Mergers, Acquisitions, and Corporate Restructurings, 6th Edition

CHAPTER NINE9

The Private Equity Market

THIS CHAPTER CONTINUES THE discussion of going-private transactions by first focusing on the role of private equity firms. Private equity firms have played a major role in the takeover market during the past quarter of a century. Particularly in the mid-2000s, these firms were able to attract large amounts of capital and very aggressively pursued mergers and acquisitions (M&As). Their ability to raise capital has greatly increased in recent years. We will see that at times, rather than competing with each other, many private equity firms have decided to become partners in deals. This has greatly enhanced the size of transactions they can pursue while also lowering the exposure of each fund to a particular deal.

HISTORY OF THE PRIVATE EQUITY AND LBO BUSINESS

The modern private equity business is not that old a business. We have had highly leveraged transactions for some time, so using large amounts of debt to buy businesses is not a novel concept. As we discussed in Chapter 8, Henry Ford did a highly leveraged transaction to regain control of his company in 1919. This was long before the words leveraged buyout and private equity even came into the vernacular of finance.

The first leveraged buyout took place in 1955 when McLean Industries, run by Malcolm McLean, acquired the Pan-American Steamship Company and the Waterman Steamship Company. ...