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The History of Private Equity and Venture Capital and the development of these asset classes has occurred through a series of boom and bust cycles since the middle of the 20th century. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel although interrelated tracks. Since the origins of the modern private equity industry in 1946, there have been four major epochs characterized by three boom and bust cycles:

  • The early history of private equity – from 1946 through 1981, this period was characterized by relatively small volumes of private equity investment, rudimentary firm organizations and limited awareness of and familiarity with the private equity industry
  • The second boom and bust cycle – 1992 through 2002, emerging out of the ashes of the Savings & Loan crisis, the insider trading scandals, the real estate market collapse and the recession of the early 1990s, this period saw the emergence of more institutionalized private equity firms, ultimately culminating in the massive Internet bubble in 1999 and 2000

In its early years through roughly the year 2000, the history of the private equity and venture capital asset classes is best described through a narrative of developments in the United States as private equity in Europe consistently lagged behind the North American industry. With the second private equity boom in the mid-1990s and liberalization of regulation for institutional investors in Europe, the emergence of a mature European private equity market has occurred.

Pre-history

J.P. Morgan, photographed by Edward Steichen in 1903

Private equity is often considered a modern phenomenon, however investors have been acquiring businesses and making minority investments in privately held companies since the dawn of the industrial revolution. Merchant bankers in London and Paris financed industrial concerns in the 1850s. Most notably Credit Mobilier, founded in 1854 by Jacob and Isaac Pereire who together with New York based Jay Cooke financed the Transcontinental Railroad.

Andrew Carnegie sold his steel company to J.P. Morgan in 1901

Later, J. Pierpont Morgan's J.P. Morgan & Co. would finance railroads and other industrial companies throughout the United States. In certain respects, J. Pierpont Morgan's 1901 acquisition of Carnegie Steel Company from Andrew Carnegie and Henry Phipps for $480 million represents the first true major buyout as they are thought of today.

Due to structural restrictions imposed on American banks under the Glass-Steagall Act and other regulations in the 1930s, there was no private merchant banking industry in the United States, a situation that was quite exceptional in developed nations. As late as the 1980s, Lester Thurow, a noted economist, decried the inability of the financial regulation framework in the United States to support merchant banks. US investment banks were confined primarily to advisory businesses, handling M&A transactions and placements of equity and debt securities. Investment banks would later enter the space, however long after independent firms had become well established.

With few exceptions, private equity in the first half of the 20th century was the domain of wealthy individuals and families. The Vanderbilts, Whitneys, Rockefellers and Warburgs were notable investors in private companies in the first half of the century. In 1938, Laurance S. Rockefeller helped finance the creation of both Eastern Air Lines and Douglas Aircraft and the Rockefeller family had vast holdings in a variety of companies. Eric M. Warburg founded E.M. Warburg & Co. in 1938, which would ultimately become today's Warburg Pincus, with investments in both leveraged buyouts and venture capital.


Origins of modern private equity

It was not until after World War II that what is considered today to be true private equity investments began to emerge marked by the founding of the first two venture capital firms in 1946: American Research and Development Corporation. (ARDC) and J.H. Whitney & Company.[1]

thumb|220px|right|A VAX-11/780 system created by Digital Equipment Corporation, the first major venture capital success story ARDC was founded by Georges Doriot, the "father of venture capitalism"[2] (former dean of Harvard Business School), with Ralph Flanders and Karl Compton (former president of MIT), to encourage private sector investments in businesses run by soldiers who were returning from World War II. ARDC's significance was primarily that it was the first institutional private equity investment firm that accepted money from sources other than wealthy families although it had several notable investment successes as well.[3] ARDC is credited with the first major venture capital success story when its 1957 investment of $70,000 in Digital Equipment Corporation (DEC) would be valued at over $355 million after the company's initial public offering in 1968 (representing a return of over 500 times on its investment and an annualized rate of return of 101%).[4] Former employees of ARDC went on to found several prominent venture capital firms including Greylock Partners (founded in 1965 by Charlie Waite and Bill Elfers) and Morgan, Holland Ventures, the predecessor of Flagship Ventures (founded in 1982 by James Morgan).[5] ARDC continued investing until 1971 with the retirement of Doriot.

J.H. Whitney & Company was founded by John Hay Whitney and his partner Benno C. Schmidt, Sr. Whitney had been investing since the 1930s, founding Pioneer Pictures in 1933 and acquiring a 15% interest in Technicolor Corporation with his cousin Cornelius Vanderbilt Whitney. By far Whitney's most famous investment was in Florida Foods Corporation. The company developed an innovative method for delivering nutrition to American soldiers, which later came to be known as Minute Maid orange juice and was sold to The Coca-Cola Company in 1960. J.H. Whitney continues to make investments in leveraged buyout transactions and raised $750 million for its sixth institutional private equity fund in 2005.

Before World War II, venture capital investments (originally known as "development capital") were primarily the domain of wealthy individuals and families. One of the first steps toward a professionally-managed venture capital industry was the passage of the Small Business Investment Act of 1958. The 1958 Act officially allowed the U.S. Small Business Administration (SBA) to license private "Small Business Investment Companies" (SBICs) to help the financing and management of the small entrepreneurial businesses in the United States. Passage of the Act addressed concerns raised in a Federal Reserve Board report to Congress that concluded that a major gap existed in the capital markets for long-term funding for growth-oriented small businesses. Additionally, it was thought that fostering entrepreneurial companies would spur technological advances to compete against the Soviet Union. Facilitating the flow of capital through the economy up to the pioneering small concerns in order to stimulate the U.S. economy was and still is the main goal of the SBIC program today.[6] The passage of the Small Business Investment Act of 1958 by the federal government was an important incentive for would-be venture capital organizations. The act provided venture capital firms structured either as SBICs or Minority Enterprise Small Business Investment Companies (MESBICs) access to federal funds which could be leveraged at a ratio of up to 4:1 against privately raised investment funds. The success of the Small Business Administrations efforts are viewed primarily in terms of the pool of professional private equity investors that the program developed. In 2005, the SBA significantly reduced its SBIC program and although SBICs continue to make private equity investments, the rigid regulatory limitations minimize the role of SBICs.


Early venture capital and the growth of Silicon Valley (1959 - 1981)

Sand Hill Road in Menlo Park, California, where many Bay Area VC firms are based

During the 1960s and 1970s, venture capital firms focused their investment activity primarily on starting and expanding companies. More often than not, these companies were exploiting breakthroughs in electronic, medical or data-processing technology. As a result, venture capital came to be almost synonymous with technology finance. Venture capital firms suffered a temporary downturn in 1974, when the stock market crashed and investors were naturally wary of this new kind of investment fund. 1978 was the first big year for venture capital, when the industry raised approximately $750,000.

It was also in the 1960s that the common form of private equity fund, still in use today, emerged. Private equity firms organized limited partnerships to hold investments in which the investment professionals served as general partner and the investors were passive limited partners put up the capital. The compensation structure, still in use today, also emerged with limited partners paying an annual management fee of 1-2% and a carried interest typically representing 20% of the profits of the partnership.

It is commonly noted that the first venture-backed startup is Fairchild Semiconductor (which produced the first commercially practicable integrated circuit), funded in 1959 by what would later become Venrock Associates.[7] Venrock was founded in 1969 by Laurance S. Rockefeller, the fourth of John D. Rockefeller's six children as a way to allow other Rockefeller children to develop exposure to venture capital investments.

The growth of the venture capital industry was fueled by the emergence of the independent investment firms on Sand Hill Road, beginning with Kleiner Perkins in 1972. Located, in Menlo Park, CA, Kleiner Perkins and later venture capital firms would have access to the burgeoning technology industries in the area. By the early 1970s, there were many semiconductor companies based in the Santa Clara Valley as well as early computer firms using their devices and programming and service companies.[8] Throughout the 1970s, a group of private equity firms, focused primarily on venture capital investments, would be founded that would become the model for later leveraged buyout and venture capital investment firms. In 1973, with the number of new venture capital firms increasing, leading venture capitalists formed the National Venture Capital Association (NVCA). The NVCA was to serve as the industry trade group for the venture capital industry.[9] Among the firms founded in this period that continue to invest actively include:

Venture capital played an instrumental role in developing many of the major technology companies of the 1980s. Some of the most notable venture capital investments were made in firms including:

  • Tandem Computers, an early manufacturer of computer systems, founded 1975[10]
  • Genentech a biotechnology company, founded in 1976 with venture capital from Robert A. Swanson.[11][12]
  • Apple Inc., 1978, Designs and manufactures consumer electronics. In December 1980, Apple went public. Its offering of 4.6 million shares at $22 each sold out within minutes. A second offering of 2.6 million shares quickly sold out in May 1981.[13]
  • Electronic Arts, December 6, 1982 Distributor of computer and video games. On May 28, 1982, Trip Hawkins incorporated and established the company with a personal investment of an estimated US$200,000. Seven months later in December 1982, Hawkins secured US$2 million of venture capital from Sequoia Capital, Kleiner, Perkins, Caufield & Byers, and Sevin Rosen Funds.[14]
  • Compaq, 1982, Sevin Rosen Funds[15]
  • Federal Express, Venture capitalists invested $80 million to help Frederick W. Smith purchase his first Dassault Falcon 20 airplanes.[16][17]
  • LSI Corporation was funded in 1981 with $6 million from noted venture capitalists including Sequoia Capital. A second round of financing for an additional $16 million was completed in March 1982. The firm went public on May 13, 1983 netting $153 million, the largest technology IPO to that point.


