- Private equity in the 1980s
Private equity in the 1980s relates to one of the major periods in the
history of private equity and venture capital. Within the broader private equityindustry, two distinct sub-industries, leveraged buyoutsand venture capitalexperienced growth along parallel although interrelated tracks.
The development of the
private equityand venture capitalasset classes has occurred through a series of boom and bust cycles since the middle of the 20th century. The 1980s saw the first major boom and bust cycle in private equity. The cycle which is typically marked by the 1982acquisition of Gibson Greetings and ending just over a decade later was characterized by a dramatic surge in leveraged buyoutactivity financed by junk bonds. The period culminated in the massive buyout of RJR Nabiscobefore the near collapse of the leveraged buyout industry in the late 1980s and early 1990s marked by the collapse of Drexel Burnham Lambertand the high-yield debtmarket.
Beginning of the LBO boom
The beginning of the first boom period in private equity would be marked by the well-publicized success of the Gibson Greetings acquisition in 1982 and would roar ahead through 1983 and 1984 with the soaring stock market driving profitable exits for private equity investors.
In January 1982, former US
Secretary of the Treasury William E. Simonand a group of investors, which would later come to be known as Wesray Corp., acquired Gibson Greetings, a producer of greeting cards. The purchase price for Gibson was $80 million, of which only $1 million was rumored to have been contributed by the investors. By mid-1983, just sixteen months after the original deal, Gibson completed a $290 million IPO and Simon made approximately $66 million. [Taylor, Alexander L. " [http://www.time.com/time/magazine/article/0,9171,951242,00.html Buyout Binge] ". TIME magazine, Jul. 16, 1984.] Simon and Wesray would later complete the $71.6 million acquisition of Atlas Van Lines. The success of the Gibson Greetings investment attracted the attention of the wider media to the nascent boom in leveraged buyouts.
Between 1979 and 1989, it was estimated that there were over 2,000 leveraged buyouts valued in excess of $250 million [Opler, T. and Titman, S. "The determinants of leveraged buyout activity: Free cash flow vs. financial distress costs."
Journal of Finance, 1993.] Notable buyouts of this period (not described elsewhere in this article) include:
*"Malone & Hyde", 1984:KKR completed the first buyout of a public company by tender offer, by acquiring the food distributor and supermarket operator together with the company's chairman Joseph R. Hyde III. [ [http://query.nytimes.com/gst/fullpage.html?res=9902E3DA133BF931A25755C0A962948260 Malone & Hyde Accepts Bid]
New York Times, June 12, 1984]
*"Wometco Enterprises", 1984:KKR completed the first billion-dollar buyout transaction to acquire the leisure-time company with interests in television, movie theaters and tourist attractions. The buyout comprised the acquisition of 100% of the outstanding shares for $842 million and the assumption of $170 million of the company's outstanding debt. [Wayne, Leslie. [http://select.nytimes.com/gst/abstract.html?res=F30614FC355C0C718EDDA00894DB484D81 Wometco Agrees To Buyout]
New York Times, September 22, 1983.]
*"Beatrice Companies", 1985:KKR sponsored the $6.1 billion
management buyoutof Beatrice, which owned Samsoniteand Tropicanaamong other consumer brands. At the time of its closing in 1985, Beatrice was the largest buyout completed. [Dodson, Steve. [http://select.nytimes.com/gst/abstract.html?res=F50E17F6385C0C748DDDA80994DD484D81 BEATRICE DEAL IS BIGGEST BUYOUT YET] . The New York Times, November 17, 1985.] [STERNGOLD, JAMES. [http://query.nytimes.com/gst/fullpage.html?res=940DE1DC1038F93BA15757C0A96E948260 Drexel's Role on Beatrice Examined] . The New York Times, April 28, 1988.]
*"Sterling Jewelers", 1985:One of Thomas H. Lee's early successes was the acquisition of
Akron, Ohio-based Sterling Jewelers for $28 million. Lee reported put in less than $3 million and when the company was sold two years later for $210 million walked away with over $180 million in profits. The combined company was an early predecessor to what is now Signet Group, one of Europe's largest jewelry retail chains. [Berman, Phyllis. " [http://www.forbes.com/forbes/1997/1117/6011126a.html Tom Lee is on a roll] ." Forbes, November 17, 1997.]
