Private equity firms have stopped betting the house

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A dealer shuffles a deck of cards during a poker game at a casino in Budapest September 15, 2009.
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REUTERS/Katoly Arvai

Don’t let those headlines fool you, the private-equity industry’s days of big leveraged buyouts are behind it.

The headline recently was a massive takeover of EMC by Dell. The $67 billion bid was backed by Silver Lake Capital, Michael Dell and Singapore investment fund Temasek.

Dell’s borrowing heavily to fund the deal, but its not classified as a leveraged buyout because the primary buyer is a company and not a fund.

Similarly, when H.J. Heinz said it would acquire Kraft Foods in March, the fact that it had alot of help from 3G Capital and Berkshire Hathaway wasn’t enough to make the deal a buyout.

And so, the pure-LBO drought continues. A number of factors have hampered big deals in the wake of the financial crisis. Loans for big deals were scarce in the wake of the market plummet and big investors were licking their wounds – and struggling to figure out how to mark their existing deals to market.

Later, tough guidelines for big banks that were issued by the Federal Reserve and Treasury Department held big buyers out of big deals. The LBOs that are taking place are less reliant on debt, Fitch Ratings says. Through September, LBO-loan issuance reached $57 billion. Compare that with $207 billion in 2007.

In fact, it took until 2013 for a big buyout to be completed that cracked the top 15 in M&A rankings. That was the $25 billion buyout of Dell by the company’s founder and Silver Lake.

The biggest LBO of 2014 was the $8.7 billion buyout of retailer PetSmart by UK investor BC Partners. In 2015, no buyout has matched its’ size. Coming close in 2015 was the $8 billion buyout of software firm Veritas from Symantec by Carlyle Group and Singapore wealth fund GIC.

Here’s a list of the biggest deals of all time, with rankings adjusted for inflation.


#13: Albertsons’ exit was thrown into question last week

Deal value at time of purchase: $17.4 billion in 2006

Inflation adjusted value: $20.5 billion today

Buyers: Cerberus Capital Management, SuperValu, CVS

Cerberus was joined by a couple of corporate players in its buyout of Albertsons. And, it would take about nine years to line the company up for its big IPO – which was set to take place a week ago. But it didn’t happen. The company scheduled its initial public offering the same day Walmart issued guidance that hurt many retailers’ shares, and the offering was pulled indefinitely. This is one PE deal that still hasn’t found the exits yet.


#12: Investors in Freescale Semiconductor waited a while to eek out a return

Deal value at time of purchase: $17.6 billion in 2006

Inflation adjusted value: $20.8 billion in today’s dollars

Buyers: Blackstone Group, Permira, the Carlyle Group & TPG Capital

The deal for Freescale Semiconductor, at the time, represented the biggest LBO in the tech sector. But it didn’t go so great. The company filed for IPO in 2011 and posted solid returns on public markets and ultimately agreed to be bought out by NXP Technologies earlier this year. After all this, according to a Forbes report, PE profits were meager.


#11 (tie): Silver Lake’s first deal to buy Dell cost it nearly $25 billion at the time

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Dell, chief executive of Dell Inc, delivers his keynote speech at the All Things Oracle OpenWorld Summit in San Francisco, California
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Thomson Reuters

Deal value at time of purchase: $24.9 billion in 2013

Inflation adjusted value: $25.4 billion today

Buyers: Silver Lake, MSD Partners and Michael Dell

In 2013, Silver Lake and Michael Dell – who helped seed the private equity investor’s very first fund – embarked upon what would eventually lead to the biggest LBO in private equity history: Dell-EMC. The first time around, however, it took about $25 billion to get the deal done.


#11 (tie): Kinder Morgan was a rare bright spot for private equity investors in the energy sector

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cbonney via flickr commons

Deal value at time of purchase: $21.6 billion in 2006

Inflation adjusted value: $25.4 billion now

Buyers: The Carlyle Group, Riverstone and Goldman Sachs private equity

After the 2006 LBO, the private equity backers behind Kinder Morgan took the Texas-based energy and infrastructure company public in 2011. The stock has done well since the IPO.


#10: KKR’s round-tripper on its Alliance Boots investment

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REUTERS/Luke MacGregor

Deal value at time of purchase: $24.8 billion in 2007

Inflation adjusted value: $28.4 billion now

Buyers: KKR

The deal for the European pharmacy company proved to be enormously valuable to KKR; earlier this year a Wall Street Journal report stated the investor quadrupled its money on the investment. KKR finished selling the last portion of its stake in Alliance Boots last year.