Early history of leveraged buyouts (1955-1981)

McLean Industries and public holding companies

Although not strictly private equity, and certainly not labeled so at the time, the first leveraged buyout may have been the purchase by McLean Industries, Inc. of Pan-Atlantic Steamship Company in January 1955 and Waterman Steamship Corporation in May 1955[18] Under the terms of that transaction, McLean borrowed $42 million and raised an additional $7 million through an issue of preferred stock. When the deal closed, $20 million of Waterman 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.[19]

Similar to the approach employed in the McLean transaction, the use of publicly traded holding companies as investment vehicles to acquire portfolios of investments in corporate assets was a relatively new trend in the 1960s popularized by the likes of Warren Buffett (Berkshire Hathaway) and Victor Posner (DWG Corporation) and later adopted by Nelson Peltz (Triarc), Saul Steinberg (Reliance Insurance) and Gerry Schwartz (Onex Corporation). These investment vehicles would utilize a number of the same tactics and target the same type of companies as more traditional leveraged buyouts and in many ways could be considered a forerunner of the later private equity firms. In fact it is Posner who is often credited with coining the term "leveraged buyout" or "LBO"[20]

Posner, who had made a fortune in real estate investments in the 1930s and 1940s acquired a major stake in DWG Corporation in 1966 and having gained control of the company used the company as an investment vehicle that could execute takeovers of other companies. Posner and DWG are perhaps best known for the hostile takeover of Sharon Steel Corporation in 1969, one of the earliest such takeovers in the United States. Posner's investments were typically motivated by attractive valuations, balance sheets and cash flow characteristics. Because of its high debt load, Posner's DWG would generate attractive but highly volatile returns and would ultimate land the company in financial difficulty. In 1987, Sharon Steel operated in Chapter 11 bankruptcy protection.

Warren Buffett, although typically described as a stock market investor rather than a private equity investor, employed many of the same techniques in the creation on his Berkshire Hathaway conglomerate as Posner's DWG Corporation and in later years by more traditional private equity investors. In 1965, with the support of the company's board of directors, Buffett assumed control of Berkshire Hathaway. At the time of Buffett's investment, Berkshire Hathaway was a textile company, however, Buffett used Berkshire Hathaway as an investment vehicle to make acquisitions and minority investments in dozens of the insurance and reinsurance industries (GEICO) and varied companies including: American Express, The Buffalo News, the Coca-Cola Company, Fruit of the Loom, Nebraska Furniture Mart and See's Candies. Buffett's value investing approach and focus on earnings and cash flows are characteristic of later private equity investors. Buffett would distinguish himself relative to more traditional leveraged buyout practitioners through his reluctance to use leverage and hostile techniques in his investments.

In the industry's infancy in the late 1960s the acquisitions were called "bootstrap" transactions, and were characterized by Victor Posner's hostile takeover of Sharon Steel Corporation in 1969.[21]


KKR and the pioneers of private equity

The industry that is today described as private equity was conceived by a number of corporate financiers, most notably Jerome Kohlberg, Jr. and later his protégé Henry Kravis. Working for Bear Stearns at the time, Kohlberg and Kravis along with Kravis' cousin George Roberts began a series of what they described as "bootstrap" investments. They targeted family-owned businesses, many of which had been founded in the years following World War II which by the 1960s and 1970s were facing succession issues. Many of these companies lacked a viable or attractive exit for their founders as they were too small to be taken public and the founders were reluctant to sell out to competitors and so a sale to a financial buyer could prove attractive. Their acquisition of Orkin Exterminating Company in 1964 is among the first significant leveraged buyout transactions.[22]. In the following years the three Bear Stearns bankers would complete a series of buyouts including Stern Metals (1965), Incom (a division of Rockwood International, 1971), Cobblers Industries (1971), and Boren Clay (1973) as well as Thompson Wire, Eagle Motors and Barrows through their investment in Stern Metals. Although they had a number of highly successful investments, the $27 million investment in Cobblers ended in bankruptcy.[23]

By 1976, tensions had built up between Bear Stearns and Kohlberg, Kravis and Roberts leading to their departure and the formation of Kohlberg Kravis Roberts in that year. Most notably, Bear Stearns executive Cy Lewis had rejected repeated proposals to form a dedicated investment fund within Bear Stearns and Lewis took exception to the amount of time spent on outside activities.[24] Early investors included the Hillman Family[25] By 1978, with the revision of the ERISA regulations, the nascent KKR was successful in raising its first institutional fund with approximately $30 million of investor commitments.[26]

Meanwhile in 1974, Thomas H. Lee founded a new investment firm to focus on acquiring companies through leveraged buyout transactions, one of the earliest independent private equity firms to focus on leveraged buyouts of more mature companies rather than venture capital investments in growth companies. Lee's firm, Thomas H. Lee Partners, while generating less fanfare than other entrants in the 1980s, would emerge as one of the largest private equity firms globally by the end of the 1990s.

The second half of the 1970s and the first years of the 1980s saw the emergence of several private equity firms that would be survive through the various cycles both in leveraged buyouts and venture capital. Among the firms founded during these years were:

A group of managers at Harley-Davidson, the motorcycle manufacturer, bought the company from AMF in a leveraged buyout in 1981, but racked up big losses the following year and had to ask for protection from Japanese competitors.

In 1980, Ronald Perelman, the son of a wealthy Philadelphia businessman, and future "corporate raider" having made several small but successful buyouts, acquired MacAndrews & Forbes, a distributor of licorice extract and chocolate, that Perelman's father had tried and failed to acquire it 10 years earlier.[27] Perelman would ultimately divest the company's core business and use MacAndrews & Forbes as a holding company investment vehicle for subsequent leveraged buyouts including Technicolor, Inc., Pantry Pride and Revlon.


Regulatory and tax changes impact the boom

The advent of the boom in leveraged buyouts in the 1980s was supported by three major legal and regulatory events:

  • Failure of the Carter tax plan of 1977 - In his first year in office, Jimmy Carter put forth a revision to the corporate tax system that would have, among other results, reduced the disparity in treatment of interest paid to bondholders and dividends paid to stockholders. Carter's proposals did not achieve support from the business community or Congress and was not enacted. Because of the different tax treatment, the use of leverage to reduce taxes was popular among private equity investors and would become increasingly popular with the reduction of the capital gains tax rate.[28]
  • Employee Retirement Income Security Act of 1974 (ERISA) - With the passage of ERISA in 1974, corporate pension funds were prohibited from holding certain risky investments including many investments in privately held companies. In 1975, fundraising for private equity investments cratered, according to the Venture Capital Institute, totaling only $10 million during the course of the year. In 1978, the US Labor Department relaxed certain of the ERISA restrictions, under the "prudent man rule,"[29] thus allowing corporate pension funds to invest in private equity resulting in a major source of capital available to invest in venture capital and other private equity. Time reported in 1978 that fund raising had increased from $39 million in 1977 to $570 million just one year later.[30] Additionally, many of these same corporate pension investors would become active buyers of the high yield bonds (or junk bonds) that were necessary to complete leveraged buyout transactions.
  • Economic Recovery Tax Act of 1981 (ERTA) - On August 15, 1981, Ronald Reagan signed the Kemp-Roth bill, officially known as the Economic Recovery Tax Act of 1981, into law, lowering of the top capital gains tax rate from 28 percent to 20 percent, and making high risk investments even more attractive.

In the years that would follow these events, private equity would experience its first major boom, acquiring some of the famed brands and major industrial powers of American business.

The first private equity boom (1982 to 1993)

Beginning of the LBO boom

Michael Milken, the man credited with creating the market for high yield "junk" bonds and spurring the LBO boom of the 1980s

The beginning of the first boom period in private equity would be marked by the well-publicized success of the Gibson Greetings acquisition in 1982 and would roar ahead through 1983 and 1984 with the soaring stock market driving profitable exits for private equity investors.

In January 1982, former US Secretary of the Treasury William Simon and a group of investors (Which would later come to be known as Wesray Corp. acquired Gibson Greetings, a producer of greeting cards, for $80 million, of which only $1 million was rumored to have been contributed by the investors. By mid-1983, just sixteen months after the original deal, Gibson completed a $290 million IPO and Simon made approximately $66 million.[31] Simon and Wesray would complete acquisitions of Fortnight ago, Simon's Wesray Corp. launched another buyout: a $71.6 million acquisition of Atlas Van Lines.

Between 1979 and 1989, it was estimated that there were over 2,000 leveraged buyouts valued in excess of $250 million[32] Notable buyouts of this period (not described elsewhere in this article) include:

KKR completed the first buyout of a public company by tender offer, by acquiring the food distributor and supermarket operator together with the company's chairman Joseph R. Hyde III.[33]
  • Wometco Enterprises, 1984
KKR completed the first billion-dollar buyout transaction to acquire the leisure-time company with interests in television, movie theaters and tourist attractions. The buyout comprised the acquisition of 100% of the outstanding shares for $842 million and the assumption of $170 million of the company's outstanding debt.[34]
KKR sponsored the $6.1 billion management buyout of Beatrice, which owned Samsonite and Tropicana among other consumer brands. At the time of its closing in 1985, Beatrice was the largest buyout completed.[35][36]
  • Sterling Jewelers, 1985
One of THL's early successes was the acquisition of Akron, Ohio-based Sterling Jewelers for $28 million. Lee reported put in less than $3 million and when the company was sold two years later for $210 million walked away with over $180 million in profits. The combined company was an early predecessor to what is now Signet Group, one of Europe's largest jewelry retail chains.[37]
The drug store chain was taken private in a management buyout transaction. However, within two years the company was unable to support its debt load and filed for bankruptcy protection.[38] Bondholders in the Revco buyout ultimately contended that the buyout was so poorly constructed that the transaction should have been unwound.[39]
KKR completed a friendly $5.5 billion buyout of Safeway to help management avoid hostile overtures from Herbert and Robert Haft of Dart Drug.[40]. Safeway was taken public again in 1990.
John Thompson, the founder of 7-Eleven completed a $5.2 billion management buyout of the company he founded.[41] The buyout suffered from the 1987 stock market crash and after failing initially raise high yield debt financing, the company was required to offer a portion of the company's stock as an inducement to invest in the company's bonds.[42][43]
KKR acquired the company for $3.3 billion in early 1988 but faced issues with the buyout almost immediately. Most notably, a subsidiary of Jim Walter Corp (Celotex) faced a large asbestos lawsuit and incurred liabilities that the courts ruled would need to be satisfied by the parent company.[44] In 1989, the holding company that KKR used for the Jim Walter buyout filed for Chapter 11 bankruptcy protection.[45]
Blackstone Group began the leveraged buildup of BlackRock, which is an asset manager. Blackstone sold its interest in 1994 and today Blackrock is listed on the New York Stock Exchange.
Robert Campeau's Campeau Corporation completed a $6.6 billion merger with Federated, owner of the Bloomingdale's, Filene's and Abraham & Straus department stores.[46]
Ronald Perelman acquired the company and oversaw a major expansion of its titles in the early 1990s before taking the company public on the New York Stock Exchange in 1991.[47][48] The company would later suffer as a result of its massive debt load and ultimately the bondholders, led by Carl Icahn would take control of the company.[49]
Clayton & Dubilier acquired Uniroyal Goodrich Tire Company from B.F. Goodrich and other investors for $225 million.[50][51] Two years later, in October 1990, Uniroyal Goodrich Tire Company was sold to Michelin for $1.5 billion.[52]
The hospital operator was acquired for $5.3 billion in a management buyout led by Chairman Thomas J. Frist[53] and completed a successful initial public offering in the 1990s. The company would be taken private again 17 years later in 2006 by KKR, Bain Capital and Merrill Lynch.