*"Revco Drug Stores ", 1986:The drug store chain was taken private in a management buyout transaction. However, within two years the company was unable to support its debt load and filed for bankruptcy protection. [HOLUSHA, JOHN. [http://query.nytimes.com/gst/fullpage.html?res=940DEFD7103FF93AA15754C0A96E948260 Revco Drugstore Chain In Bankruptcy Filing]
New York Times, July 29, 1988.] Bondholders in the Revco buyout ultimately contended that the buyout was so poorly constructed that the transaction should have been unwound. [Feder, Barnaby. [http://query.nytimes.com/gst/fullpage.html?res=9C0CE4DF1639F930A25755C0A966958260 Bankruptcy Court to Assess Validity of Revco Takeover] . New York Times, June 13, 1990.]
*"Safeway", 1986:KKR completed a friendly $5.5 billion buyout of supermarket operator, Safeway, to help management avoid hostile overtures from Herbert and
Robert Haftof Dart Drug. [FISHER, LAWRENCE M. [http://query.nytimes.com/gst/fullpage.html?res=940DE0D8163BF932A15753C1A96E948260 Safeway Buyout: A Success Story] . The New York Times, October 21, 1988.] Safeway was taken public again in 1990.
*"Southland Corporation", 1987:John Thompson, the founder of convenience store operator 7-Eleven, completed a $5.2 billion management buyout of the company he founded. [ [http://query.nytimes.com/gst/fullpage.html?res=9B0DE3DA113DF93AA35751C1A961948260 COMPANY NEWS; Southland Holders Approve Buyout] . Associated Press, December 9, 1987.] The buyout suffered from the 1987 stock market crash and after failing initially raise high yield debt financing, the company was required to offer a portion of the company's stock as an inducement to invest in the company's bonds. [Frank, Peter H. [http://query.nytimes.com/gst/fullpage.html?res=9B0DEED7123DF932A25752C1A961948260 Southland Buyout Hits Snag] .
The New York Times, November 11, 1987] [WAYNE, LESLIE . " [http://query.nytimes.com/gst/fullpage.html?res=940DE0D7163CF937A35752C0A96E948260 Takeovers Revert to the Old Mode] ." New York Times, January 4, 1988]
*"Jim Walter Corp" (later Walter Industries, Inc.), 1987:KKR acquired the company for $3.3 billion in early 1988 but faced issues with the buyout almost immediately. Most notably, a subsidiary of Jim Walter Corp (Celotex) faced a large asbestos lawsuit and incurred liabilities that the courts ruled would need to be satisfied by the parent company. [Feder, Barnaby. [http://query.nytimes.com/gst/fullpage.html?res=950DE5DF133FF931A35757C0A96F948260 Asbestos: The Saga Drags On] .
New York Times, April 2, 1989.] In 1989, the holding company that KKR used for the Jim Walter buyout filed for Chapter 11 bankruptcy protection. [ [http://query.nytimes.com/gst/fullpage.html?res=950DE0D7143AF93BA15751C1A96F948260 Chapter 11 For Kohlberg, Kravis Unit] . Associated Press, December 28, 1989.]
Blackrock", 1988: Blackstone Groupbegan the leveraged buildup of BlackRock, which is an asset manager. Blackstone sold its interest in 1994 and today Blackrock is listed on the New York Stock Exchange.
Federated Department Stores", 1988:Robert Campeau's Campeau Corporationcompleted a $6.6 billion merger with Federated, owner of the Bloomingdale's, Filene'sand Abraham & Strausdepartment stores. [BARMASH, ISADORE. [http://query.nytimes.com/gst/fullpage.html?res=940DE4D61630F931A35757C0A96E948260 Canadian Bidder Beats Macy In Fight for Federated Stores] . New York Times, April 2, 1988.]
Marvel Entertainment", 1988: Ronald Perelmanacquired the company and oversaw a major expansion of its titles in the early 1990s before taking the company public on the New York Stock Exchangein 1991. [HICKS, JONATHAN P. [http://query.nytimes.com/gst/fullpage.html?res=940DE1DD1038F93BA35752C1A96E948260 THE MEDIA BUSINESS; Marvel Comic Book Unit Being Sold for $82.5 Million] . New York Times, November 8, 1988.] [Norris, Floyd. [http://query.nytimes.com/gst/fullpage.html?res=9D0CE1D6143DF936A25754C0A967958260 Market Place; Boom in Comic Books Lifts New Marvel Stock Offering] . New York Times, July 15, 1991.] The company would later suffer as a result of its massive debt load and ultimately the bondholders, led by Carl Icahnwould take control of the company. [Norris, Floyd. " [http://query.nytimes.com/gst/fullpage.html?res=9F02E3D6133EF932A15755C0A961958260 Icahn-Led Bondholders Take Control of Marvel From Perelman] ." New York Times, June 21, 1997.]
