1988 was supposed to have been “the year of the mega-buyout,” according to a year-end wrap-up edition Buyouts published in early January 1989. With stable interest rates and attractive stock prices, deal activity was expected to keep rising at a breakneck pace. Industry observers had predicted an even bigger, frothier, more highly leveraged deal environment.
That prediction turned out to be correct, but not in the way it was intended. 1988 was indeed the year of the mega-buyout, with the emphasis on the. Perhaps it would have been more appropriate to call it the year of a mega-buyout:
Overall, 1988 was sour for mega-buyouts. Only 5.6 percent of all deals in 1988 were worth $1 billion or more. (That passed for “mega” then.) Only 11.9 percent were larger than $500 million. The average deal size in 1988 was $327 million. Exclude the record-breaking RJR Nabisco deal, which stood for nearly 19 more years as the biggest ever, and the average falls to $242 million, according to Buyouts.
Only KKR delivered on the expectations of a big-deal explosion, while firm’s peers offered contrastingly disappointing performances. KKR’s activity for the year accounted for 31 percent of the total disclosed deal volume of $98.3 billion in 1998, according to Buyouts. Even excluding RJR Nabisco, the firm maintained its top position, racking up $5.8 billion in disclosed value for its four other deals. That surpassed its closest rival,
Skip 20 years ahead to 2008, and the industry has again entered a mega-buyout trough. Unlike in 1988, however, few observers predicted the LBO market would shake off the hangover of 2007 and see the return of highly leveraged mega-deals in 2008. In the first three months of 2008, only a handful of LBOs larger than $1 billion and even fewer larger than $2 billion have been announced in the United States.
For KKR’s part, the firm’s 1Q 2008 has been quiet after it spent 2007 executing the first and second largest buyouts of all time (TXU and First Data Corp.), and the largest European buyout (Alliance Boots). Even the firm’s long-anticipated U.S. IPO—for which it filed last summer—has been put on hold thanks to the credit crunch.