future Holdings(2007): $45 billion

If the LBOs covered in this list thus far can all be classified as outstanding successes, the leveraged buyout of Energy

Future Holdings by a consortium of KKR, Goldman Sachs, and TPG Capital in 2007. Given the consortium in question, it wasn’t for a lack of intelligent minds behind the deal. However, even the greatest minds can be victims of timing.

In 2007, everyone expected oil prices to rise beyond $200 a barrel. Instead, fracking came along and the price of a barrel tumbled to $40. In 2014, after many attempted restructurings, the firm filed for Chapter 11 bankruptcy.

6. Hilton Hotels (2007): $26 billion

If the timing was bad for Energy Future Holdings, it appeared equally so, if not worse in the case of Hilton Hotels.

When a consortium that included the Blackstone Group, Bear Stearns and Lehman Brothers acquired the famous chain for $26 billion in 2007, the world was just about to enter the biggest real estate depression of all time. And yet, understanding the long-term nature of an investment can often be key to its success.

After the recession, travel picked up, a Hilton hotel was still a Hilton hotel. Blackstone finally cashed in in 2018, making several billion dollars on the deal that everyone had assumed was a bust.

7. PetSmart (2007): $8.7 billion

Acquiring a business for the right price is always a good start in mergers and acquisitions, but it can be said to be even more true for LBOs.

The added financial pressure added by leverage makes it an imperative for the acquirers’ operational strategy to kick into gear as soon as the ink has dried on the contract. That was the case with PetSmart in 2007.

It paid out its shareholders a $900 million dividend a year after the takeover, showing that pet owners won’t stop spending on their pets, even when a recession arrives on their doorstep.

8. Alltel (2007): $25 billion

Looking back, it’s hard not to see the LBO of Alltel by TPG Partners and Goldman Sachs as a preconceived short-term play for a company that was obviously going to be attractive to other companies in the mobile telecommunications sector.

Recall that 4G telephony was coming into play at that time. Less than a year later, the company was sold on to Verizon Wireless for just over $28 billion, netting Goldman Sachs and TPG Partners a cool $3 billion profit on a transaction that they barely had time to get their hands dirty on.

9. Kinder Morgan (2006): $22 billion

On paper, the Kinder Morgan deal had a few things going for it: the price of a barrel of oil seemed to be on a never-ending upward spiral in 2006, the deal was said to have none of the volatility that came with being an upstream player in the oil and gas industry, and above all, it was led by the company Chairman and CEO, Richard Morgan.

But a 27% premium in the acquisition price over the market value, a slump in energy demand, and too much leverage all combined to hamper the deal. The company now languishes at around 40% of its 2011 IPO value.

10. HCA Healthcare (2006): $33 billion

Yet another LBO by KKR and its partners in the mid-2000s, the HCA Healthcare transaction stands out above all others because of the value that it generated.

At a time when everyone was enthusing about real estate and the oil industry, the big winners, like HCA, were in health care. At the time the deal closed, it was the largest LBO in history.

The deal was an undoubted success, with a market cap now touching $60 billion, proving that there are LBO successes out there if you only look for them.

m&a science poscasts

Leveraged buyouts are often a better idea in theory than in practice: It’s all very well to saddle a company with debt to take it over, the problem is that it also has to operate with that debt on its balance sheet in the years that follow.

Dozens of deals are testament to the fact that this fine balance isn’t always easy to achieve.

Below, we look at some of the most well-known LBOs in history and find that there are as many successes as failures to report since the first LBO over half a century ago.

The Most Famous Leveraged Buyouts (LBOs) in History

  1. RJR Nabisco (1989): $31 billion
  2. McLean Industries (1955): $49 million
  3. Manchester United Football Club (2005): $790 million
  4. Safeway (1988): $4.2 billion
  5. Energy Future Holdings(2007): $45 billion
  6. Hilton Hotels (2007): $26 billion
  7. PetSmart (2007): $8.7 billion
  8. Alltel (2007): $25 billion
  9. Kinder Morgan (2006): $22 billion
  10. HCA Healthcare (2006): $33 billion
The Most Famous Leveraged Buyouts (LBOs) in History

1. RJR Nabisco (1989): $31 billion

“Recognize that ultimate success comes from opportunistic, bold moves which by definition, cannot be planned.”

Bryan Burrough, Barbarians at the Gate: The Fall of RJR Nabisco

Even after hundreds of LBOs in the three decades since, the RJR Nabisco LBO is easily the most well-known of all in the genre.

This is in large part due to the book and subsequent film that the deal spawned but also because of the sheer audacity of the deal. KKR’s move for RJR Nabisco showed that, with cheap credit, good financiers were capable of pulling almost anything off.