Because of the high leverage on many of the transactions of the 1980s, failed deals occurred regularly, however the promise of attractive returns on successful investments generated attractive returns and attracted more capital. With the increased leveraged buyout activity, the mid-1980s saw a major proliferation of private equity firms, among which some of the major firms founded in this period were:

Additionally, as the market developed, new niches within the private equity industry began to emerge. In 1982, Venture Capital Fund of America, the first private equity firm focused on acquiring secondary market interests in existing private equity funds was founded and then, two years later in 1984, First Reserve Corporation, the first private equity firm focused on the energy sector, was founded.

Venture capital in the 1980s

The public successes of the venture capital industry in the 1970s and early 1980s (e.g., DEC, Apple, Genentech) gave rise to a major proliferation of venture capital investment firms. From just a few dozen firms at the start of the decade, there were over 650 firms by the end of the 1980s, each searching for the next major "homerun". While the number of firms multiplied, the capital managed by these firms increased only 11% from $28 billion to $31 billion over the course of the decade.[54]

The growth the industry was hampered by sharply declining returns and certain venture firms began posting losses for the first time. In addition to the increased competition among firms, several other factors impacted returns. The market for initial public offerings cooled in the mid-1980s before collapsing after the stock market crash in 1987 and foreign corporations, particularly from Japan and Korea, flooded early stage companies with capital.[54]

In response to the changing conditions, corporations that had sponsored in-house venture investment arms, including General Electric and Paine Webber either sold off or closed these venture capital units. Additionally, venture capital units within Chemical Bank (today CCMP Capital) and Continental Illinois National Bank (today CIVC Partners), among others, began shifting their focus from funding early stage companies toward investments in more mature companies. Even industry founders J.H. Whitney & Co. and Warburg Pincus began to transition toward leveraged buyouts and growth capital investments.[54][55][56]

Although lower profile than their buyout counterparts, new leading venture capital firms were also formed including Draper Fisher Jurvetson (originally Draper Associates) in 1985 and Canaan Partners in 1987 among others.


Corporate raiders, hostile takeovers and greenmail

thumb|right|T. Boone Pickens Mar 4, 1985 Although the "corporate raider" moniker is rarely applied to contemporary private equity investors, there is no formal distinction between a "corporate raid" and other private equity investments acquisitions of existing businesses. The label was typically ascribed by constituencies within the acquired company or the media. However, a corporate raid would typically feature a leveraged buyout that would involve a hostile takeover of the company, perceived asset stripping, major layoffs or other significant corporate restructuring activities. Management of many large publicly traded corporations reacted negatively to the threat of potential hostile takeover or corporate raid and pursued drastic defensive measures including poison pills, golden parachutes and increasing debt levels on the company's balance sheet. Additionally, the threat of the corporate raid would lead to the practice of "greenmail", where a corporate raider or other party would acquire a significant stake in the stock of a company and receive an incentive payment (effectively a bribe) from the company in order to avoid pursuing a hostile takeover of the company. Greenmail represented a transfer payment from a company's existing shareholders to a third party investor and provided no value to existing shareholders but did benefit existing managers. In later years, many of the corporate raiders would be re-characterized as "Activist shareholders".

Among the most notable corporate raiders of the 1980s included Carl Icahn, Victor Posner, Nelson Peltz, Robert M. Bass, T. Boone Pickens, Harold Clark Simmons, Kirk Kerkorian, Sir James Goldsmith, Saul Steinberg and Asher Edelman. Carl Icahn developed a reputation as a ruthless corporate raider after his hostile takeover of TWA in 1985.[57] The result of that takeover was Icahn systematically selling TWA's assets to repay the debt he used to purchase the company, which was described as asset stripping.[58]

Many of the corporate raiders were onetime clients of Michael Milken, whose investment banking firm, Drexel Burnham Lambert helped raise blind pools of capital with which corporate raiders could make a legitimate attempt to takeover a company and provided high-yield debt financing of the buyouts.

Drexel Burnham raised a $100 million blind pool in 1984 for Nelson Peltz and his holding company Triangle Industries (later Triarc) to give credibility for takeovers, representing the first major blind pool raised for this purpose. Two years later, in 1986, Wickes Companies, a holding company run by Sanford Sigoloff would raise a $1.2 billion blind pool.[59] In later years, Milken and Drexel would shy away from certain of the more "notorious" corporate raiders as the firm and the private equity industry attempted to move upscale.

In 1985, Milken raised a $750 million for a similar blind pool for Ronald Perelman which would ultimate prove instrumental in acquiring his biggest target: The Revlon Corporation. Using the Pantry Pride subsidiary of his holding company, MacAndrews & Forbes Holdings, Perelman's overtures were rebuffed. Repeatedly rejected by the company's board and management, Perelman continued press forward with a hostile takeover raising his offer from an initial bid of $47.50 per share until it reached $53.00 per share. After receiving a higher offer from a white knight, private equity firm Forstmann Little & Company, Perelman's Pantry Pride finally was able to make a successful bid for Revlon, valuing the company at $2.7 billion.[60] The buyout would prove troubling, burdened by a heavy debt load.[61][62][63] Under Perelman's control, Revlon sold 4 divisions: two of which were sold for $1 billion, its vision care division was sold for $574 million and its National Health Laboratories division was spun out to the public market in 1988. Revlon also made acquisitions including Max Factor in 1987 and Betrix in 1989 later selling them to Procter & Gamble in 1991.[64] Perelman exited the bulk of his holdings in Revlon through an IPO in 1996 and subsequent sales of stock. As of December 31, 2007, Perelman still retains a minority ownership interest in Revlon. The Revlon takeover, because of its well-known brand was profiled widely by the media and brought new attention to the emerging boom in leveraged buyout activity.

RJR Nabisco and the Barbarians at the Gate

Leveraged buyouts in the 1980s including Perelman's takeover of Revlon came to epitomize the "ruthless capitalism" and "greed" popularly seen to be pervading Wall Street at the time. One of the final major buyouts of the 1980s proved to be its most ambitious and marked both a high water mark and a sign of the beginning of the end of the boom that had begun nearly a decade earlier. In 1989, KKR closed in on a $31.1 billion dollar takeover of RJR Nabisco. It was, at that time and for over 17 years, the largest leverage buyout in history. The event was chronicled in the book, Barbarians at the Gate: The Fall of RJR Nabisco, and later made into a television movie starring James Garner.

F. Ross Johnson was the President and CEO of RJR Nabisco at the time of the leveraged buyout and Henry Kravis was a general partner at Kohlberg Kravis Roberts & Co. The leveraged buyout was in the amount of $25 billion, and the battle for control took place between October and November 1988. KKR would eventually prevail in acquiring RJR Nabisco at $109 per share marking a dramatic increase from the original announcement that Shearson Lehman Hutton would take RJR Nabisco private at $75 per share. A fierce series of negotiations and horse-trading ensued which pitted KKR against Shearson Lehman Hutton and later Forstmann Little & Co. Many of the major banking players of the day, including Morgan Stanley, Goldman Sachs, Salomon Brothers, and Merrill Lynch were actively involved in advising and financing the parties.

After Shearson Lehman's original bid, KKR quickly introduced a tender offer to obtain RJR Nabisco for $90 per share—a price that enabled it to proceed without the approval of RJR Nabisco's management. RJR's management team, working with Shearson Lehman and Salomon Brothers, submitted a bid of $112, a figure they felt certain would enable them to outflank any response by Kravis's team. KKR's final bid of $109, while a lower dollar figure, was ultimately accepted by the board of directors of RJR Nabisco. KKR's offer was guaranteed, whereas the management offer (backed by Shearson Lehman and Salomon) lacked a "reset", meaning that the final share price might have been lower than their stated $112 per share. Additionally, many in RJR's board of directors had grown concerned at recent disclosures of Ross Johnson' unprecedented golden parachute deal. TIME magazine featured Ross Johnson on the cover of their December 1988 issue along with the headline, "A Game of Greed: This man could pocket $100 million from the largest corporate takeover in history. Has the buyout craze gone too far?".[65] KKR's offer was welcomed by the board, and, to some observers, it appeared that their elevation of the reset issue as a deal-breaker in KKR's favor was little more than an excuse to reject Ross Johnson's higher payout of $112 per share. F. Ross Johnson received $53 million from the buyout.

At $31.1 billion of transaction value, RJR Nabisco was by far the largest leveraged buyouts in history. In 2006 and 2007, a number of leveraged buyout transactions were completed that for the first time surpassed the RJR Nabisco leveraged buyout in terms of nominal purchase price. However, adjusted for inflation, none of the leveraged buyouts of the 2006 – 2007 period would surpass RJR Nabisco. Unfortunately for KKR, size would not equate with success as the high purchase price and debt load would burden the performance of the investment.

As the market reached its peak in 1988 and 1989, new private equity firms were founded which would emerge as major investors in the years to follow, including:


LBO bust (1990 to 1992)

By the end of the 1980s the excesses of the buyout market were beginning to show, with the bankruptcy of several large buyouts including Robert Campeau's 1988 buyout of Federated Department Stores, the 1986 buyout of the Revco drug stores, Walter Industries, FEB Trucking and Eaton Leonard. Additionally, the RJR Nabisco deal was showing signs of strain, leading to a recapitalization in 1990 that involved the contribution of $1.7 billion of new equity from KKR.[66] Additionally, in response to the threat of LBOs, certain companies adopted a number of techniques, such as the poison pill, to protect them against hostile takeovers by effectively self-destructing the company if it were to be taken over.

