Bain Capital - History - Bain and The 2000s Buy-out Boom

Bain and The 2000s Buy-out Boom

In 2004 a consortium comprising KKR, Bain Capital and real estate development company Vornado Realty Trust announced the $6.6 billion acquisition of Toys "R" Us, the toy retailer. A month earlier, Cerberus Capital Management, made a $5.5 billion offer for both the toy and baby supplies businesses. The Toys 'R' Us buyout was one of the largest in several years. Following this transaction, by the end of 2004 and in 2005, major buyouts were once again becoming common and market observers were stunned by the leverage levels and financing terms obtained by financial sponsors in their buyouts.

The following year, in 2005, Bain was one of seven private equity firms involved in the buyout of SunGard in a transaction valued at $11.3 billion. Bain's partners in the acquisition were Silver Lake Partners, TPG Capital, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts, Providence Equity Partners, and The Blackstone 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 largest club deal completed to that point. 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.

Bain led a consortium, together with The Carlyle Group and Thomas H. Lee Partners to acquire Dunkin' Brands. The private equity firms paid $2.425 billion in cash for the parent company of Dunkin' Donuts and Baskin-Robbins in December 2005.

In 2006, Bain Capital and Kohlberg Kravis Roberts, together with Merrill Lynch and the Frist family (which had founded the company) completed a $31.6 billion acquisition of Hospital Corporation of America, 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 and TXU. In August 2006, Bain was part of the consortium, together with Kohlberg Kravis Roberts, Silver Lake Partners and AlpInvest Partners, that acquired a controlling 80.1% share of semiconductors unit of Philips for €6.4 billion. The new company, based in the Netherlands, was renamed NXP Semiconductors.

During the buyout boom, Bain was active in the acquisition of various retail businesses. In January 2006, Bain announced the acquisition of Burlington Coat Factory, a discount retailer operating 367 department stores in 42 states, in a $2 billion buyout transaction. Six months later, in October 2006, Bain and The Blackstone Group acquired Michaels Stores, the largest arts and crafts retailer in North America in a $6.0 billion leveraged buyout. Bain and Blackstone narrowly beat out Kohlberg Kravis Roberts and TPG Capital in an auction for the company. In June 2007, Bain agreed to acquire HD Supply, the wholesale construction supply business of Home Depot for $10.3 billion. Bain, along with partners Carlyle Group and Clayton, Dubilier & Rice, would later negotiate a lower price ($8.5 billion) when the initial stages of the subprime mortgage crisis caused lenders to seek to renegotiate the terms of the acquisition financing. Just days after the announcement of the HD Supply deal, on June 27, Bain announced the acquisition of Guitar Center, the leading musical equipment retailer in the U.S. Bain paid $1.9 billion, plus $200 million in assumed debt, representing a 26% premium to the stock's closing price prior to the announcement. Bain also acquired Edcon Limited, which operates Edgars Department Stores in South Africa and Zimbabwe for 25 billion-rand ($3.5 billion) in February 2007.

Other investments during the buyout boom included: Bavaria Yachtbau, acquired for €1.3 billion in July 2007 as well as Sensata Technologies, acquired from Texas Instruments in 2006 for approximately $3 billion.