Uniroyal Goodrich Tire Company", 1988:Clayton & Dubilier acquired Uniroyal Goodrich Tire Companyfrom B.F. Goodrichand other investors for $225 million. [http://query.nytimes.com/gst/fullpage.html?res=940DE3DC1F3AF937A15755C0A96E948260 Company News; Goodrich Outlook] , REUTERS, The New York Times, Published: June 24, 1988] [http://query.nytimes.com/gst/fullpage.html?res=9C04EFD71630F937A25753C1A96E948260 Uniroyal Goodrich Tire Co reports earnings for Qtr to Sept 30] , The New York Times, Published: October 14, 1988] Two years later, in October 1990, Uniroyal Goodrich Tire Company was sold to Michelinfor $1.5 billion. [http://query.nytimes.com/gst/fullpage.html?res=950DE4DD1E30F930A1575AC0A96F948260 INSIDE] , The New York Times, Published: September 23, 1989]
Hospital Corporation of America", 1989:The hospital operator was acquired for $5.3 billion in a management buyout led by Chairman Thomas J. Frist[Freudenheim, Milt. [http://query.nytimes.com/gst/fullpage.html?res=940DE2D81039F931A15752C1A96E948260 Buyout Set For Chain Of Hospitals] . The New York Times, November 22, 1988.] and completed a successful initial public offering in the 1990s. The company would be taken private again 17 years later in 2006 by KKR, Bain Capitaland Merrill Lynch.
Because of the high leverage on many of the transactions of the 1980s, failed deals occurred regularly, however the promise of attractive returns on successful investments attracted more capital. With the increased leveraged buyout activity and investor interest, the mid-1980s saw a major proliferation of
private equity firms. Among the major firms founded in this period were:
Bain Capital" founded in 1984 by Mitt Romney, T. Coleman Andrews III and Eric Krissout of the management consulting firm Bain & Company;
*"Chemical Venture Partners", later Chase Capital Partners and JPMorgan Partners, and today "
CCMP Capital", founded in 1984, as a captive investment group within Chemical Bank;
Hellman & Friedman" founded in 1984;
*"Hicks & Haas", later "Hicks Muse Tate & Furst", and today "
HM Capital" (and its European spinoff Lion Capital), as well as the predecessor of Haas, Wheat & Partners, founded in 1984;
Blackstone Group", one of the largest private equity firms, founded in 1985 by Peter G. Peterson and Stephen A. Schwarzman;
Doughty Hanson", a European focused firm, founded in 1985;
BC Partners", a European focused firm, founded in 1986; and
Carlyle Group" founded in 1987 by Stephen L. Norrisand David M. Rubenstein.
Additionally, as the market developed, new niches within the private equity industry began to emerge. In 1982, Venture Capital Fund of America, the first private equity firm focused on acquiring secondary market interests in existing
private equity funds was founded and then, two years later in 1984, First Reserve Corporation, the first private equity firm focused on the energy sector, was founded.
Venture capital in the 1980s
The public successes of the venture capital industry in the 1970s and early 1980s (e.g., DEC, Apple, Genentech) gave rise to a major proliferation of venture capital investment firms. From just a few dozen firms at the start of the decade, there were over 650 firms by the end of the 1980s, each searching for the next major "home run". While the number of firms multiplied, the capital managed by these firms increased only 11% from $28 billion to $31 billion over the course of the decade.POLLACK, ANDREW. " [http://query.nytimes.com/gst/fullpage.html?res=950DE0D61E3CF93BA35753C1A96F948260 Venture Capital Loses Its Vigor] ."
New York Times, October 8, 1989.]
