Private equity in the 1990s
Encyclopedia
Private equity in the 1990s relates to one of the major periods in the history of private equity and venture capital
. Within the broader private equity
industry, two distinct sub-industries, leveraged buyouts and venture capital
experienced growth along parallel although interrelated tracks.
The development of the private equity
and venture capital
asset classes has occurred through a series of boom and bust cycles since the middle of the 20th century. Private equity emerged in the 1990s out of the ashes of the savings and loan crisis, the insider trading scandals, the real estate market collapse and the recession of the early 1990s which had culminated in the collapse of Drexel Burnham Lambert
and had caused the shutdown of the high-yield debt
market. This period saw the emergence of more institutionalized private equity firms, ultimately culminating in the massive Dot-com bubble
in 1999 and 2000.
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. Additionally, in response to the threat of unwelcome 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 (these practices are increasingly discredited).
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, arbitrage
ur 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.
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.
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. 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.
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. 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. 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 had begun to shut down in 1989, a slowdown that accelerated into 1990. On February 13, 1990 after being advised by United States Secretary of the Treasury
Nicholas F. Brady
, the U.S. Securities and Exchange Commission (SEC), the New York Stock Exchange
(NYSE) and the Federal Reserve System
, Drexel Burnham Lambert
officially filed for Chapter 11 bankruptcy protection.
, 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:
Despite the adverse market conditions, several of the largest private equity firms were founded in this period including:
buyout, and continuing through the end of the decade the private equity industry once again 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. After declining from 1990 through 1992, the private equity industry began to increase in size raising approximately $20.8 billion of investor commitments in 1992 and reaching a high water mark in 2000 of $305.7 billion, outpacing the growth of almost every other asset class.
s, 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. According to The Economist
, “[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.” Additionally, private equity investors became increasingly focused on the long term development of companies they acquired, using less leverage in the acquisition. This was in part due to the lack of leverage available for buyouts during this period. 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 1986 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.
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. 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.
It was also in this timeframe that the capital markets would start to open up again for private equity transactions. During the 1990-1993 period, Chemical Bank established its position as a key lender to private equity firms under the auspices of pioneering investment banker, James B. Lee, Jr.
(known as Jimmy Lee, not related to Thomas H. Lee). By the mid-1900s, under Jimmy Lee, Chemical had established itself as the largest lender in the financing of leveraged buyouts. Lee built a syndicated leveraged finance business and related advisory businesses including the first dedicated financial sponsor coverage group, which covered private equity firms in much the same way that investment banks had traditionally covered various industry sectors.
The following year, David Bonderman
and James Coulter
, who had worked for Robert M. Bass
during the 1980s, together with William S. Price III
, 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., Bonderman and Texas Pacific Group were widely hailed as saviors of the airline, marking the change in tone from the 1980s. The buyout of Continental Airlines
would be one of the few successes for the private equity industry which has suffered several major failures, including the 2008 bankruptcies of ATA Airlines
, Aloha Airlines
and Eos Airlines
.
Among the most notable buyouts of the mid-to-late 1990s included:
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 fund
s 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.
and Apple Inc. were able to grow because of private equity or venture funding, as were Cisco
, Genentech
, Microsoft
and Avis
. 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 competition for hot startups, excess supply of IPOs and the inexperience of many venture capital fund managers. Unlike the leveraged buyout industry, after total capital raised increased 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 more than a decade later 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 venture capital industry beginning in 1980 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.
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 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.
History of private equity and venture capital
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...
. Within the broader private equity
Private equity
Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....
industry, two distinct sub-industries, leveraged buyouts and venture capital
Venture capital
Venture capital is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as...
experienced growth along parallel although interrelated tracks.