The collapse of Drexel Burnham Lambert

Drexel Burnham Lambert was the investment bank most responsible for the boom in private equity during the 1980s due to its leadership in the issuance of high-yield debt. The firm was first rocked by scandal on May 12, 1986, when Dennis Levine, a Drexel managing director and investment banker, was charged with insider trading. Levine pleaded guilty to four felonies, and implicated one of his recent partners, arbitrageur Ivan Boesky. Largely based on information Boesky promised to provide about his dealings with Milken, the Securities and Exchange Commission initiated an investigation of Drexel on November 17. Two days later, Rudy Giuliani, the United States Attorney for the Southern District of New York, launched his own investigation.[67]

For two years, Drexel steadfastly denied any wrongdoing, claiming that the criminal and SEC cases were based almost entirely on the statements of an admitted felon looking to reduce his sentence. However, it was not enough to keep the SEC from suing Drexel in September 1988 for insider trading, stock manipulation, defrauding its clients and stock parking (buying stocks for the benefit of another). All of the transactions involved Milken and his department. Giuliani began seriously considering indicting Drexel under the powerful Racketeer Influenced and Corrupt Organizations Act (RICO), under the doctrine that companies are responsible for an employee's crimes.[67]

The threat of a RICO indictment, which would have required the firm to put up a performance bond of as much as $1 billion in lieu of having its assets frozen, unnerved many at Drexel. Most of Drexel's capital was borrowed money, as is common with most investment banks and it is difficult to receive credit for firms under a RICO indictment.[67] Drexel's CEO, Fred Joseph said that he had been told that if Drexel were indicted under RICO, it would only survive a month at most.[68]

With literally minutes to go before being indicted, Drexel reached an agreement with the government in which it pleaded nolo contendere (no contest) to six felonies – three counts of stock parking and three counts of stock manipulation.[67] It also agreed to pay a fine of $650 million – at the time, the largest fine ever levied under securities laws. Milken left the firm after his own indictment in March 1989.[68][69] Effectively, Drexel was now a convicted felon.

In April 1989, Drexel settled with the SEC, agreeing to stricter safeguards on its oversight procedures. Later that month, the firm eliminated 5,000 jobs by shuttering three departments – including the retail brokerage operation.

Meanwhile, the high-yield debt markets began to shut down in 1989. On February 13, 1990 after being advised by Secretary of the Treasury Nicholas F. Brady, the SEC, the NYSE and the Federal Reserve, Drexel Burnham Lambert officially filed for Chapter 11 bankruptcy protection.[68]

S&L and the shutdown of the Junk Bond Market

In the 1980s, the boom in private equity transactions, specifically leveraged buyouts, was driven by the availability of financing, particularly high-yield debt, also known as "junk bonds". The collapse of the high yield market in 1989 and 1990 would signal the end of the LBO boom. At that time, many market observers were pronouncing the junk bond market “finished.” This collapse would be due largely to three factors:

  • The dramatic increase in default rates among junk bond issuing companies. The historical default rate for high yield bonds from 1978 to 1988 was approximately 2.2% of total issuance. In 1989, defaults increased dramatically to 4.3% of the then $190 billion market and an additional 2.6% of issuance defaulted in the first half of 1990. As a result of the higher perceived risk, the differential in yield of the junk bond market over U.S. treasuries (known as the "spread") had also increased by 700 basis points (7 percentage points). This made the cost of debt in the high yield market significantly more expensive than it had been previously.[70][71]

Despite the adverse market conditions, several of the largest private equity firms were founded in this period including:

The second private equity boom and the origins of modern private equity

Resurgence of leveraged buyouts

Private equity in the 1980s was a controversial topic, commonly associated with corporate raids, hostile takeovers, asset stripping, layoffs, plant closings and outsized profits to investors. As private equity reemerged in the 1990s it began to earn a new degree of legitimacy and respectability. Although in the 1980s, many of the acquisitions made were unsolicited and unwelcome, private equity firms in the 1990s focused on making buyouts attractive propositions for management and shareholders. “[B]ig companies that would once have turned up their noses at an approach from a private-equity firm are now pleased to do business with them.”[3] Additionally, private equity investors became increasingly focused on the long term development of companies they acquired, using less leverage in the acquisition. In the 1980s leverage would routinely represent 85% to 95% of the purchase price of a company as compared to average debt levels between 20% and 40% in leveraged buyouts in the 1990s and the first decade of the 21st century. KKR's acquisition of Safeway, for example, was completed with 97% leverage and 3% equity contributed by KKR, whereas KKR's acquisition of TXU in 2007 was completed with approximately 19% equity contributed ($8.5 billion of equity out of a total purchase price of $45 billion). Additionally, private equity firms are more likely to make investments in capital expenditures and provide incentives for management to build long-term value.

Beginning roughly in 1992, three years after RJR Nabisco, and continuing through the end of the decade the private equity industry experienced a tremendous boom, both in venture capital (as will be discussed below) and leveraged buyouts with the emergence of brand name firms managing multi billion dollar sized funds. Over this period, the pool of U.S. private equity funds has grown from $5 billion in 1980 to over $203 billion in 2005, outpacing the growth of almost every other financial asset class.

The Thomas H. Lee Partners acquisition of Snapple Beverages, in 1992, is often described as the deal that marked the resurrection of the leveraged buyout after several dormant years.[73] Only eight months after buying the company, Lee took Snapple Beverages public and in 1994, only two years after the original acquisition, Lee sold the company to Quaker Oats for $1.7 billion. Lee was estimated to have made $900 million for himself and his investors from the sale. Quaker Oats would subsequently sell the company, which performed poorly under new management, three years later for only $300 million to Nelson Peltz's Triarc. As a result of the Snapple deal, Thomas H. Lee, who had begun investing in private equity in 1974, would find new prominence in the private equity industry and catapult his Boston-based Thomas H. Lee Partners to the ranks of the largest private equity firms.

The following year, David Bonderman and James Coulter, who had worked for Robert M. Bass during the 1980s completed a buyout of Continental Airlines in 1993, through their nascent Texas Pacific Group, (today TPG Capital). TPG was virtually alone in its conviction that there was an investment opportunity with the airline. The plan included bringing in a new management team, improving aircraft utilization and focusing on lucrative routes. By 1998, TPG had generated an annual internal rate of return of 55% on its investment. Unlike Carl Icahn's hostile takeover of TWA in 1985.[57], Bonderman and Texas Pacific Group were widely hailed as saviors of the airline, marking the change in tone from the 1980s.

Among the most notable buyouts of the mid-to-late 1990s included:

The company's founders sold Duane Reade to Bain Capital for approximately $300 million. In 1997, Bain Capital then sold the chain to DLJ Merchant Banking Partners[74] Duane Reade completed its initial public offering (IPO) on February 10, 1998
Bain Capital and a team of Sealy's senior executives acquired the mattress company through a management buyout[75]
Kohlberg Kravis Roberts and Hicks, Muse, Tate & Furst
Texas Pacific Group acquired an 88% stake in the retailer for approximately $500 million,[76] however the investment struggled due to the relatively high purchase price paid relative to the company's earnings[77]. The company was able to complete a turnaround beginning in 2002 and complete an initial public offering in 2006[78]
Bain Capital acquired a 49% interest in the second-largest pizza-chain in the US from its founder[79] and would successfully take the company public on the New York Stock Exchange (NYSE:DPZ) in 2004.[80]
Kohlberg Kravis Roberts and Hicks, Muse, Tate & Furst acquired the largest chain of movie theaters for $1.49 billion, including assumed debt.[81] The buyers originally announced plans to acquire Regal, then merge it with United Artists (owned by Merrill Lynch at the time) and Act III (controlled by KKR), however the acquisition of United Artists fell through due to issues around the price of the deal and the projected performance of the company.[82] Regal, along with the rest of the industry would encounter significant issues due to overbuilding of new multiplex theaters[83] and would declare bankruptcy in 2001. Billionaire Philip Anschutz would take control of the company and later take the company public.[84]
An investor group led by Texas Pacific Group invested $350 million in a convertible preferred stock that can be converted into 22.1% of Oxford.[85] The company completed a buyback of the TPG's PIPE convertible in 2000 and would ultimately be acquired by UnitedHealth Group in 2004.[86]
TPG Capital and Leonard Green & Partners invested $200 million to acquire the pet supplies retailer as part of a $600 million buyout.[87] Within two years they sold most of it in a public offering that valued the company at $1 billion. Petco’s market value more than doubled by the end of 2004 and the firms would ultimately realize a gain of $1.2 billion. Then, in 2006, the private equity firms took Petco private again for $1.68 billion.[88]

As the market for private equity matured, so too did its investor base. The Institutional Limited Partner Association was initially founded as an informal networking group for limited partner investors in private equity funds in the early 1990s. However the organization would evolve into an advocacy organization for private equity investors with more than 200 member organizations from 10 countries. As of the end of 2007, ILPA members had total assets under management in excess of $5 trillion with more than $850 billion of capital commitments to private equity investments.


The venture capital boom and the Internet Bubble (1995 to 2000)

In the 1980s, FedEx and Apple Inc. were able to grow because of private equity or venture funding, as were Cisco, Genentech, Microsoft, Avis, Beatrice Foods, and Dr Pepper.[89]. However, by the end of the 1980s, venture capital returns were relatively low, particularly in comparison with their emerging leveraged buyout cousins, due in part to the excess supply of IPOs and the inexperience of many venture capital fund managers. Unlike the leveraged buyout industry, after rising considerably to $3 billion in 1983, growth in the venture capital industry remained limited through the 1980s and the first half of the 1990s increasing to just over $4 billion in 1994.

After a shakeout of venture capital mangers, the more successful firms retrenched, focusing increasingly on improving operations at their portfolio companies rather than continuously making new investments. Results would begin to turn very attractive, successful and would ultimately generate the venture capital boom of the 1990s. Former Wharton Professor Andrew Metrick refers to these first 15 years of the modern VC industry as the "pre-boom period" in anticipation of the boom that would begin in 1995 and last through the bursting of the Internet bubble in 2000.[90]

The late 1990s were a boom time for the venture capital, as firms on Sand Hill Road in Menlo Park and Silicon Valley benefited from a huge surge of interest in the nascent Internet and other computer technologies. Initial public offerings of stock for technology and other growth companies were in abundance and venture firms were reaping large windfalls.