The growth the industry was hampered by sharply declining returns and certain venture firms began posting losses for the first time. In addition to the increased competition among firms, several other factors impacted returns. The market for initial public offerings cooled in the mid-1980s before collapsing after the stock market crash in 1987 and foreign corporations, particularly from Japan and Korea, flooded early stage companies with capital.POLLACK, ANDREW. " [http://query.nytimes.com/gst/fullpage.html?res=950DE0D61E3CF93BA35753C1A96F948260 Venture Capital Loses Its Vigor] ."
New York Times, October 8, 1989.]
In response to the changing conditions, corporations that had sponsored in-house venture investment arms, including
General Electricand Paine Webbereither sold off or closed these venture capital units. Additionally, venture capital units within Chemical Bank (today CCMP Capital) and Continental Illinois National Bank (today CIVC Partners), among others, began shifting their focus from funding early stage companies toward investments in more mature companies. Even industry founders J.H. Whitney & Companyand Warburg Pincusbegan to transition toward leveraged buyouts and growth capital investments.POLLACK, ANDREW. " [http://query.nytimes.com/gst/fullpage.html?res=950DE0D61E3CF93BA35753C1A96F948260 Venture Capital Loses Its Vigor] ." New York Times, October 8, 1989.] [Kurtzman, Joel. " [http://query.nytimes.com/gst/fullpage.html?res=940DE0DB1E3EF934A15750C0A96E948260 PROSPECTS; Venture Capital] ." New York Times, March 27, 1988.] [LUECK, THOMAS J. " [http://query.nytimes.com/gst/fullpage.html?res=9B0DE4DD113EF935A35751C0A961948260 HIGH TECH'S GLAMOUR FADES FOR SOME VENTURE CAPITALISTS ] ." New York Times, February 6, 1987.] Many of these venture capital firms attempted to stay close to their areas of expertise in the technology industry by acquiring companies in the industry that had reached certain levels of maturity. In 1989, Prime Computerwas acquired in a $1.3 billion leveraged buyout by J.H. Whitney & Companyin what would prove to be a disastrous transaction. Whitney's investment in Prime proved to be nearly a total loss with the bulk of the proceeds from the company's liquidation paid to the company's creditors. [Norris, Floyd " [http://query.nytimes.com/gst/fullpage.html?res=9E0CEED71E3FF931A2575BC0A964958260 Market Place; Buyout of Prime Computer Limps Toward Completion] ." New York Times, August 12, 1992]
Although lower profile than their buyout counterparts, new leading venture capital firms were also formed including
Draper Fisher Jurvetson(originally Draper Associates) in 1985 and Canaan Partnersin 1987 among others.
Corporate raiders, hostile takeovers and greenmail
Although the "
corporate raider" moniker is rarely applied to contemporary private equity investors, there is no formal distinction between a " corporate raid" and other private equity investments acquisitions of existing businesses. The label was typically ascribed by constituencies within the acquired company or the media. However, a corporate raidwould typically feature a leveraged buyout that would involve a hostile takeoverof the company, perceived asset stripping, major layoffs or other significant corporate restructuring activities. Management of many large publicly traded corporations reacted negatively to the threat of potential hostile takeoveror corporate raidand pursued drastic defensive measures including poison pills, golden parachutes and increasing debtlevels on the company's balance sheet. Additionally, the threat of the corporate raid would lead to the practice of " greenmail", where a corporate raider or other party would acquire a significant stake in the stock of a company and receive an incentive payment (effectively a bribe) from the company in order to avoid pursuing a hostile takeoverof the company. Greenmailrepresented a transfer payment from a company's existing shareholders to a third party investor and provided no value to existing shareholders but did benefit existing managers. The practice of "greenmail" is not typically considered a tactic of private equity investors and is not condoned by market participants.
Among the most notable corporate raiders of 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. Carl Icahndeveloped a reputation as a ruthless corporate raider after his hostile takeoverof TWA in 1985. [http://www.time.com/time/magazine/article/0,9171,1590446,00.html 10 Questions for Carl Icahn] by Barbara Kiviat, TIME magazine, Feb. 15, 2007] The result of that takeover was Icahn systematically selling TWA's assets to repay the debt he used to purchase the company, which was described as asset stripping. [ [http://www.stlmag.com/media/St-Louis-Magazine/October-2005/TWA-Death-Of-A-Legend/ TWA - Death Of A Legend] by Elaine X. Grant, St Louis Magazine, Oct 2005] In later years, many of the corporate raiders would be re-characterized as " Activist shareholders".