The development of the private equity
Private equity
Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....
and venture capital
Venture capital
Venture capital is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as...
asset classes has occurred through a series of boom and bust cycles since the middle of the 20th century. Private equity emerged in the 1990s out of the ashes of the savings and loan crisis, the insider trading scandals, the real estate market collapse and the recession of the early 1990s which had culminated in the collapse of Drexel Burnham Lambert
Drexel Burnham Lambert
Drexel Burnham Lambert was a major Wall Street investment banking firm, which first rose to prominence and then was forced into bankruptcy in February 1990 by its involvement in illegal activities in the junk bond market, driven by Drexel employee Michael Milken. At its height, it was the...
and had caused the shutdown of the high-yield debt
High-yield debt
In finance, a high-yield bond is a bond that is rated below investment grade...
market. This period saw the emergence of more institutionalized private equity firms, ultimately culminating in the massive Dot-com bubble
Dot-com bubble
The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...
in 1999 and 2000.
LBO bust (1990 to 1992)
By the end of the 1980s the excesses of the buyout market were beginning to show, with the bankruptcyBankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
of several large buyouts including Robert Campeau
Robert Campeau
Robert Campeau is a Canadian financier and real estate developer.-Early years:His formal education ended in grade eight, at the age of 14. He talked himself into jobs at Inco as a general labourer, carpenter and machinist. In 1949 he entered the residential end of the construction business...
's 1988 buyout of Federated Department Stores
Federated Department Stores
Macy's, Inc. is a department store holding company and owner of Macy's and Bloomingdale's department stores. Macy's Inc.'s stores specialize mostly in retail clothing, jewelery, watches, dinnerware, and furniture....
, the 1986 buyout of the Revco
Revco
Revco Discount Drug Stores , once based in Twinsburg, Ohio, was a major drug store chain operating through the Ohio Valley, the Mid-Atlantic states, and the Southeastern United States. The chain's stock was traded on the New York Stock Exchange under the ticker RXR...
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. Additionally, in response to the threat of unwelcome LBOs, certain companies adopted a number of techniques, such as the poison pill
Poison pill
A shareholder rights plan, colloquially known as a "poison pill", or simply "the pill" is a type of defensive tactic used by a corporation's board of directors against a takeover...
, to protect them against hostile takeovers by effectively self-destructing the company if it were to be taken over (these practices are increasingly discredited).
The collapse of Drexel Burnham Lambert
Drexel Burnham LambertDrexel Burnham Lambert
Drexel Burnham Lambert was a major Wall Street investment banking firm, which first rose to prominence and then was forced into bankruptcy in February 1990 by its involvement in illegal activities in the junk bond market, driven by Drexel employee Michael Milken. At its height, it was the...
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
High-yield debt
In finance, a high-yield bond is a bond that is rated below investment grade...
. The firm was first rocked by scandal on May 12, 1986, when Dennis Levine
Dennis Levine
Dennis B. Levine was a prominent player in merger and acquisition business and the Wall Street insider trading scandals of the mid-1980s...
, a Drexel managing director and investment banker, was charged with insider trading
Insider trading
Insider trading is the trading of a corporation's stock or other securities by individuals with potential access to non-public information about the company...
. Levine pleaded guilty to four felonies, and implicated one of his recent partners, arbitrage
Arbitrage
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices...
ur Ivan Boesky
Ivan Boesky
Ivan Frederick Boesky is an American stock trader who is notable for his prominent role in a Wall Street insider trading scandal that occurred in the United States in the mid-1980s.-Life and career:...
. 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
Rudy Giuliani
Rudolph William Louis "Rudy" Giuliani KBE is an American lawyer, businessman, and politician from New York. He served as Mayor of New York City from 1994 to 2001....
, the United States Attorney for the Southern District of New York, launched his own investigation.
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
Felony
A felony is a serious crime in the common law countries. The term originates from English common law where felonies were originally crimes which involved the confiscation of a convicted person's land and goods; other crimes were called misdemeanors...
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
Racketeer Influenced and Corrupt Organizations Act
The Racketeer Influenced and Corrupt Organizations Act, commonly referred to as the RICO Act or simply RICO, is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization...
(RICO), under the doctrine that companies are responsible for an employee's crimes.
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. 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.
With literally minutes to go before being indicted, Drexel reached an agreement with the government in which it pleaded nolo contendere
Nolo contendere
is a legal term that comes from the Latin for "I do not wish to contend." It is also referred to as a plea of no contest.In criminal trials, and in some common law jurisdictions, it is a plea where the defendant neither admits nor disputes a charge, serving as an alternative to a pleading of...