#9: Blackstone’s stay at the Hilton has turned a paper profit

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Hilton hotel in Chicago
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Scott Olson/Getty

Deal value at time of purchase: $26 billion in 2007

Inflation adjusted value: $29.8 billion today

Buyers: The Blackstone Group

Part of the reason Blackstone has grown to be the biggest asset manager of all private equity is owed to its success doing real estate transactions. Hilton Hotels certainly qualifies as this, and it seems as if the hotel chain is part of a broadening attempt by Steve Schwarzman’s private equity firm to continue its push into property. The deal was a success on paper, but Blackstone Group is yet to sell out all of its stake.


#8: Private equity investors’ dials have been stuck on Clear Channel a while now

Deal value at time of purchase: $25.7 billion in 2006

Inflation adjusted value: $30.3 billion now

Buyers: KKR, Bain Capital and Thomas H. Lee Partners

It’s not clear if, how, or when the private equity investors behind Clear Channel will be able to make an exit. The company has undergone several major strategy shifts in the years since its LBO, including the division of US operations from international ones.


#7: Alltel’s LBO was a quick flip for private equity

Deal value at time of purchase: $27 billion in 2007

Inflation adjusted value: $31 billion now

Buyers: Goldman Sachs’ private equity division and TPG Capital

The big winners on private equity’s ‘biggest deals ever’ roster tend to be the quick flips. And that’s just what Goldman Sachs’ PE team and TPG Capital did, flipping Alltel Wireless to Verizon in a 2008 sale that netted the investors a tidy profit.


#6: The bet on Caesars rolled a seven for private equity investors

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Harrah’s New Orleans casino
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flickr / vxla

Deal value at time of purchase: $27.4 billion in 2006

Inflation adjusted value: $32.4 billion

Buyers: Apollo Global Management and TPG Capital

Two seasoned private equity firms went out and gambled on Caesars in 2006 and they ultimately made a bad bet. Today, most of Apollo and TPG’s investment in Caesars has been wiped out and the casino conglomerate continues to undergo a messy bankruptcy.


#5: First Data’s return to public markets likely disappointed its private equity owners

Deal value at time of purchase: $29 billion in 2007

Inflation adjusted value: $33.3 billion today

Buyers: KKR and TPG Capital

First Data’s market debut earlier this month began with an inauspicious start: after it tried to price stock in the $18-20 range, it had to dial back expectations to $16 a share. Following a weak market debut, the stock now trades closer to $15 a share.


#4: When two PE investors teamed to take Hospital Corp. of America private, it was the biggest buyout ever (at the time)

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HCA executives at its debut back on exchanges following its buyout
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NYSE Euronext’s Facebook Page

Deal value at time of purchase: $32.7 billion in 2006

Inflation adjusted value: $38.6 billion today

Buyers: Bain Capital, KKR & Merrill Lynch

One of the more successful mega-buyouts, the private equity trio that bought out HCA in 2006 brought it back to public markets five years later. It proved to be a big winner for the investors.


#3: Blackstone has successfully exited most of its Equity Office Properties deal

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The Chicago night skyline
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Angi English / Flickr

Deal value at time of purchase: $38.9 billion in 2007

Inflation adjusted value: $44.6 billion today

Buyers: Blackstone Group

Most private equity firms have struggled to navigate their biggest deals ever; Blackstone’s deals through its real estate-dedicated fund and one of its private equity funds in EOP proved to be a successful deal. Blackstone has sold more than half of the properties it had invested in through the 2007 deal.


#2: The mega-buyout of energy company TXU turned ugly years later

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Reuters

Deal value at time of purchase: $44.4 billion in 2007

Inflation adjusted value: $50.9 billion today

Buyers: Goldman Sachs’ private equity division, KKR, TPG Capital

When TXU (at $45 billion, the biggest buyout ever at the time), went bust it would also wipe out equity from investors including Goldman Sachs’ private equity division and TPG Capital, more than seven years after the deal was announced.


#1: KKR’s 1989 LBO of RJR Nabisco is an industry legend

Deal value at time of purchase: $31.1 billion in 1989

Inflation adjusted value: $59.6 billion now

Buyers: KKR

Though the deal was a feather in budding PE genius Henry Kravis’ hat at the time, it turned out that the KKR-RJR Nabisco buyout generated little to no value for the investor, and bogged down the returns of the fund that did the deal.