- Kinder Morgan posts 2012 profit, buys El Paso
- Nielsen trims debt on fatter bottom line
- Energy Future Holdings hobbled by low energy prices
The glint of light in some of these deals comes as U.S. gross domestic product continues to expand slowly, credit remains plentiful on stimulus from the Federal Reserve Board’s quantitative easing program, and U.S. equities trade in bull market territory on expectations for further traction in the economy.
Among the largest of the 2005-2007 age of mega-deals, Kinder Morgan Inc., the natural gas pipeline giant led by Richard Kinder and purchased for nearly $28 billion in 2007 by GS Capital Partners, American International Group, Carlyle Group and Riverstone Holdings, managed to post net income of $315 million in 2012 (see accompanying table).
But its long-term debt load increased to $10.4 billion in 2012 from $2.2 billion in 2011 after it bought fellow energy firm El Paso in a deal valued at $23 billion. Despite the hit on its balance sheet, Kinder Morgan’s share price finished out 2012 around $35 a share after starting the year closer to $30 as it rode positive sentiment in the energy sector.
Nielsen Holdings NV, bought for $11.3 billion in 2006 by Blackstone Group, Carlyle Group, Kohlberg Kravis Roberts, Thomas H Lee Partners, Hellman & Friedman, Alpinvest Partners, ended 2012 on solid footing after holding its initial public offering in 2011.
The media measurement firm trimmed its long-term debt to $6.6 billion from $6.8 billion, plus it posted a 2011 profit of $273 million, up from $86 million the year before. It debt-to-EBITDA multiple dipped to 4.1x from 4.3x. In December, it announced plans to buy
radio audience measurement firm Arbitron for about $1.3 billion.
And hospital operator HCA, ranked No. 2 on the list with a $32 billion purchase by Bain Capital Inc, Kohlberg Kravis Roberts, and Merrill Lynch Global Equity, turned in a solid year of $6.5 billion EBITDA, up from $6.1 billion. The company floated its initial public offering in 2011.
In 2013, HCA shares reached their highest point since its IPO on optimism tied to the millions of Americans expected to gain health care coverage in 2014.
But the $44 billion LBO of Energy Future Holdings Corp., formerly known as TXU Corp., has been challenged by low wholesale power prices under its long-term debt load of $38 billion. Late last year, the company hired Blackstone Group as an advisor on its restructuring effort. Expect to hear more on the legal front this year as the company’s Texas Competitive Electric Holding unit faces $3.8 billion in loan maturities in October, according to reports.
In December, Energy Future Holdings swapped $1.6 billion in debt, prompting Standard & Poor’s to cut its rating on the company to SD, which amounts to selective default. (See Dec. 7 issue of Buyouts).
Energy Future Holdings remains privately held, with backers including KKR, TPG, Quintana Capital Group LP and AXA Private Equity SA.
The Buyouts ranking of largest LBOs didn’t include real estate deals, or foreign deals where the targets do not file documents with U.S. regulators and those in which the target had been sold to a strategic buyer. RJR Nabisco, a $30 billion deal from 1989, happened years before the height of the credit bubble that led to the 2008 financial crisis. That transaction shows up as the No. 3 buyout deal in history.
One other footnote: a management-led investor group including Dell Inc. CEO Michael Dell and Silver Lake Partners, a unit of Silver Lake Management LLC, agreed in February to acquire the remaining 86 percent of the computer maker for $20.4 billion. And Berkshire Hathaway and private equity firm 3G Capital Partners set plans to buy ketchup maker Heinz for $27 billion in February. Neither of the two big deals have closed. While they could rank among the top LBOs of all time, Buyouts only looked at deals consummated prior to the 2008 financial crisis.