(no contest) to six felonies – three counts of stock parking and three counts of stock manipulation. 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. 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
High-yield debt
In finance, a high-yield bond is a bond that is rated below investment grade...
markets had begun to shut down in 1989, a slowdown that accelerated into 1990. On February 13, 1990 after being advised by United States Secretary of the Treasury
United States Secretary of the Treasury
The Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...
Nicholas F. Brady
Nicholas F. Brady
Nicholas Frederick Brady was United States Secretary of the Treasury under Presidents Ronald Reagan and George H. W. Bush, and is also known for articulating the Brady Plan in March 1989.-Early life:...
, the U.S. Securities and Exchange Commission (SEC), the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
(NYSE) and the Federal Reserve System
Federal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...
, Drexel Burnham Lambert
Drexel Burnham Lambert
Drexel Burnham Lambert was a major Wall Street investment banking firm, which first rose to prominence and then was forced into bankruptcy in February 1990 by its involvement in illegal activities in the junk bond market, driven by Drexel employee Michael Milken. At its height, it was the...
officially filed for Chapter 11 bankruptcy protection.
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 debtHigh-yield debt
In finance, a high-yield bond is a bond that is rated below investment grade...
, 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 collapse of Drexel Burnham LambertDrexel Burnham LambertDrexel Burnham Lambert was a major Wall Street investment banking firm, which first rose to prominence and then was forced into bankruptcy in February 1990 by its involvement in illegal activities in the junk bond market, driven by Drexel employee Michael Milken. At its height, it was the...
, the foremost underwriter of junk bonds (discussed above).
- 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 yieldYield (finance)In finance, the term yield describes the amount in cash that returns to the owners of a security. Normally it does not include the price variations, at the difference of the total return...
of the junk bond market over U.S. treasuriesTreasury securityA United States Treasury security is government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt. Treasury securities are the debt financing instruments of the United States federal government, and they are often referred to simply as Treasuries...
(known as the "spreadYield spreadIn finance, the yield spread is the difference between the quoted rates of return on two different investments, usually of different credit quality.It is a compound of yield and spread....
") had also increased by 700 basis pointBasis pointA basis point is a unit equal to 1/100 of a percentage point or one part per ten thousand...
s (7 percentage points). This made the cost of debt in the high yield market significantly more expensive than it had been previously. The market shut down altogether for lower rated issuers.
- The mandated withdrawal of savings and loans from the high yield market. In August 1989, the U.S. Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act of 1989Financial Institutions Reform, Recovery and Enforcement Act of 1989The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 , , is a United States federal law enacted in the wake of the savings and loan crisis of the 1980s....
as a response to the savings and loan crisisSavings and Loan crisisThe savings and loan crisis of the 1980s and 1990s was the failure of about 747 out of the 3,234 savings and loan associations in the United States...
of the 1980s. Under the law, savings and loans (S&Ls) could no longer invest in bonds that were rated below investment grade. Additionally, S&Ls were mandated to sell their holdings by the end of 1993 creating a huge supply of low priced assets that helped freeze the new issuance market.
Despite the adverse market conditions, several of the largest private equity firms were founded in this period including:
- Apollo Management founded in 1990 by Leon BlackLeon BlackLeon David Black is an American businessman and money manager, with a focus on leveraged buyouts and private equity. He is a son of Eli M. Black , a prominent businessman who controlled the United Brands Company and committed suicide when caught paying bribes to the President of Honduras...
