Buyouts Keep Getting Bigger as Private Equity Firms Rush to Invest Billions Pouring into New Funds

By Platt, Gordon | Global Finance, October 2006 | Go to article overview

Buyouts Keep Getting Bigger as Private Equity Firms Rush to Invest Billions Pouring into New Funds


Platt, Gordon, Global Finance


CORPORATE FINANCING FOCUS

The four-year-old boom in private equity investing reached a feverish pitch this summer as firms awash with cash hurried to put some of it to work in corporate takeovers and billions of dollars more poured into newly raised buyout funds.

In the biggest leveraged buyout ever, three private equity firms agreed in late July to take Nashville, Tennessee-based hospital operator HCA private for $21.3 billion of cash and the assumption of $11.7 billion in debt, or a total value of $33 billion. The investor group was made up of Boston-based Bain Capital; Kohlberg Kravis Roberts, or KKR; and Merrill Lynch Global Private Equity; along with Thomas F. Frist, HCA's founder. The previous record LBO was the $25 billion buyout of RJR Nabisco in 1989.

Less than two weeks after the HCA deal, KKR joined with technology buyout group Silver Lake Partners and Alplnvest Partners of the Netherlands to acquire an 80.1% stake in Royal Philips Electronics' semiconductors business. The group won after beating out two other private equity consortia in a hotly contested auction. Amsterdam-based Philips retained a 19.9% stake in this business, which is a leading supplier of silicon-based systems for mobile telephones, consumer electronics and digital displays.

The transaction, which put the enterprise value for the computer-chip business at about $10.6 billion, was financed by Europe's biggest-ever sale of high-yield bonds. Bain Capital and Apax Partners later said they would join the winning consortium.

Credit Suisse and Bank of America acted as lead M&A financial advisers to the consortium, with ABN AMRO also providing advice. Clifford Chance and Simpson Thacher & Bartlett served as legal advisers.

Meanwhile, as Global Finance went to press, a private equity consortium led by Providence Equity of the United States and including KKR, Blackstone and Britain's Cinven was in talks with senior management of Britain's largest cable company, NTL, about a potential buyout deal that would value the company at about $20 billion and which would make it the biggest buyout in Europe ever.

Private equity firms approached NTL unsuccessfully last year before the company closed its $6 billon acquisition of Telewest, a smaller UK-based cable firm. NTL completed its $1.9 billion acquisition of Virgin Mobile in July, making Richard Branson the cable company's biggest shareholder.

Record Year for Fundraising

The buyout firms keep breaking their own records for LBOs in a year when they are expected to raise a record $300 billion, as endowments, pension funds and other institutional investors seek higher returns than are available in public markets, according to Private Equity Intelligence, a London-based firm that does research on the market.

New York-based Blackstone Group in July raised $15.6 billion for the world's biggest buyout fund. "This fund will allow us to undertake transactions of a size and complexity that was inconceivable just a few years ago," chairman and CEO Stephen Schwarzman said in a statement.

KKR, which raised $5 billion in May with the public float of an investment unit, is near closing a second fund that will be three times as big. Fort Worth, Texas-based Texas Pacific Group is raising a new fund that is expected to be about $15 billion.

Britain-based private equity fund Permira closed a new fund at $14 billion in July, making it the largest European private equity fund. Canadian investment firm Onex raised $3.5 billion, creating that country's largest buyout fund.

Bank of America has filed with the securities and Exchange Commission to raise a private equity fund of up to $1 billion. Other banks, including Citigroup and Credit Suisse, are also setting up large private equity funds. Citigroup Alternative Investments, the bank's privateequity unit, has about $38 billion in assets. The private equity arm of Goldman Sachs closed its $8. …

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