Many of the corporate raiders were onetime clients of
Michael Milken, whose investment bankingfirm, Drexel Burnham Lamberthelped raise blind pools of capital with which corporate raiders could make a legitimate attempt to takeovera company and provided high-yield debtfinancing of the buyouts.
Drexel Burnham raised a $100 million blind pool in 1984 for
Nelson Peltzand his holding company Triangle Industries (later Triarc) to give credibility for takeovers, representing the first major blind pool raised for this purpose. Two years later, in 1986, Wickes Companies, a holding companyrun by Sanford Sigoloffwould raise a $1.2 billion blind pool. [Bruck, Connie. "Predator's Ball". New York: Simon and Schuster, 1988. p.117 - 118]
In 1985, Milken raised a $750 million for a similar blind pool for
Ronald Perelmanwhich would ultimate prove instrumental in acquiring his biggest target: The Revlon Corporation. In 1980, Ronald Perelman, the son of a wealthy Philadelphia businessman, and future " corporate raider" having made several small but successful buyouts, acquired MacAndrews & Forbes, a distributor of licorice extract and chocolate, that Perelman's father had tried and failed to acquire it 10 years earlier.cite book | title=When Money Is King| last=Hack| first=Richard| date=1996| pages = 13|publisher=Dove Books| location=Beverly Hills, CA| isbn=0-7871-1033-7] Perelman would ultimately divest the company's core business and use MacAndrews & Forbes as a holding company investment vehicle for subsequent leveraged buyouts including Technicolor, Inc., Pantry Prideand Revlon. Using the Pantry Pridesubsidiary of his holding company, MacAndrews & Forbes Holdings, Perelman's overtures were rebuffed. Repeatedly rejected by the company's board and management, Perelman continued press forward with a hostile takeoverraising his offer from an initial bid of $47.50 per share until it reached $53.00 per share. After receiving a higher offer from a white knight, private equity firm Forstmann Little & Company, Perelman's Pantry Pridefinally was able to make a successful bid for Revlon, valuing the company at $2.7 billion.cite news |first=Richard |last=Stevenson |title=Pantry Pride Control of Revlon Board Seen Near |publisher=New York Times |page=D5 |date= 1985-11-05|accessdate=2007-04-27] The buyout would prove troubling, burdened by a heavy debt load.cite news |first=Ann |last=Hagedom |title=Possible Revlon Buyout May Be Sign Of a Bigger Perelman Move in Works |publisher=Wall Street Journal |page=1 |date= 1987-03-09|accessdate=2007-05-16] Cite web|url=http://www.webcitation.org/5OlTv7US7|title=Revlon Reports First Profitable Quarter in Six Years|accessdate=2007-02-07|publisher=Business Wire|year=2005|author=Gale Group] Cite web|url=http://www.webcitation.org/5OlTv7USQ|title=Revlon profit first in more than 6 years|accessdate=2007-03-20|publisher=Bloomberg Publishing|year=2005|author=Cotten Timberlake and Shobhana Chandra] Under Perelman's control, Revlon sold 4 divisions: two of which were sold for $1 billion, its vision care division was sold for $574 million and its National Health Laboratories division was spun out to the public market in 1988. Revlon also made acquisitions including Max Factorin 1987 and Betrixin 1989 later selling them to Procter & Gamblein 1991.cite web |url=http://www.fundinguniverse.com/company-histories/MacAndrews-amp;-Forbes-Holdings-Inc-Company-History.html |title=MacAndrews & Forbes Holdings Inc. |accessdate=2008-05-16 |format=HTML |work=Funding Universe ] Perelman exited the bulk of his holdings in Revlon through an IPO in 1996 and subsequent sales of stock. As of December 31, 2007, Perelman still retains a minority ownership interest in Revlon. The Revlon takeover, because of its well-known brand was profiled widely by the media and brought new attention to the emerging boom in leveraged buyout activity.
In later years, Milken and Drexel would shy away from certain of the more "notorious" corporate raiders as Drexel and the private equity industry attempted to move upscale.