, a former Drexel Burnham LambertDrexel Burnham LambertDrexel Burnham Lambert was a major Wall Street investment banking firm, which first rose to prominence and then was forced into bankruptcy in February 1990 by its involvement in illegal activities in the junk bond market, driven by Drexel employee Michael Milken. At its height, it was the...
banker and Michael MilkenMichael MilkenMichael Robert Milken is an American business magnate, financier, and philanthropist noted for his role in the development of the market for high-yield bonds during the 1970s and 1980s, for his 1990 guilty plea to felony charges for violating US securities laws, and for his funding of medical...
lieutenant; - Madison DearbornMadison DearbornMadison Dearborn Partners is a private equity firm specializing in leveraged buyouts of privately held or publicly traded companies, or divisions of larger companies; recapitalizations of family-owned or closely held companies; balance sheet restructurings; acquisition financings; and growth...
founded in 1992, by a team of professionals who previously made investments for First Chicago BankFirst Chicago BankFirst Chicago Bank was a Chicago-based retail and commercial bank tracing its roots back to 1863. Over the years, the bank operated under several names including The First National Bank of Chicago and First Chicago NBD...
.; and - TPG Capital (formerly Texas Pacific Group) in 1992 by David BondermanDavid BondermanDavid Bonderman is a founding partner of TPG Capital and its Asian affiliate, Newbridge Capital...
and James CoulterJames Coulter-External links:...
, who had worked previously with Robert M. BassRobert BassRobert Muse Bass is an American businessman and philanthropist. He is currently the chairman of Aerion Corporation, an American aerospace firm in Reno, Nevada. Bass is worth approximately $5.5 billion as of 2007, and $4 billion in 2010 on oil and other investments-Life:Bass was born into a wealthy...
.
The second private equity boom and the origins of modern private equity
Beginning roughly in 1992, three years after the RJR NabiscoRJR Nabisco
RJR Nabisco, Inc., was an American conglomerate formed in 1985 by the merger of Nabisco Brands and R.J. Reynolds Tobacco Company. RJR Nabisco was purchased in 1988 by Kohlberg Kravis Roberts & Co...
buyout, and continuing through the end of the decade the private equity industry once again 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. After declining from 1990 through 1992, the private equity industry began to increase in size raising approximately $20.8 billion of investor commitments in 1992 and reaching a high water mark in 2000 of $305.7 billion, outpacing the growth of almost every other asset class.
Resurgence of leveraged buyouts
Private equity in the 1980s was a controversial topic, commonly associated with corporate raidCorporate raid
A corporate raid is an American English business term for buying a large interest in a corporation and then using voting rights to enact measures directed at increasing the share value...
s, hostile takeovers, asset stripping
Asset stripping
Asset stripping involves selling the assets of a business individually at a profit. The term is generally used in a pejorative sense as such activity is not considered productive to the economy. Asset stripping is considered to be a problem in economies such as Russia or China that are making a...
, 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. According to The Economist
The Economist
The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...
, “[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.” Additionally, private equity investors became increasingly focused on the long term development of companies they acquired, using less leverage in the acquisition. This was in part due to the lack of leverage available for buyouts during this period. 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 1986 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.
The Thomas H. Lee Partners
Thomas H. Lee Partners
Thomas H. Lee Partners is a private equity firm based in Boston, Massachusetts specializing in leveraged buyouts, growth capital, special situations, industry consolidations, and recapitalizations....
acquisition of Snapple Beverages, in 1992, is often described as the deal that marked the resurrection of the leveraged buyout after several dormant years. Only eight months after buying the company, Lee took Snapple Beverages public
Initial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
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
Thomas H. Lee Partners
Thomas H. Lee Partners is a private equity firm based in Boston, Massachusetts specializing in leveraged buyouts, growth capital, special situations, industry consolidations, and recapitalizations....
to the ranks of the largest private equity firms.
It was also in this timeframe that the capital markets would start to open up again for private equity transactions. During the 1990-1993 period, Chemical Bank established its position as a key lender to private equity firms under the auspices of pioneering investment banker, James B. Lee, Jr.
James B. Lee, Jr.
James B. Lee Jr. , commonly known as Jimmy, is an investment banker, notable for his role in the development of the leveraged finance markets in the U.S. in the 1980s. Lee is widely credited as the architect of the modern-day syndicated loan market.Lee currently serves as vice chairman of JPMorgan...
(known as Jimmy Lee, not related to Thomas H. Lee). By the mid-1900s, under Jimmy Lee, Chemical had established itself as the largest lender in the financing of leveraged buyouts. Lee built a syndicated leveraged finance business and related advisory businesses including the first dedicated financial sponsor coverage group, which covered private equity firms in much the same way that investment banks had traditionally covered various industry sectors.