The bursting of the Internet Bubble and the private equity crash (2000 to 2003)

The technology-heavy NASDAQ Composite index peaked at 5,048 in March 2000, reflecting the high point of the dot-com bubble.

The Nasdaq crash and technology slump that started in March 2000 shook virtually the entire venture capital industry as valuations for startup technology companies collapsed. Over the next two years, many venture firms had been forced to write-off their large proportions of their investments and many funds were significantly "under water" (the values of the fund's investments were below the amount of capital invested). Venture capital investors sought to reduce size of commitments they had made to venture capital funds and in numerous instances, investors sought to unload existing commitments for cents on the dollar in the secondary market. By mid-2003, the venture capital industry had shriveled to about half its 2001 capacity. Nevertheless, PricewaterhouseCoopers' MoneyTree Survey shows that total venture capital investments held steady at 2003 levels through the second quarter of 2005.

Although the post-boom years represent just a small fraction of the peak levels of venture investment reached in 2000, they still represent an increase over the levels of investment from 1980 through 1995. As a percentage of GDP, venture investment was 0.058% percent in 1994, peaked at 1.087% (nearly 19x the 1994 level) in 2000 and ranged from 0.164% to 0.182 % in 2003 and 2004. The revival of an Internet-driven environment (thanks to deals such as eBay's purchase of Skype, the News Corporation's purchase of MySpace.com, and the very successful Google.com and Salesforce.com IPOs) have helped to revive the venture capital environment. However, as a percentage of the overall private equity market, venture capital has still not reached its mid-1990s level, let alone its peak in 2000.

Stagnation in the LBO market

Meanwhile, as the venture sector collapsed, the activity in the leveraged buyout market also declined significantly. Leveraged buyout firms had invested heavily in the telecommunications sector from 1996 to 2000 and profited from the boom which suddenly fizzled in 2001. In that year at least 27 major telecommunications companies, (i.e., with $100 million of liabilities or greater) filed for bankruptcy protection. Telecommunications, which made a large portion of the overall high yield universe of issuers, dragged down the entire high yield market. Overall corporate default rates surged to levels unseen since the 1990 market collapse rising to 6.3% of high yield issuance in 2000 and 8.9% of issuance in 2001. Default rates on junk bonds peaked at 10.7 percent in January 2002 according to Moody's. [92][93] As a result, leveraged buyout activity ground to a halt.[94] [95] The major collapses of former high-fliers including WorldCom, Adelphia Communications, Global Crossing and WinStar were among the most notable defaults in the market. In addition to the high rate of default, many investors lamented the low recovery rates achieved through restructuring or bankruptcy.[93]

Among the most affected by the bursting of the internet and telecom bubbles were Tom Hicks' Hicks Muse Tate & Furst and Ted Forstmann's Forstmann Little & Company, which were often cited as the highest profile private equity casualties, having invested heavily in technology and telecommunications companies.[96] Hicks Muse's reputation and market position were both damaged by the loss of over $1 billion from minority investments in six telecommunications and 13 Internet companies at the peak of the 1990's stock market bubble.[97][98][99] Similarly, Forstmann suffered major losses from investments in McLeodUSA and XO Communications.[100][101] Tom Hicks resigned from Hicks Muse at the end of 2004 and Forstmann Little was unable to raise a new fund. The treasure of the State of Connecticut, sued Forstmann Little to return the state's $96 million investment so far and to cancel the commitment it made to take its total investment to $200 million.[102]

Deals completed during this period tended to be smaller and financed less with high yield debt than in other periods. Private equity firms had to cobble together financing made up of bank loans and mezzanine debt, often with higher equity contributions than had been seen. Private equity firms benefited from the lower valuation multiples. As a result, despite the relatively limited activity, those funds that invested during the adverse market conditions delivered attractive returns to investors. Meanwhile, in Europe LBO activity began to increase as the market continued to mature. In 2001, for the first time, European buyout activity exceeded US activity with $44 billion of deals completed in Europe as compared with just $10.7 billion of deals completed in the US. This was a function of the fact that just six LBOs in excess of $500 million were completed in 2001, against 27 in 2000.[103]


As investors sought to reduce their exposure to the private equity asset class, an area of private equity that was increasingly active in these years was the nascent secondary market for private equity interests. Secondary transaction volume increased from historical levels of 2% or 3% of private equity commitments to 5% of the addressable market.[104][105] Many of the largest financial institutions (e.g., Deutsche Bank, Abbey National, UBS AG) sold portfolios of direct investments and “pay-to-play” funds portfolios that were typically used as a means to gain entry to lucrative leveraged finance and mergers and acquisitions assignments but had created hundreds of millions of dollars of losses. Some of the most notable (publicly disclosed) secondary transactions during this period included:

  • UBS AG sold a $1.3 billion portfolio of private equity fund interests in over 50 funds in 2003.[107]
  • Abbey National completed the sale of £748m ($1.33 billion) of LP interests in 41 private equity funds and 16 interests in private European companies in early 2004.[108]
  • Bank One sold a $1 billion portfolio of private equity fund interests in 2004.


The third private equity boom and the Golden Age of Private Equity (2003-2007)

As 2002 ended and 2003 began, the private equity sector, had spent the previous three two and a half years reeling from major losses in telecommunications and technology companies and had been severely constrained by tight credit markets. As 2003 got underway, private equity began a five year resurgence that would ultimately result in the completion of 13 of the 15 largest leveraged buyout transactions in history, unprecedented levels of investment activity and investor commitments and a major expansion and maturation of the leading private equity firms.

The combination of decreasing interest rates, loosening lending standards and regulatory changes for publicly traded companies would set the stage for the largest boom private equity had seen. The Sarbanes Oxley legislation, officially the Public Company Accounting Reform and Investor Protection Act, passed in 2002, in the wake of corporate scandals at Enron, WorldCom, Tyco, Adelphia, Peregrine Systems and Global Crossing among others, would create a new regime of rules and regulations for publicly traded corporations. In addition to the existing focus on short term earnings rather than long term value creation, many public company executives lamented the extra cost and bureaucracy associated with Sarbanes-Oxley compliance. For the first time, many large corporations saw private equity ownership as potentially more attractive than remaining public. Sarbanes-Oxley would have the opposite effect on the venture capital industry. The increased compliance costs would make it nearly impossible for venture capitalists to bring young companies to the public markets and dramatically reduced the opportunities for exits via IPO. Instead, venture capitalists have been forced increasingly to rely on sales to strategic buyers for an exit of their investment.[109]

Interest rates, which began a major series of decreases in 2002 would reduce the cost of borrowing and increase the ability of private equity firms to finance large acquisitions. Additionally, lower interest rates would encourage investors to return to relatively dormant high-yield debt and leveraged loan markets, making debt more readily available to finance buyouts.

Certain buyouts were completed in 2001 and early 2002, particularly in Europe where financing was more readily available. In 2001, for example, BT Group agreed to sell its international yellow pages directories business (Yell Group) to Apax Partners and Hicks, Muse, Tate & Furst for £2.14 billion (approximately $3.5 billion at the time),[110] making it then the largest non-corporate LBO in European history. Yell later bought US directories publisher McLeodUSA for about $600 million, and floated on London's FTSE in 2003.

Marked by the buyout of Dex Media large multi-billion dollar U.S. buyouts could once again obtain significant high yield debt financing and larger transactions could be completed. The Carlyle Group, Welsh, Carson, Anderson & Stowe, along with other private investors, led a $7.5 billion buyout of QwestDex. The buyout was the third largest corporate buyout since 1989. QwestDex's purchase occurred in two stages: a $2.75 billion acquisition of assets known as Dex Media East in November 2002 and a $4.30 billion acquisition of assets known as Dex Media West in 2003. R. H. Donnelley Corporation acquired Dex Media in 2006. Shortly after Dex Media, other larger buyouts would be completed signaling the resurgence in private equity was underway. The acquisitions included Burger King (by Bain Capital), Jefferson Smurfit (by Madison Dearborn), Houghton Mifflin[111][112] (by Bain Capital, the Blackstone Group and Thomas H. Lee Partners), and TRW Automotive by the Blackstone Group. In 2006 USA Today reported retrospectively on the revival of private equity:

LBOs are back, only they've rebranded themselves private equity and vow a happier ending. The firms say this time it's completely different. Instead of buying companies and dismantling them, as was their rap in the '80s, private equity firms… squeeze more profit out of underperforming companies.