RJR Nabisco and the Barbarians at the Gate
Leveraged buyouts in the 1980s including Perelman's takeover of
Revloncame to epitomize the "ruthless capitalism" and "greed" popularly seen to be pervading Wall Street at the time. One of the final major buyouts of the 1980s proved to be its most ambitious and marked both a high water mark and a sign of the beginning of the end of the boom that had begun nearly a decade earlier. In 1989, KKR closed on a $31.1 billion dollar takeover of RJR Nabisco. It was, at that time and for over 17 years, the largest leverage buyout in history. The event was chronicled in the book, " Barbarians at the Gate: The Fall of RJR Nabisco", and later made into a television movie starring James Garner. F. Ross Johnsonwas the President and CEOof RJR Nabiscoat the time of the leveraged buyout and Henry Kravis was a general partner at Kohlberg Kravis Roberts. The leveraged buyout was in the amount of $25 billion (plus assumed debt), and the battle for control took place between October and November 1988. KKR would eventually prevail in acquiring RJR Nabisco at $109 per share marking a dramatic increase from the original announcement that Shearson Lehman Hutton would take RJR Nabisco private at $75 per share. 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 Lynchwere actively involved in advising and financing the parties.
After Shearson Lehman's original bid, KKR quickly introduced a tender offer to obtain RJR Nabisco for $90 per share—a price that enabled it to proceed without the approval of RJR Nabisco's management. RJR's management team, working with Shearson Lehman and Salomon Brothers, submitted a bid of $112, a figure they felt certain would enable them to outflank any response by Kravis's team. KKR's final bid of $109, while a lower dollar figure, was ultimately accepted by the board of directors of RJR Nabisco. KKR's offer was guaranteed, whereas the management offer (backed by Shearson Lehman and Salomon) lacked a "reset", meaning that the final share price might have been lower than their stated $112 per share. Additionally, many in RJR's board of directors had grown concerned at recent disclosures of Ross Johnson' unprecedented golden parachute deal. TIME magazine featured Ross Johnson on the cover of their December 1988 issue along with the headline, "A Game of Greed: This man could pocket $100 million from the largest corporate takeover in history. Has the buyout craze gone too far?". [ [http://www.time.com/time/magazine/0,9263,7601881205,00.html Game of Greed] (TIME magazine, 1988)] KKR's offer was welcomed by the board, and, to some observers, it appeared that their elevation of the reset issue as a deal-breaker in KKR's favor was little more than an excuse to reject Ross Johnson's higher payout of $112 per share. F. Ross Johnson received $53 million from the buyout.
At $31.1 billion of transaction value, RJR Nabisco was by far the largest leveraged buyouts in history. In 2006 and 2007, a number of leveraged buyout transactions were completed that for the first time surpassed the RJR Nabisco leveraged buyout in terms of nominal purchase price. However, adjusted for inflation, none of the leveraged buyouts of the 2006 – 2007 period would surpass RJR Nabisco. Unfortunately for KKR, size would not equate with success as the high purchase price and debt load would burden the performance of the investment.
Interestingly, two years earlier, in
1987, Jerome Kohlberg, Jr.resigned from Kohlberg Kravis Roberts & Co. over differences in strategy. Kohlberg did not favor the larger buyouts (including Beatrice Companies (1985) and Safeway (1986) and would later likely have included the 1989 takeover of RJR Nabisco), highly leveraged transactions or hostile takeoversbeing pursued increasingly by KKR.STERNGOLD, JAMES. " [http://query.nytimes.com/gst/fullpage.html?res=9B0DE7DF1F3CF93AA25755C0A961948260 BUYOUT PIONEER QUITTING FRAY] ." New York Times, June 19, 1987.] The split would ultimately prove acrimonious as Kohlberg sued Kravis and Roberts for what he alleged were improper business tactics. The case was later settled out of court. [BARTLETT, SARAH. " [http://query.nytimes.com/gst/fullpage.html?res=950DE2D8153CF933A0575BC0A96F948260 Kohlberg In Dispute Over Firm] ." New York Times, August 30, 1989] Instead, Kohlberg chose to return to his roots, acquiring smaller, middle-market companies and in 1987, he would found a new private equity firm Kohlberg & Companyalong with his son James A. Kohlberg, at the time a KKR executive. Jerome Kohlberg would continue investing successfully for another seven years before retiring from Kohlberg & Companyin 1994 and turning his firm over to his son. [ANTILLA, SUSAN. " [http://query.nytimes.com/gst/fullpage.html?res=9D00E4DC1031F937A15757C0A962958260 Wall Street; A Scion of the L.B.O. Reflects] ." New York Times, April 24, 1994]