The following year, David Bonderman
David Bonderman
David Bonderman is a founding partner of TPG Capital and its Asian affiliate, Newbridge Capital...
and James Coulter
James Coulter
-External links:...
, who had worked for Robert M. Bass
Robert Bass
Robert Muse Bass is an American businessman and philanthropist. He is currently the chairman of Aerion Corporation, an American aerospace firm in Reno, Nevada. Bass is worth approximately $5.5 billion as of 2007, and $4 billion in 2010 on oil and other investments-Life:Bass was born into a wealthy...
during the 1980s, together with William S. Price III
William S. Price III
William S. "Bill" Price III is one of the three co-founders and a partner emeritus of TPG Capital, formerly known as the Texas Pacific Group, which is one of the largest private equity firms globally....
, completed a buyout of Continental Airlines
Continental Airlines
Continental Airlines was a major American airline now merged with United Airlines. On May 3, 2010, Continental Airlines, Inc. and UAL, Inc. announced a merger via a stock swap, and on October 1, 2010, the merger closed and UAL changed its name to United Continental Holdings, Inc...
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
Carl Icahn
Carl Celian Icahn is an American business magnate and investor.-Biography:Icahn was raised in Far Rockaway, Queens, New York City, where he attended Far Rockaway High School. His father was a cantor, his mother was a schoolteacher...
's hostile takeover of TWA
Trans World Airlines
Trans World Airlines was an American airline that existed from 1925 until it was bought out by and merged with American Airlines in 2001. It was a major domestic airline in the United States and the main U.S.-based competitor of Pan American World Airways on intercontinental routes from 1946...
in 1985., Bonderman and Texas Pacific Group were widely hailed as saviors of the airline, marking the change in tone from the 1980s. The buyout of Continental Airlines
Continental Airlines
Continental Airlines was a major American airline now merged with United Airlines. On May 3, 2010, Continental Airlines, Inc. and UAL, Inc. announced a merger via a stock swap, and on October 1, 2010, the merger closed and UAL changed its name to United Continental Holdings, Inc...
would be one of the few successes for the private equity industry which has suffered several major failures, including the 2008 bankruptcies of ATA Airlines
ATA Airlines
ATA Airlines, Inc., formerly known as American Trans Air, was an American low-cost scheduled service and charter airline based in Indianapolis, Indiana. ATA operated scheduled passenger flights throughout the US mainland and Hawaii, as well as military and commercial charter flights around the world...
, Aloha Airlines
Aloha Airlines
Aloha Airlines was an American airline headquartered in Honolulu CDP, City and County of Honolulu, Hawaii, operating from a hub at Honolulu International Airport...
and Eos Airlines
Eos Airlines
Eos Airlines, Inc. was an American all-business class airline headquartered in Purchase, New York, with its flights from John F. Kennedy International Airport, New York...
.
Among the most notable buyouts of the mid-to-late 1990s included:
- Duane ReadeDuane ReadeDuane Reade Inc., a subsidiary of the Walgreen Company, is a chain of pharmacy and convenience stores, primarily located in New York City, known for its high volume small store layouts in densely populated Manhattan locations...
, 1990, 1997
- The company's founders sold Duane Reade to Bain CapitalBain CapitalBain Capital LLC is a Boston-based private equity firm founded in 1984 by partners from the consulting firm Bain & Company. Originally conceived as an early-stage, growth-oriented investment fund, Bain Capital today manages approximately $65 billion in assets, and its strategies include private...
for approximately $300 million. In 1997, Bain Capital then sold the chain to DLJ Merchant Banking PartnersDLJ Merchant Banking PartnersDLJ Merchant Banking Partners is a private equity investment firm focused on leveraged buyout transactions. The firm is currently an affiliate of Credit Suisse and traces its roots to Donaldson, Lufkin & Jenrette, the investment bank acquired by Credit Suisse First Boston in 2000...