But whether today's private equity firms are simply a regurgitation of their counterparts in the 1980s… or a kinder, gentler version, one thing remains clear: private equity is now enjoying a "Golden Age." And with returns that triple the S&P 500, it's no wonder they are challenging the public markets for supremacy. [113]

By 2004 and 2005, major buyouts were once again becoming common. Some of the notable buyouts of this period include:

The chain of dollar stores was sold for $850 million to Bain Capital.[114]
A consortium of Bain Capital, Kohlberg Kravis Roberts and real estate development company Vornado Realty Trust announced the $6.6 billion acquisition of the toy retailer. A month earlier, Cerberus Capital Management, made a $5.5 billion offer for both the toy and baby supplies businesses.[115]
Carlyle Group, Clayton Dubilier & Rice and Merrill Lynch completed the $15.0 billion leveraged buyout of the largest car rental agency from Ford.[116][117]
A consortium led by Sony and TPG Capital completed the $4.81 billion buyout of the film studio. The consortium also included media-focused firms Providence Equity Partners and Quadrangle Capital as well as DLJ Merchant Banking Partners.[118]
SunGard was acquired by a consortium of seven private equity investment firms in a transaction valued at $11.3 billion. The partners in the acquisition were Silver Lake Partners, which led the deal as well as Bain Capital, the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts, Providence Equity Partners, and Texas Pacific Group. This represented the largest leveraged buyout completed since the takeover of RJR Nabisco at the end of the 1980s leveraged buyout boom. Also, at the time of its announcement, SunGard would be the largest buyout of a technology company in history, a distinction it would cede to the buyout of Freescale Semiconductor. The SunGard transaction is also notable in the number of firms involved in the transaction. The involvement of seven firms in the consortium was criticized by investors in private equity who considered cross-holdings among firms to be generally unattractive.[119]

As 2005 ended and 2006 began, new "largest buyout" records were set and surpassed several times with nine of the top ten buyouts at the end of 2007 having been announced in an 18-month window from the beginning of 2006 through the middle of 2007. Additionally, the buyout boom was not limited to the United States as industrialized countries in Europe and the Asia-Pacific region also saw new records set. In 2006, private equity firms bought 654 U.S. companies for $375 billion, representing 18 times the level of transactions closed in 2003.[120] Additionally, U.S. based private equity firms raised $215.4 billion in investor commitments to 322 funds, surpassing the previous record set in 2000 by 22% and 33% higher than the 2005 fundraising total[121] However, venture capital funds, which were responsible for much of the fundraising volume in 2000 (the height of the dot-com bubble, raised only $25.1 billion in 2006, a 2% percent decline from 2005 and a significant decline from its peak.[122] The following year, despite the onset of turmoil in the credit markets in the summer, saw yet another record year of fundraising with $302 billion of investor commitments to 415 funds[123]

  • Georgia-Pacific Corp, 2005
In December 2005, Koch Industries, a privately-owned company controlled by Charles G. Koch and David H. Koch, acquired pulp and paper producer Georgia-Pacific for $21 billion.[124] The acquisition marked the first buyout in excess of $20 billion and largest buyout overall since RJR Nabisco and pushed Koch Industries ahead of Cargill as the largest privately-held company in the US, based on revenue.[125]
Albertson's accepted a $15.9 billion takeover offer ($9.8 billion in cash and stock and the assumption of $6.1 billion in debt) from SuperValu to buy most Albertson's grocery operations. The drugstore chain CVS acquired 700 stand-alone Sav-On and Osco pharmacies and a distribution center, and a group including Cerberus Capital Management and the Kimco Realty Corporation acquired some 655 underperforming grocery stores and a number of distribution centers.[126]
  • Equity Office Properties, 2006 – Blackstone Group completes the $37.7 billion[127] acquisition of one of the largest owners of commercial office properties in the US. At the time of its announcement, the Equity Office buyout became the largest in history, surpassing the buyout of HCA. It would later be surpassed by the buyouts of TXU and BCE (announced but as of the end of the first quarter of 2008 not yet completed).
A consortium led by the Blackstone Group and including the Carlyle Group, Permira and the TPG Capital completed the $17.6 billion takeover of the semiconductor company. At the time of its announcement, Freescale would be the largest leveraged buyout of a technology company ever, surpassing the 2005 buyout of SunGard.[128]
General Motors sold a 51% majority stake in its financing arm, GMAC Financial Services to a consortium led by Cerberus Capital Management, valuing the company at $16.8 billion[129]. Separately, General Motors sold a 78% stake in GMAC Commercial Holding Corporation, renamed Capmark Financial Group, its real estate venture, to a group of investors headed by Kohlberg Kravis Roberts and Goldman Sachs in a $1.5 billion deal. In June 2008, GMAC completed a $60 billion refinancing aimed at improving the liquidity of its struggling mortgage subsidiary, Residential Capital (ResCap) including $1.4 billion of additional equity contributions from the parent and Cerberus.[130][131]
Kohlberg Kravis Roberts and Bain Capital, together with Merrill Lynch and the Frist family (which had founded the company) completed a $31.6 billion acquisition of the hospital company, 17 years after it was taken private for the first time in a management buyout. At the time of its announcement, the HCA buyout would be the first of several to set new records for the largest buyout, eclipsing the 1989 buyout of RJR Nabisco. It would later be surpassed by the buyouts of Equity Office Properties, TXU and BCE (announced but as of the end of the first quarter of 2008 not yet completed).[132]
A consortium of private equity firms including Goldman Sachs Capital Partners , Carlyle Group and Riverstone Holdings completed a $27.5 billion (including assumed debt) acquisition of one of the largest pipeline operators in the US. The buyout was backed by Richard Kinder, the company's co-founder and a former president of Enron who was ousted after a dispute with Enron’s founder, Kenneth L. Lay.[133]
Apollo Management and TPG Capital completed the $27.39 billion[127] (including purchase of the outstanding equity for $16.7 billion and assumption of $10.7 billion of outstanding debt) acquisition of the gaming company[134]
The Danish phone company was acquired by Kohlberg Kravis Roberts, Apax Partners, Providence Equity Partners and Permira for €12.2 billion ($15.3 billion), which at the time made it the second largest European buyout in history.[135][136]
TPG Capital and Silver Lake Partners announced a deal to buy Sabre Holdings, which operates Travelocity, Sabre Travel Network and Sabre Airline Solutions, for approximately $4.3 billion in cash, plus the assumption of $550 million in debt.[137] Earlier in the year, Blackstone acquired Sabre's chief competitor Travelport.
Travelport, which owns Worldspan and Galileo as well as approximately 48% of Orbitz Worldwide was acquired from Cendant by The Blackstone Group, Technology Crossover Ventures and One Equity Partners in a deal valued at $4.3 billion. The sale of Travelport followed the spin-offs of Cendant's real estate and hospitality businesses, Realogy Corporation and Wyndham Worldwide Corporation, respectively, in July 2006.[138][139] Later in the year, TPG and Silver Lake would acquire Travelport's chief competitor Sabre Holdings.
Kohlberg Kravis Roberts and Stefano Pessina, the company’s deputy chairman and largest shareholder, acquired the UK drug store retailer for £12.4 billion ($24.8 billion) including assumed debt, after increasing their bid more than 40% amidst intense competition from Terra Firma Capital Partners and Wellcome Trust. The buyout came only a year after the merger of Boots Group plc (Boots the Chemist), and Alliance UniChem plc.[140]
The Blackstone Group, Kohlberg Kravis Roberts, TPG Capital and Goldman Sachs acquired the medical devices company for $11.6 billion.[141]
Cerberus Capital Management completed the $7.5 billion acquisition of 80.1% of the U.S. car manufacturer. Only $1.45 billion of proceeds were expected to be paid to Daimler and does not include nearly $600 million of cash Daimler agreed to invest in Chrysler.[142] With the company struggling, Cerberus brought in former Home Depot CEO, Robert Nardelli as the new chief executive of Chrysler to execute a turnaround of the company.[143]
Kohlberg Kravis Roberts and TPG Capital completed the $29 billion buyout of the credit and debit card payment processor and former parent of Western Union[144] Michael Capellas, previously the CEO of MCI Communications and Compaq was named CEO of the privately held company.
An investor group led by KKR and TPG Capital and together with Goldman Sachs completed the $44.37 billion[127] buyout of the regulated utility and power producer. The investor group had to work closely with ERCOT regulators to gain approval of the transaction but had significant experience with the regulators from their earlier buyout of Texas Genco.[145] At the time of its announcement, the buyout of TXU, was the largest buyout in history, although the announced acquisition of BCE would surpass the TXU buyout. As of the end of the first quarter of 2008, the BCE transaction had still not been completed.


Publicly traded private equity

Although there had previously been certain instances of publicly traded private equity vehicles, the convergence of private equity and the public equity markets attracted significantly greater attention when several of the largest private equity firms pursued various options through the public markets. Taking private equity firms and private equity funds public appeared an unusual move since private equity funds often buy public companies listed on exchange and then take them private. Private equity firms are rarely subject to the quarterly reporting requirements of the public markets and tout this independence to prospective sellers as a key advantage of going private. Nevertheless, there are fundamentally two separate opportunities that private equity firms pursued in the public markets. These options involved a public listing of either:

  • A private equity fund or similar investment vehicle, which allows investors that would otherwise be unable to invest in a traditional private equity limited partnership to gain exposure to a portfolio of private equity investments.

In May 2006, Kohlberg Kravis Roberts raised $5 billion in an initial public offering for a new permanent investment vehicle (KKR Private Equity Investors or KPE) listing it on the Euronext exchange in Amsterdam ({{euronext}}|KPE). KKR raised more than three times what it had expected at the outset as many of the investors in KPE were hedge funds seeking exposure to private equity but could not make long term commitments to private equity funds. Because private equity had been booming in the preceding years, the proposition of investing in a KKR fund appeared attractive to certain investors.[146] However, KPE's first-day performance was lackluster, trading down 1.7% and trading volume was limited.[147]. Initially, a handful of other private equity firms and hedge funds had planned to follow KKR's lead but shelved those plans when KPE's performance continued to falter after its IPO. KPE's stock declined from an IPO price of €25 per share to €18.16 (a 27% decline) at the end of 2007 and a low of €11.45 (a 54.2% decline) per share in Q1 2008.[148] KPE disclosed in May 2008 that it had completed approximately $300 million of secondary sales of selected limited partnership interests in and undrawn commitments to certain KKR-managed funds in order to generate liquidity and repay borrowings.[149]

On March 22, 2007, the Blackstone Group filed with the SEC[150] to raise $4 billion in an initial public offering. On June 21, Blackstone swapped a 12.3% stake in its ownership for $4.13 billion in the largest U.S. IPO since 2002. Traded on the New York Stock Exchange under the ticker symbol BX, Blackstone priced at $31 per share on June 22, 2007.[151][152]

Less than two weeks after the Blackstone Group IPO, rival firm Kohlberg Kravis Roberts filed with the SEC[153] in July 2007 to raise $1.25 billion.[154] KKR had listed a the KKR Private Equity Investors (KPE) private equity fund vehicle in 2006. The onset of the credit crunch and the shutdown of the IPO market would dampen the prospects of obtaining a valuation that would be attractive to KKR and the flotation was repeatedly postponed.

