12. PE LBO Overview

12. PE LBO Overview - OverviewofPrivateEquityandLBOs For...

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For Shattuck Hammond, Summer 2008 Overview of Private Equity and LBOs
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Players in the Capital Markets Hedge funds Pension funds Mutual funds C o r p a t i n s P v e E q u y Corporations (CFO) Private equity Buyout sponsors Venture capital Investment bankers Product: M&A, High Yield, Leveraged Loans Industry / Relationship Capital Markets Desk Sales, Trading, Research Hedge funds Pension funds Mutual funds Other asset managers
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What Is Private Equity (PE)?  Simple Definition: Ownership in a privately held firm. Common Examples: Leveraged Buyouts (LBOs, MBOs) * Others use the terms “Highly Leveraged Transactions (HLT)” or “Bootstrap Transaction.” Venture Capital Angel Investing Mezzanine Financing (Debt + Equity)
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LBO History What was the first LBO? There is some debate on the topic. According to a Harvard Business School case, the acquisition of Orkin Exterminating Company (1964) was the first LBO. The Principals of the future KKR (founded in 1976), then at Bear Stearns, led the transaction. Jerry Kohlberg was Head of Corporate Finance at Bear. Cousins Henry Kravis and Jerome Roberts worked under Jerry at Bear.
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LBO History (Cont’d) If it looks like a DUCK Today many people believe the first LBO was the purchase of Waterman Steamship Corp by McLean Industries in 1955.
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Waterman Steamship Terms Terms of the Transaction: McLean borrowed $42 million and raised an additional $7 million through the issue of preferred stock. After closing, $20 million of Waterman’s cash and assets were used to retire $20 million of the loan debt. The newly elected board of Waterman then voted to pay an immediate dividend of $25 million to McLean Industries.
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Private Equity is Everywhere US Europe Asia 1
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Growth of LBO Market The emergence of the junk bond market in the 1980’s (led by Michael Milken and Drexel Burnham Lambert) fueled the growth of the LBO market in the 1980s. Slower growth in the 1990s due the the
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12. PE LBO Overview - OverviewofPrivateEquityandLBOs For...

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