Duane Reade completed its initial public offeringInitial public offeringAn initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
(IPO) on February 10, 1998
- Sealy CorporationSealy CorporationSealy Corporation is an American owned major manufacturer of mattresses, based in Trinity, North Carolina, in the United States. The company draws its name from the city where it started, Sealy, Texas.- History :...
, 1997
- Bain CapitalBain CapitalBain Capital LLC is a Boston-based private equity firm founded in 1984 by partners from the consulting firm Bain & Company. Originally conceived as an early-stage, growth-oriented investment fund, Bain Capital today manages approximately $65 billion in assets, and its strategies include private...
and a team of Sealy's senior executives acquired the mattress company through a management buyout
- KinderCare Learning CentersKinderCare Learning CentersKinderCare Learning Centers is an American operator of for-profit child care facilities founded in 1969. The company provides educational programs for children from six weeks to 12 years old...
, 1997
- Kohlberg Kravis Roberts and Hicks, Muse, Tate & Furst
- J. Crew, 1997
- Texas Pacific GroupTexas Pacific GroupTPG Capital is one of the largest private equity investment firms globally, focused on leveraged buyout, growth capital and leveraged recapitalization investments in distressed companies and turnaround situations. TPG also manages investment funds specializing in growth capital, venture capital,...
acquired an 88% stake in the retailer for approximately $500 million, however the investment struggled due to the relatively high purchase price paid relative to the company's earnings. The company was able to complete a turnaround beginning in 2002 and complete an initial public offering in 2006
- Domino's PizzaDomino's PizzaDomino's Pizza, Inc. is an international pizza delivery corporation headquartered in Ann Arbor, Michigan, United States of America. Founded in 1960, Domino's is the second-largest pizza chain in the United States and has over 9,000 corporate and franchised stores in 60 countries and all 50 U.S....
, 1998
- Bain Capital acquired a 49% interest in the second-largest pizza-chain in the US from its founder and would successfully take the company public on the New York Stock ExchangeNew York Stock ExchangeThe New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
(NYSE:DPZ) in 2004.
- Regal Entertainment GroupRegal Entertainment GroupRegal Entertainment Group also known as REG is a movie theater chain headquartered in Knoxville, Tennessee. Regal operates the largest and most geographically diverse theater circuit in the United States, consisting of 6,775 screens in 548 locations in 39 states and the District of Columbia as of...
, 1998
- Kohlberg Kravis Roberts and Hicks, Muse, Tate & FurstHM CapitalHM Capital Partners is a private equity firm in the United States that specializes in leveraged buyouts. The firm, previously known as Hicks, Muse, Tate & Furst, was one of the largest financial sponsors of the 1990s. The firm was founded in 1989 by Tom Hicks and John Muse as Hicks, Muse & Co...
acquired the largest chain of movie theaters for $1.49 billion, including assumed debt. The buyers originally announced plans to acquire Regal, then merge it with United Artists (owned by Merrill LynchMerrill LynchMerrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
at the time) and Act IIIAct IIIAct III is the third album by the thrash metal band Death Angel, released in 1990 on Geffen Records. Regarded by many critics and fans as the band's finest effort, the album was produced by famed metal producer Max Norman , and marked the first major label release by Death Angel...
(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. Regal, along with the rest of the industry would encounter significant issues due to overbuilding of new multiplex theaters and would declare bankruptcy in 2001. Billionaire Philip AnschutzPhilip AnschutzPhilip Frederick Anschutz is an American entrepreneur. Anschutz bought out his father's drilling company in 1961 and earned large returns in Wyoming. He has invested in stocks, real estate and railroads...
would take control of the company and later take the company public.
- Oxford Health PlansUnitedHealth GroupUnitedHealth Group Incorporated is a diversified health and "well-being" company. Headquartered in Minnetonka, Minnesota, UnitedHealth Group offers a spectrum of products and services through two operating businesses: United Healthcare and Optum. Through its family of subsidiaries and divisions,...