Virtually any firm could become the subject of an LBO. And in the years that followed, many of them did.

2. McLean Industries (1955): $49 million

Although by today’s standards, $49 million is small change for LBOs, it’s worth remembering first that the deal was conducted over 60 years ago. And second, that it is still considered the first even LBO.

While LBOs are standard fare now, at the time, this deal represented true financial ingenuity: As soon as the deal to acquire the Waterman Steamship Company concluded, McLean Industries used $20 million of the company’s own cash and liquid assets to pay down the loan - a simple stroke of genius dreamt up by the leaders of McLean Industries.

3. Manchester United Football Club (2005): $790 million

The Glazer family recently enjoyed sporting success with the Tampa Bay Buccaneers' second Super Bowl win, but for years, a different kind of football has brought them great success in the financial stakes: soccer.

In 2005, the Glazers saw the cash generating power of European soccer before even Europeans recognized it. They loaded Manchester United’s balance sheet with $660 million to acquire an asset that has subsequently been valued at over $2 billion.

And thanks to the power of LBOs, they were able to take control for less than $150 million.

4. Safeway (1988): $4.2 billion

The second appearance of KKR on this list says everything about the success of one of the world’s largest private equity firms when it comes to LBOs.

In 1988, Safeway had been suffering from financial difficulties, for a few years when KKR made an approach. Loading its balance sheet with debt upon the acquisition, it immediately began selling off non-performing assets - in fact, over half of its 2,300 stores.

This allowed it to pay down some of its debt and reach profitability. In 2021, the company still exists and have annual revenues in excess of $35 billion.

5. Energy Future Holdings(2007): $45 billion

If the LBOs covered in this list thus far can all be classified as outstanding successes, the leveraged buyout of Energy

Future Holdings by a consortium of KKR, Goldman Sachs, and TPG Capital in 2007. Given the consortium in question, it wasn’t for a lack of intelligent minds behind the deal. However, even the greatest minds can be victims of timing.

In 2007, everyone expected oil prices to rise beyond $200 a barrel. Instead, fracking came along and the price of a barrel tumbled to $40. In 2014, after many attempted restructurings, the firm filed for Chapter 11 bankruptcy.

6. Hilton Hotels (2007): $26 billion

If the timing was bad for Energy Future Holdings, it appeared equally so, if not worse in the case of Hilton Hotels.

When a consortium that included the Blackstone Group, Bear Stearns and Lehman Brothers acquired the famous chain for $26 billion in 2007, the world was just about to enter the biggest real estate depression of all time. And yet, understanding the long-term nature of an investment can often be key to its success.

After the recession, travel picked up, a Hilton hotel was still a Hilton hotel. Blackstone finally cashed in in 2018, making several billion dollars on the deal that everyone had assumed was a bust.

7. PetSmart (2007): $8.7 billion

Acquiring a business for the right price is always a good start in mergers and acquisitions, but it can be said to be even more true for LBOs.

The added financial pressure added by leverage makes it an imperative for the acquirers’ operational strategy to kick into gear as soon as the ink has dried on the contract. That was the case with PetSmart in 2007.

It paid out its shareholders a $900 million dividend a year after the takeover, showing that pet owners won’t stop spending on their pets, even when a recession arrives on their doorstep.

8. Alltel (2007): $25 billion

Looking back, it’s hard not to see the LBO of Alltel by TPG Partners and Goldman Sachs as a preconceived short-term play for a company that was obviously going to be attractive to other companies in the mobile telecommunications sector.

Recall that 4G telephony was coming into play at that time. Less than a year later, the company was sold on to Verizon Wireless for just over $28 billion, netting Goldman Sachs and TPG Partners a cool $3 billion profit on a transaction that they barely had time to get their hands dirty on.

9. Kinder Morgan (2006): $22 billion

On paper, the Kinder Morgan deal had a few things going for it: the price of a barrel of oil seemed to be on a never-ending upward spiral in 2006, the deal was said to have none of the volatility that came with being an upstream player in the oil and gas industry, and above all, it was led by the company Chairman and CEO, Richard Morgan.

But a 27% premium in the acquisition price over the market value, a slump in energy demand, and too much leverage all combined to hamper the deal. The company now languishes at around 40% of its 2011 IPO value.

10. HCA Healthcare (2006): $33 billion

Yet another LBO by KKR and its partners in the mid-2000s, the HCA Healthcare transaction stands out above all others because of the value that it generated.

At a time when everyone was enthusing about real estate and the oil industry, the big winners, like HCA, were in health care. At the time the deal closed, it was the largest LBO in history.

The deal was an undoubted success, with a market cap now touching $60 billion, proving that there are LBO successes out there if you only look for them.

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