What are some examples of successfully executed leveraged buyouts?

By
Andriy Blokhin
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Andriy Blokhin has 5+ years of professional experience in public accounting, personal investing, and as a senior auditor with Ernst & Young.
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Updated June 26, 2021
Reviewed by Margaret James

In finance, a buyout refers to the purchase of a company's voting stock in which the acquiring party gains control of the target company. A buyout can be funded with a combination of cash or debt. Buyouts that are disproportionately funded with debt are commonly referred to as leveraged buyouts (LBOs). As part of their mergers and acquisitions (M&A) strategies, companies often use buyouts to gain access to new markets or acquire competitors. Private equity companies often use LBOs to buy and later sell a company at a profit. The most successful examples of LBOs are Gibson Greeting Cards, Hilton Hotels and Safeway.

Gibson Greeting Cards

In 1982, Wesray Capital acquired Gibson Greeting Cards for a purchase price of $80 million. The deal was financed with $1 million in cash, while the rest was borrowed by issuing junk bonds. A year and a half later, Wesray sold Gibson Greeting Cards for $220 million, with investors earning about 200 times their initial equity invested.

Hilton Hotels

In 2007, Blackstone Group purchased Hilton Hotels for $26 billion in an LBO, financed through $5.5 billion in cash and $20.5 billion in debt. As the financial crisis of 2009 began, Hilton had major problems with declining cash flows and revenues. However, subsequent to that, Hilton was able to refinance itself at a lower interest rates, operations improved and Blackstone sold Hilton at a profit of almost $10 billion.

Safeway

In 1986, Kohlberg Kravis Roberts completed a friendly LBO of Safeway for a total price of $5.5 billion. Safeway's board of directors gave consent to the buyout to avoid hostile takeovers from Herbert and Robert Haft of Dart Drug. The deal was funded mostly with debt, and Safeway had to divest some of its assets and close unprofitable stores. In 1990, Safeway was taken public again with improvements in its revenues and profitability metrics. KKR earned almost $7.2 billion on an initial investment of $129 million. (For related reading, see "10 Most Famous Leveraged Buyouts")