, 1998
- An investor group led by Texas Pacific Group invested $350 million in a convertible preferred stockPreferred stockPreferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument...
that can be converted into 22.1% of Oxford. The company completed a buyback of the TPG's PIPE convertiblePrivate investment in public equityA private investment in public equity, often called a PIPE deal, involves the selling of publicly traded common shares or some form of preferred stock or convertible security to private investors. In the U.S...
in 2000 and would ultimately be acquired by UnitedHealth GroupUnitedHealth GroupUnitedHealth Group Incorporated is a diversified health and "well-being" company. Headquartered in Minnetonka, Minnesota, UnitedHealth Group offers a spectrum of products and services through two operating businesses: United Healthcare and Optum. Through its family of subsidiaries and divisions,...
in 2004.
- PetcoPETCOPETCO is a chain of retail stores that offers pet supplies and services such as grooming and dog training. Founded in 1965 and incorporated in Delaware, it is headquartered in San Diego, California...
, 2000
- TPG Capital and Leonard Green & PartnersLeonard Green & PartnersLeonard Green & Partners is a private equity firm specializing in leveraged buyout transactions, particularly of middle market companies. As of 2010, the firm had with approximately $9 billion in assets under management....
invested $200 million to acquire the pet supplies retailer as part of a $600 million buyout. 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.
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 fund
Private equity fund
A private equity fund is a collective investment scheme used for making investments in various equity securities according to one of the investment strategies associated with private equity....
s 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, FedExFedEx
FedEx Corporation , originally known as FDX Corporation, is a logistics services company, based in the United States with headquarters in Memphis, Tennessee...
and Apple Inc. were able to grow because of private equity or venture funding, as were Cisco
Cisco
Cisco may refer to:Companies:*Cisco Systems, a computer networking company* Certis CISCO, corporatised entity of the former Commercial and Industrial Security Corporation in Singapore...
, Genentech
Genentech
Genentech Inc., or Genetic Engineering Technology, Inc., is a biotechnology corporation, founded in 1976 by venture capitalist Robert A. Swanson and biochemist Dr. Herbert Boyer. Trailing the founding of Cetus by five years, it was an important step in the evolution of the biotechnology industry...
, Microsoft
Microsoft
Microsoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions...
and Avis
Avis Rent A Car System
Avis Rent a Car System, LLC is a car rental company headquartered in Parsippany-Troy Hills Township, New Jersey, United States. Avis, Budget Rent a Car and Budget Truck Rental are all units of Avis Budget Group....
. 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 competition for hot startups, excess supply of IPOs and the inexperience of many venture capital fund managers. Unlike the leveraged buyout industry, after total capital raised increased 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 more than a decade later 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 venture capital industry beginning in 1980 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.
The late 1990s were a boom time for the venture capital, as firms on Sand Hill Road
Sand Hill Road
Sand Hill Road is a road in Menlo Park, California, notable for its concentration of venture capital companies. Its significance as a symbol of private equity in the United States may be compared to that of Wall Street in the stock market...
in Menlo Park
Menlo Park, California
Menlo Park, California is a city at the eastern edge of San Mateo County, in the San Francisco Bay Area of California, in the United States. It is bordered by San Francisco Bay on the north and east; East Palo Alto, Palo Alto, and Stanford to the south; Atherton, North Fair Oaks, and Redwood City...
and Silicon Valley
Silicon Valley
Silicon Valley is a term which refers to the southern part of the San Francisco Bay Area in Northern California in the United States. The region is home to many of the world's largest technology corporations...
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.
- Amazon.comAmazon.comAmazon.com, Inc. is a multinational electronic commerce company headquartered in Seattle, Washington, United States. It is the world's largest online retailer. Amazon has separate websites for the following countries: United States, Canada, United Kingdom, Germany, France, Italy, Spain, Japan, and...
- America Online
- E-bay
- Intuit
- MacromediaMacromediaMacromedia was an American graphics and web development software company headquartered in San Francisco, California that produced such products as Flash and Dreamweaver. Its rival, Adobe Systems, acquired Macromedia on December 3, 2005 and controls the line of Macromedia...
- NetscapeNetscapeNetscape Communications is a US computer services company, best known for Netscape Navigator, its web browser. When it was an independent company, its headquarters were in Mountain View, California...