Meanwhile, other private equity investors were seeking to realize a portion of the value locked into their firms. In September 2007, the Carlyle Group sold a 7.5% interest in its management company to Mubadala Development Company, which is owned by the Abu Dhabi Investment Authority (ADIA) for $1.35 billion, which valued Carlyle at approximately $20 billion.[155] Similarly, in January 2008, Silver Lake Partners sold a 9.9% stake in its management company to CalPERS for $275 million.[156]

Additionally, Apollo Management completed a private placement of shares in its management company in July 2007. By pursuing a private placement rather than a public offering, Apollo would be able to avoid much of the public scrutiny applied to Blackstone and KKR.[157] [158] In April 2008, Apollo filed with the SEC[159] to permit some holders of its privately traded stock to sell their shares on the New York Stock Exchange.[160] In April 2004, Apollo raised $930 million for a listed business development company, Apollo Investment Corporation ({{NASDAQ}}|AINV), to invest primarily in middle-market companies in the form of mezzanine debt and senior secured loans, as well as by making direct equity investments in companies. The Company also invests in the securities of public companies.[161]

Historically, in the United States, there had been a group of publicly traded private equity firms that were registered as business development companies (BDCs) under the Investment Company Act of 1940[162]. Typically, BDCs are structured similar to Real Estate Investment Trusts (REITs) in that the BDC structure reduces or eliminates corporate income tax. In return, REITs are required to distribute 90% of their income, which may be taxable to its investors. As of the end of 2007, among the largest BDCs (by market value, excluding Apollo Investment Corp, discussed earlier) are: American Capital Strategies ({{NASDAQ}}|ACAS), Allied Capital Corp({{NASDAQ}}|ALD), Ares Capital Corporation ({{NASDAQ}}|ARCC), Gladstone Investment Corp ({{NASDAQ}}|GAIN) and Kohlberg Capital Corp ({{NASDAQ}}|KCAP).


Secondary market and the evolution of the private equity asset class

David Rubinstein, the head of the Carlyle Group, in January 2008

In the wake of the collapse of the equity markets in 2000, many investors in private equity sought an early exit from their outstanding commitments.[163] The surge in activity in the secondary market, which had previously been a relatively small niche of the private equity industry, prompted new entrants to the market, however the market was still characterized by limited liquidity and distressed prices with private equity funds trading at significant discounts to fair value.

Beginning in 2004 and extending through 2007, the secondary market transformed into a more efficient market in which assets for the first time traded at or above their estimated fair values and liquidity increased dramatically. During these years, the secondary market transitioned from a niche sub-category in which the majority of sellers were distressed to an active market with ample supply of assets and numerous market participants.[164] By 2006 active portfolio management had become far more common in the increasingly developed secondary market and an increasing number of investors had begun to pursue secondary sales to rebalance their private equity portfolios. The continued evolution of the private equity secondary market reflected the maturation and evolution of the larger private equity industry. Among the most notable publicly disclosed secondary transactions (it is estimated that over two-thirds of secondary market activity is never disclosed publicly):

  • MetLife, in 2007, agreed to sell a $400 million portfolio of over 100 private equity fund interests.[167]
  • Bank of America, in 2007, completed the spin-out of BA Venture Partners to form Scale Venture Partners, which was funded by an undisclosed consortium of secondary investors.
  • Bank of America, in 2006, completes the spin-out of BA Capital Europe to form Argan Capital, which was funded by an undisclosed consortium of secondary investors.
  • JPMorgan Chase, in 2006, completed the sale of a $925 million interest in JPMP Global Fund to a consortium of secondary investors.

The Credit Crunch and post-modern private equity (2007 – 2008)

[[XXXImage:The Economist 2007 10 20issue.jpg|thumb|Cover of the 20 October 2007 issue of The Economist showing an image related to a Credit crunch caused by the sub-prime mortgage crisis. [176]]]

In July 2007, turmoil that had been affecting the mortgage markets, spilled over into the leveraged finance and high-yield debt markets.[177][178] The markets had been highly robust during the first six months of 2007, with highly issuer friendly developments including PIK and PIK Toggle (interest is "Payable In Kind") and covenant light debt widely available to finance large leveraged buyouts. July and August saw a notable slowdown in issuance levels in the high yield and leveraged loan markets with only few issuers accessing the market. Uncertain market conditions led to a significant widening of yield spreads, which coupled with the typical summer slowdown led to many companies and investment banks to put their plans to issue debt on hold until the autumn. However, the expected rebound in the market after Labor Day 2007 did not materialize and the lack of market confidence prevented deals from pricing. By the end of September, the full extent of the credit situation became obvious as major lenders including Citigroup and UBS AG announced major writedowns due to credit losses. The leveraged finance markets came to a near standstill.[179] As a result of the sudden change in the market, buyers would begin to withdraw from or renegotiate the deals completed at the top of the market:

Kohlberg Kravis Roberts and Goldman Sachs announced the $8 billion takeover of Harman, the maker of JBL speakers and Harman Kardon, in April 2008. In a novel part of the deal, the buyers offered Harman shareholders a chance to retain up to a 27% stake in the newly private company and share in any profit made if the company is later sold or taken public as a concession to shareholders. However, in September 2007 the buyers withdrew from the deal, saying that the company’s financial health had suffered from a material adverse change.[180][181]
SLM Corporation {{nyse}}|SLM, commonly known as Sallie Mae, announced plans to be acquired by a consortium of private equity firms and large investment banks including JC Flowers, Friedman Fleischer & Lowe, Bank of America and JPMorgan Chase[182][183] With the onset of the credit crunch in July 2007, the buyout of Sallie Mae encountered difficulty.[184]
After pursuing the company for over six months Bain Capital and Thomas H. Lee Partners finally won the support of shareholders to complete a $26.7 billion[127] (including assumed debt) buyout of the radio station operator. The buyout had the support of the founding Mays family but the buyers were required initially to push for a proxy vote before raising their offer several times. [185] As a result of the credit crunch, the banks sought to pull their commitments to finance the acquisition of Clear Channel. The buyers filed suit against the bank group (including Citigroup, Morgan Stanley, Deutsche Bank, Credit Suisse, the Royal Bank of Scotland and Wachovia) to force them to fund the transaction. Ultimately, the buyers and the banks were able to renegotiate the transaction, reducing the purchase price paid to the shareholders and increasing the interest rate on the loans.[186]
The Ontario Teachers' Pension Plan, Providence Equity Partners and Madison Dearborn announced a C$51.7 billion (including debt) buyout of BCE in July 2007, which would constitute the largest leveraged buyout in history, exceeding the record set previously by the buyout of TXU.[187][188] Since its announcement, the buyout has faced a number of challenges including issues with lenders[189] and courts[190] in Canada.

Additionally, the credit crunch has prompted buyout firms to pursue a new group of transactions in order to deploy their massive investment funds. These transactions have included Private Investment in Public Equity (or PIPE) transactions as well as purchases of debt in existing leveraged buyout transactions. Some of the most notable of these transactions completed in the depths of the credit crunch include:

As the credit crunch reached its peak in the first quarter of 2008, Apollo Management, TPG Capital and the Blackstone Group completed the acquisition of $12.5 billion of bank loans from Citigroup. The portfolio was comprised primarily of senior secured leveraged loans that had been made to finance leveraged buyout transactions at the peak of the market. Citigroup had been unable to syndicate the loans before the onset of the credit crunch. The loans were believed to have been sold in the "mid-80 cents on the dollar" relative to face value.[191]
An investment group led by TPG Capital invested $7 billion in new capital in the struggling savings and loan to shore up the company's finances.[192][193]


Responses to private equity

1980s reflections of private equity

Although private equity rarely received a thorough treatment in popular culture, several films did feature stereotypical "corporate raiders" prominently. Among the most notable examples of private equity featured in motion pictures included:

  • Wall Street – The Notorious "corporate raider" and "greenmailer" Gordon Gekko represents a synthesis of the worst features of various famous private equity figures intends to manipulate an ambitious young stockbroker to takeover failing but decent airline. Although Gekko makes a pretense of caring about the airline, his intentions prove to be to destroy the airline, strip its assets and lay off its employees before raiding the corporate pension fund. Gekko would become a symbol in popular culture for unrestrained greed (with the signature line, "Greed, for lack of a better word, is good") that would be attached to the private equity industry.
  • Other People's Money – A self-absorbed corporate raider "Larry the Liquidator" (Danny DeVito), sets his sights on New England Wire and Cable, a small-town business run by family patriarch Gregory Peck who is principally interested in protecting his employees and the town.
  • Pretty Woman – Although Richard Gere's profession is incidental to the plot, the selection of the corporate raider who intends to destroy the hard work of a family run business by acquiring the company in a hostile takeover and then sell off the company's parts for a profit (compared in the movie to an illegal chop shop). Ultimately, the corporate raider is won over and chooses not to pursue his original plans for the company.


Contemporary reflections of private equity and private equity controversies

Carlyle group featured prominently in Michael Moore's 2003 film Fahrenheit 9-11. The film suggested that The Carlyle Group exerted tremendous influence on U.S. government policy and contracts through their relationship with the president’s father, George H. W. Bush, a former senior adviser to the Carlyle Group. Additionally, Moore cited relationships with the Bin Laden family. The movie quotes author Dan Briody claiming that the Carlyle Group "gained" from September 11 because it owned United Defense, a military contractor, although the firm’s $11 billion Crusader artillery rocket system developed for the U.S. Army is one of the only weapons systems canceled by the Bush administration.[194]

Over the next few years, attention intensified on private equity as the size of transactions and profile of the companies increased. The attention would increase significantly following a series of events involving The Blackstone Group: the firm's initial public offering and the birthday celebration of its CEO. The Wall Street Journal observing Blackstone Group's Steve Schwarzman's 60th birthday celebration in February 2007 described the event as follows:[195]

The Armory's entrance hung with banners painted to replicate Mr. Schwarzman's sprawling Park Avenue apartment. A brass band and children clad in military uniforms ushered in guests. A huge portrait of Mr. Schwarzman, which usually hangs in his living room, was shipped in for the occasion. The affair was emceed by comedian Martin Short. Rod Stewart performed. Composer Marvin Hamlisch did a number from "A Chorus Line." Singer Patti LaBelle led the Abyssinian Baptist Church choir in a tune about Mr. Schwarzman. Attendees included Colin Powell and New York Mayor Michael Bloomberg. The menu included lobster, baked Alaska and a 2004 Louis Jadot Chassagne Montrachet, among other fine wines.