As the market reached its peak in 1988 and 1989, new private equity firms were founded which would emerge as major investors in the years to follow, including:
ABRY Partners", a media-focused firm, founded in 1989;
Coller Capital", the first European secondaries firm specializing in the purchase of existing private equity interests, founded in 1989;
Landmark Partners", an early secondaries firm specializing in the purchase of existing private equity interests, founded in 1989;
Leonard Green & Partners" founded in 1989 a successor to Gibbons, Green van Amerongen (founded 1969), a merchant banking firm that completed several early management buyout transactions; [Bartlett, Sarah. " [http://query.nytimes.com/gst/fullpage.html?res=950DE0D7163DF935A35752C1A96F948260 Wall Street's Treacherous Side] ." New York Times, November 6, 1989.] [Bartlett, Sarah. " [http://query.nytimes.com/gst/fullpage.html?res=950DEEDE1339F930A25753C1A96F948260 Filing Discloses Dispute Over Sale of Sheller-Globe] ." New York Times, October 13, 1989.] [ " [http://query.nytimes.com/gst/fullpage.html?res=950DE3DA133FF936A35756C0A96F948260 Gibbons, Green Separation] ." New York Times, May 5, 1989.] and
Providence Equity Partners", a media-focused firm, founded in 1989.
LBO bust (1990 to 1992)
By the end of the 1980s the excesses of the buyout market were beginning to show, with the
bankruptcyof several large buyouts including Robert Campeau's 1988 buyout of Federated Department Stores, the 1986 buyout of the Revcodrug stores, Walter Industries, FEB Trucking and Eaton Leonard. Additionally, the RJR Nabisco deal was showing signs of strain, leading to a recapitalization in 1990 that involved the contribution of $1.7 billion of new equity from KKR. [Wallace, Anise C. " [http://query.nytimes.com/gst/fullpage.html?res=9C0CE2D91E31F935A25754C0A966958260 Nabisco Refinance Plan Set] ." The New York Times, July 16, 1990.] Additionally, in response to the threat of unwelcome LBOs, certain companies adopted a number of techniques, such as the poison pill, to protect them against hostile takeovers by effectively self-destructing the company if it were to be taken over (these practices are increasingly discredited).
Contemporary reflections of private equity
1980s reflections of private equity
Although private equity rarely received a thorough treatment in popular culture, several films did feature stereotypical "corporate raiders" prominently. Among the most notable examples of private equity featured in motion pictures included:
* "Wall Street" – The Notorious "corporate raider" and "greenmailer"
Gordon Gekkorepresents a synthesis of the worst features of various famous private equity figures intends to manipulate an ambitious young stockbroker to takeover failing but decent airline. Although Gekko makes a pretense of caring about the airline, his intentions prove to be to destroy the airline, strip its assets and lay off its employees before raiding the corporate pension fund. Gekko would become a symbol in popular culture for unrestrained greed (with the signature line, "Greed, for lack of a better word, is good") that would be attached to the private equity industry.
Other People's Money" – A self-absorbed corporate raider "Larry the Liquidator" ( Danny DeVito), sets his sights on New England Wire and Cable, a small-town business run by family patriarch Gregory Peckwho is principally interested in protecting his employees and the town.
Pretty Woman" – Although Richard Gere's profession is incidental to the plot, the selection of the corporate raider who intends to destroy the hard work of a family run business by acquiring the company in a hostile takeover and then sell off the company's parts for a profit (compared in the movie to an illegal chop shop). Ultimately, the corporate raider is won over and chooses not to pursue his original plans for the company.
History of private equity and venture capital
Early history of private equity
Private equity in the 1990s
Private equity in the 21st century
Private equity firm
Private equity fund
Private equity secondary market
Private investment in public equity
Taxation of Private Equity and Hedge Funds
Mergers and acquisitions
*Ante, Spencer. Creative capital : Georges Doriot and the birth of venture capital. Boston: Harvard Business School Press, 2008
*Bance, A. (2004). [http://www.evca.com/pdf/Invest.pdf Why and how to invest in private equity] . European Private Equity and Venture Capital Association (EVCA). Accessed May 22, 2008.
*Bruck, Connie. "Predator's Ball". New York: Simon and Schuster, 1988.
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