- Sun MicrosystemsSun MicrosystemsSun Microsystems, Inc. was a company that sold :computers, computer components, :computer software, and :information technology services. Sun was founded on February 24, 1982...
- Yahoo!Yahoo!Yahoo! Inc. is an American multinational internet corporation headquartered in Sunnyvale, California, United States. The company is perhaps best known for its web portal, search engine , Yahoo! Directory, Yahoo! Mail, Yahoo! News, Yahoo! Groups, Yahoo! Answers, advertising, online mapping ,...
- On April 5, 1995, Sequoia CapitalSequoia CapitalSequoia Capital is a Californian venture capital firm located on Sand Hill Road in Menlo Park, California. The Wall Street Journal has called Sequoia Capital "one of the highest-caliber venture firms", and noted that it is "one of Silicon Valley's most influential venture-capital firms"...
provided Yahoo with two rounds of venture capital. On 12 April 1996, Yahoo had its initial public offering, raising $33.8 million dollars, by selling 2.6 million shares at $13 each.
The bursting of the Internet Bubble and the private equity crash (2000 to 2003)
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
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
Private equity secondary market
In finance, the private equity secondary market refers to the buying and selling of pre-existing investor commitments to private equity and other alternative investment funds....
. 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
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
-driven environment (thanks to deals such as eBay
EBay
eBay Inc. is an American internet consumer-to-consumer corporation that manages eBay.com, an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide...
's purchase of Skype
Skype
Skype is a software application that allows users to make voice and video calls and chat over the Internet. Calls to other users within the Skype service are free, while calls to both traditional landline telephones and mobile phones can be made for a fee using a debit-based user account system...
, the News Corporation
News Corporation
News Corporation or News Corp. is an American multinational media conglomerate. It is the world's second-largest media conglomerate as of 2011 in terms of revenue, and the world's third largest in entertainment as of 2009, although the BBC remains the world's largest broadcaster...
's purchase of MySpace.com, and the very successful Google.com and Salesforce.com
Salesforce.com
Salesforce.com is an enterprise cloud computing company headquartered in San Francisco that distributes business software on a subscription basis. Salesforce.com hosts the applications off-site...
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.
See also
- History of private equity and venture capitalHistory of private equity and venture capitalThe 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...
- Early history of private equityEarly history of private equityThe early history of private equity relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel although interrelated...
- Private equity in the 1980sPrivate equity in the 1980sPrivate equity in the 1980s relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel although interrelated tracks.The...
- Private equity in the 21st centuryPrivate equity in the 21st centuryPrivate equity in the 2000s relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel although interrelated tracks.The...
- Early history of private equity
- Private equity firms (category)
- Venture capital firms (category)
- Private equity and venture capital investors (category)
- Financial sponsorFinancial sponsorA financial sponsor is a term commonly used to refer to private equity investment firms, particularly those private equity firms that engage in leveraged buyout or LBO transactions....
- Private equity firmPrivate equity firmA private equity firm is an investment manager that makes investments in the private equity of operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital...
- Private equity fundPrivate equity fundA private equity fund is a collective investment scheme used for making investments in various equity securities according to one of the investment strategies associated with private equity....
- Private equity secondary marketPrivate equity secondary marketIn finance, the private equity secondary market refers to the buying and selling of pre-existing investor commitments to private equity and other alternative investment funds....
- Mezzanine capitalMezzanine capitalMezzanine capital, in finance, refers to a subordinated debt or preferred equity instrument that represents a claim on a company's assets which is senior only to that of the common shares...
- Private investment in public equityPrivate investment in public equityA private investment in public equity, often called a PIPE deal, involves the selling of publicly traded common shares or some form of preferred stock or convertible security to private investors. In the U.S...
- Taxation of Private Equity and Hedge FundsTaxation of private equity and hedge fundsPrivate equity funds and hedge funds are private investment vehicles used to pool investment capital, usually for a small group of large institutional or wealthy individual investors. They are subject to favorable regulatory treatment in most jurisdictions from which they are managed, which allows...
- Investment bankingInvestment bankingAn investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities...
- Mergers and acquisitionsMergers and acquisitionsMergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...