Schwarzman received a severe backlash from both critics of the private equity industry and fellow investors in private equity. The lavish event which reminded many of the excesses of notorious executives including Bernie Ebbers (WorldCom) and Dennis Kozlowski (Tyco International). David Rubinstein, the founder of TPG Capital remarked, "We have all wanted to be private – at least until now. When Steve Schwarzman's biography with all the dollar signs is posted on the web site none of us will like the furor that results – and that's even if you like Rod Stewart."[195]

Rubinstein's fears would be confirmed when in 2007, the Service Employees International Union launched a campaign against private equity firms, specifically the largest buyout firms through public events, protests as well as leafleting and web campaigns.[196][197][198] A number of leading private equity executives were targeted by the union members[199] however the SEIU's campaign was non nearly as effective at slowing the buyout boom as the credit crunch of 2007 and 2008 would ultimately prove to be.

In 2008, the SEIU would shift part of its focus from attacking private equity firms directly toward the highlighting the role of sovereign wealth funds in private equity. The SEIU pushed legislation in California that would disallow investments by state agencies (particularly CalPERS and CalSTRS) in firms with ties to certain sovereign wealth funds.[200] Additionally, the SEIU has attempted to criticize the treatment of taxation of carried interest. The SEIU, and other critics, point out that many wealthy private equity investors pay taxes at lower rates (because the majority of their income is derived from carried interest, payments received from the profits on a private equity fund's investments) than many of the rank and file employees of a private equity firm's portfolio companies.[201]

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  148. ^ Anderson, Jenny. "Where Private Equity Goes, Hedge Funds May Follow." New York Times, June 23, 2006.
  149. ^ Press Release: KKR Private Equity Investors Reports Results for Quarter Ended March 31, 2008, May 7, 2008
  150. ^ The Blackstone Group L.P., FORM S-1, SECURITIES AND EXCHANGE COMMISSION, March 22, 2007
  151. ^ SORKIN, ANDREW ROSS and DE LA MERCED, MICHAEL J. "[http://www.nytimes.com/2007/03/19/business/19blackstone.html News Analysis Behind the Veil at Blackstone? Probably Another Veil]." New York Times, March 19, 2007.
  152. ^ Anderson, Jenny. "Blackstone Founders Prepare to Count Their Billions." New York Times, June 12, 2007.
  153. ^ KKR & CO. L.P., FORM S-1, SECURITIES AND EXCHANGE COMMISSION, July 3, 2007
  154. ^ JENNY ANDERSON and MICHAEL J. de la MERCED. "Kohlberg Kravis Plans to Go Public." New York Times, July 4, 2007.
  155. ^ Sorkin, Andrew Ross. "Carlyle to Sell Stake to a Mideast Government." New York Times, September 21, 2007.
  156. ^ Sorkin, Andrew Ross. "California Pension Fund Expected to Take Big Stake in Silver Lake, at $275 Million." New York Times, January 9, 2008
  157. ^ SORKIN, ANDREW ROSS and de la MERCED, MICHAEL J. "Buyout Firm Said to Seek a Private Market Offering." New York Times, July 18, 2007.
  158. ^ SORKIN, ANDREW ROSS. "Equity Firm Is Seen Ready to Sell a Stake to Investors ." New York Times, April 5, 2007.
  159. ^ APOLLO GLOBAL MANAGEMENT, LLC, FORM S-1, SECURITIES AND EXCHANGE COMMISSION, April 8, 2008
  160. ^ de la MERCED, MICHAEL J. "Apollo Struggles to Keep Debt From Sinking Linens ’n Things." New York Times, April 14, 2008.
  161. ^ FABRIKANT, GERALDINE. "Private Firms Use Closed-End Funds To Tap the Market." New York Times, April 17, 2004.
  162. ^ Companies must elect to be treated as a "business development company" under the terms of the Investment Company Act of 1940 (Investment Company Act of 1940: Section 54 -- Election to Be Regulated as Business Development Company)
  163. ^ Cortese, Amy. "Business; Private Traders See Gold in Venture Capital Ruins." New York Times, April 15, 2001.
  164. ^ Private Equity Market Environment: Spring 2004, Probitas Partners
  165. ^ CalPERS and where private equity funds go to die (WSJ.com, 2007)
  166. ^ OBWC Portfolio Sale Nears End
  167. ^ Secondaries join the mainstream
  168. ^ Dow Jones Financial News: Goldman picks up Mellon portfolio
  169. ^ American Capital Raises $1 Billion Equity Fund; Expands Its Asset Management Business
  170. ^ American Capital raises $1bn fund
  171. ^ ACS spins off stakes into $1B fund (TheDeal.com)
  172. ^ Singapore’s Temasek Hits Hard Going (Asia Sentinel, 2007)
  173. ^ AlpInvest and Lexington Partners buy $1.2bn secondary portfolio from DPL
  174. ^ M&A legal guru urges more diligence]
  175. ^ DPL to sell PE stakes for $850M (TheDeal.com)
  176. ^ "Print Edition". 2008. Retrieved 2008-05-19. {{cite web}}: Text "Economist.com" ignored (help); Text "Full Contents" ignored (help)
  177. ^ SORKIN, ANDREW ROSS and de la MERCED, MICHAEL J. "Private Equity Investors Hint at Cool Down." New York Times, June 26, 2007
  178. ^ SORKIN, ANDREW ROSS. "Sorting Through the Buyout Freezeout." New York Times, August 12, 2007.
  179. ^ Turmoil in the marketsThe Economist July 27, 2007
  180. ^ de la MERCED, MICHAEL J. "Wary Buyers May Scuttle Two Deals." New York Times, September 22, 2007
  181. ^ de la MERCED, MICHAEL J. "Canceling Harman Deal, Suitors Buy Bonds Instead." New York Times, October 23, 2007
  182. ^ Dash, Eric. "Deal to Make Sallie Mae a Big Debtor." New York Times, April 17, 2007.
  183. ^ de la MERCED, MICHAEL J. and EDMONSTON, PETER. "Builder of Sallie Mae Deal Has a Daring History." New York Times, April 18, 2007.
  184. ^ Dash, Eric. "Sallie Mae’s Suitors Say the Deal Is at Risk." New York Times, July 12, 2007.
  185. ^ de la Merced, Michael J. "On Third Time Around, Clear Channel Accepts Takeover Bid." New York Times, May 19, 2007.
  186. ^ Sorkin, Andrew Ross, ed. "Early Win for Buyout Firms in Clear Channel Suit." New York Times DealBook, March 27, 2008.
  187. ^ Bell Canada Agrees to Ontario Teachers-Led Buyout. The New York Times, June 30, 2007.
  188. ^ Pasternak, Sean B. and Tomesco, Frederic.Toronto-Dominion to Provide $3.64 Billion in BCE Takeover. Bloomberg, July 18, 2007.
  189. ^ SORKIN, ANDREW ROSS and de la MERCED, MICHAEL J. Banks’ Terms Imperil Deal to Buy Out Bell Canada. The New York Times, May 19, 2008.
  190. ^ More Static Hits Bell Canada Deal The New York Times, May 22, 2008.
  191. ^ de la MERCED, MICHAEL J. and DASH, ERIC "Citi Is Said to Be Near Deal to Sell $12.5 Billion of Loans." New York Times, April 9, 2008
  192. ^ "Big Investment Made in Lender." Associated Press, April 9, 2008.
  193. ^ Dash, Eric. "Bank Is in Line for a $5 Billion Infusion." New York Times, April 8, 2008
  194. ^ Pratley, Nils. Fahrenheit 9/11 had no effect, says Carlyle chief, The Guardian, February 15, 2005.
  195. ^ a b Sender, Henny and Langley, Monica. "Buyout Mogul: How Blackstone's Chief Became $7 Billion Man – Schwarzman Says He's Worth Every Penny; $400 for Stone Crabs." The Wall Street Journal, June 13, 2007.
  196. ^ Sorkin, Andrew Ross. "Sound and Fury Over Private Equity." The New York Times, May 20, 2007.
  197. ^ Heath, Thomas. "Ambushing Private Equity: As SEIU Harries New Absentee Owners, Buyout Firms Dispute the Union's Agenda" The Washington Post, April 18, 2008
  198. ^ Service Employees International Union's "Behind the Buyouts" website
  199. ^ DiStefano, Joseph N. Hecklers delay speech; Carlyle CEO notes private-equity ‘purgatory’ The Philadelphia Inquirer, Jan. 18, 2008.
  200. ^ California's Stern Rebuke. The Wall Street Journal, April 21, 2008; Page A16.
  201. ^ Protesting a Private Equity Firm (With Piles of Money) The New York Times, October 10, 2007.
  • Ante, Spencer. Creative capital : Georges Doriot and the birth of venture capital. Boston: Harvard Business School Press, 2008
  • Bance, A. (2004). Why and how to invest in private equity. European Private Equity and Venture Capital Association (EVCA). Accessed May 22, 2008.
  • Bruck, Connie. Predator's Ball. New York: Simon and Schuster, 1988.
  • Burrill, G. Steven, and Craig T. Norback. The Arthur Young Guide to Raising Venture Capital. Billings, MT: Liberty House, 1988.
  • Burrough, Bryan. Barbarians at the Gate. New York : Harper & Row, 1990.
  • Craig. Valentine V. Merchant Banking: Past and Present. FDIC Banking Review. 2000.
  • Fenn, George W., Nellie Liang, and Stephen Prowse. December, 1995. The Economics of the Private Equity Market. Staff Study 168, Board of Governors of the Federal Reserve System.
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  • Gladstone, David J. Venture Capital Handbook. Rev. ed. Englewood Cliffs, NJ: Prentice Hall, 1988.
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  • Littman, Jonathan. "The New Face of Venture Capital." Electronic Business, March 1998.
  • Loos, Nicolaus. Value Creation in Leveraged Buyouts. Dissertation of the University of St. Gallen. Lichtenstein: Guttenberg AG, 2005. Accessed May 22, 2008.
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[[:Category:Private equity| ] [[:Category:Venture capital| ] [[:Category:Private equity firms| ] [[:Category:Venture capital firms| ] [[:Category:Private equity and venture capital investors| ] [[:Category:History of banking] [[:Category:Economic history]

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