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What Are Some Examples of Successfully Executed Leveraged Buyouts?

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Updated April 04, 2025

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In finance, a buyout refers to the purchase of a company's voting stock in which the acquiring party gains control of the target company. A buyout can be funded with a combination of cash or debt. Buyouts that are disproportionately funded with debt are commonly referred to as 澳洲幸运5官方开奖结果体彩网:leveraged buyouts (LBOs).

As part of their 澳洲幸运5官方开奖结果体彩网:mergers and acquisitions (M&A) strategies, companies often use buyouts to gain access to new markets or acquire competitors. Private equity companies often use LBOs to buy and later sell a company at a profi🙈t. Some of the most successful examples of LB🐻Os are Gibson Greeting Cards, Hilton Hotels, and Safeway.

Key Takeaways

A buyout is when a company purchases the stock of another, generally through a mix of cash and debt.
A leveraged buyout (LBO) primarily uses debt. Private equity firms often use LBOs to buy companies, improve them, and then sell them for a profit.
Notable LBOs in financial history include Gibson Greeting Cards, Hilton Hotels, and Safeway, where the buyers realized substantial profits by acquiring these companies, improving their operations, and selling them for a significant return.

Gibson Greeting Cards

In 1982, Wesray Capital acquired Gibson Greeting Cards for a purchase price of $80 million. The deal was financed with $1 million in cash, while the rest was borrowed by issuing 澳洲幸运5官方开奖结果体彩网:junk bonds. A year and a half later, Wesray sold Gibson Greeting Cards for $220 million, with investors earning about 200 times their initial equity invested.

Fast Fact

The two types of financing a company can use are equity financing and debt financing. Equity financing involves giving up partial control for external ownership, such as going public and selling shares. Debt financing, such as loans and bonds, allows you to maintain control but is more risky as you are responsible for paying bꦿack the debt at regul🌃ar intervals.

Hilton Hotels

In 2007, Blackstone Group purchased Hilton Hotels for $26 billion in an LBO, financed through $5.6 billion in equity and $20.5 billion in debt. As the financial crisis of 2009 began, Hilton had major problems with declining cash flows and revenues. However, after that, Hilton was able to refinance itself at a lower interest rate, operations improved, and Blackstone sold Hilton at a profit of $14 billion.

Safeway

In 1986, Kohlberg Kravis Roberts (KKR) completed a friendly LBO of Safeway for a total price of $4.2 billion. Safeway's board of directors gave consent to the buyout to avoid hostile takeovers from Herbert and Robert Haft of Dart Drug.

The deal was funded mostly with debt, and Safeway had to divest some of its assets and close unprofitable stores. In 1990, Safeway was taken public again with improvements in its revenues and profitability metrics. KKR earned almost $7.2 billion on an initial investment of $129 million.

What Is a Leveraged Buyout?

A leveraged buyout is when a company is purchased primarily through the use ofꦕ debt. The purchaser, usually a private equity firm, secures the debt financing from external parties, such as banks, institutional investors, or the bond market. The assets of the company being acquired serve as collateral for the loan. The debt is then repaid through the cash flows of the acquired company. The goal of a leveraged buyou🅰t is to buy a company, improve it, and then sell it for a profit.

What Are the Risks of a Leveraged Buyout?

Leveraged buyouts are generally risky ventures because of the significant amount of debt involved. Private equity firms put in a portion of their own capital to buy a company and fund the rest by raising debt. If the investment doesn't return a profit, they lose out on their invested capital, though they usually hedge for this.

A tremendous amount of risk sits on top of the company being acquired. The acquired company is responsible for repaying the debt through its cash flows. If it's not generating enough cash flow to make debt repayments, it could lead to bankruptcy. The focus on generating enough profits puts immense pressure on company management and employees, especially as cost-cutting is often a focus after being acquired.

How Do You Invest in a Leveraged Buyout?

As an individual investor, it's difficult to invest in a leveraged buyout. You would have to invest in a private equity firm as they are the ones that mainly execute leveraged buyouts. The amount of capital needed would be very high to invest. You could invest in public companies that perform leveraged buyouts, but that's not usually the main strategy of a public company. Leveraged buyouts are primarily used by large institutional investors as opposed to individual, retail investors.

The Bottom Line

Buyouts, including leveraged buyouts, have been an important tool in the world of finance. Companies, including private equity firms, have used buyouts as a method of acquiring businesses, restructuring them, and selling them at a profit. The examples above demonstrate how carefully planned and executed financing, even when using debt, can return tremendous profits.

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