Question: What Makes An Attractive LBO Candidate?

Is Barbarians at the Gate a true story?

“Barbarians at the Gates” is the insane true story of the leveraged buyout of RJR Nabisco.

The stars are James Garner, Jonathan Pryce, Peter Riegert, Joanna Cassidy, Fred Dalton Thompson, Jeffrey DeMunn, Tom Aldredge, and David Rasche..

When looking for a good leveraged buyout LBO candidate what characteristics would you typically look for?

While is it very unlikely that any one company will meet all these criteria, some combination thereof is need to successfully execute an LBO.Strong, predictable operating cash flows with which the leveraged company can service and pay down acquisition debt.Mature, steady (non-cyclical), and perhaps even boring.More items…

Was the RJR Nabisco LBO a successful transaction?

The company was also a cookie maker, of course, but it was the $2 billion thrown off by tobacco each year that made investment bankers salivate and set off a six-week bidding war, culminating in the mother of all LBOs. The winner, with a bid of $25 billion: Kohlberg Kravis Roberts. The loser, ever since: RJR.

Did Nabisco go out of business?

In 2000, Philip Morris Companies Inc. acquired Nabisco and merged it with Kraft Foods in one of the largest mergers in the food industry. In 2011, Kraft Foods announced that it was splitting into a grocery company and a snack food company.

How is LBO calculated?

4. Calculate cumulative levered free cash flow (FCF).Start with EBT (Tax-effected) and then add back non-cash expenses (D&A). … Subtract capital expenditures (Capex). … Subtract the annual increase in operating working capital to get to Free Cash Flow (FCF). … Calculate Cumulative Free Cash Flow during the life of the LBO.

What are the signs of a company buyout?

Is your stock about to get bought out? Here are a few ways to tell if a company might become an acquisition target.Dominance over a key market segment that larger rivals can’t easily replicate. … Worsening operating trends, relative to much larger competitors. … Management starts talking about its options.

Is a buyout good?

First of all, a buyout is typically very good news for shareholders of the company being acquired. … If the buyout is an all-cash deal, shares of your stock will disappear from your portfolio at some point following the deal’s official closing date and be replaced by the cash value of the shares specified in the buyout.

What is a takeover target?

From Longman Business Dictionary ˈtakeover ˌtarget a company that may be bought or that is being bought by another companyA corporation may buy up enough stock in the market to exert majority control of the takeover target.

Who bought out Nabisco?

After being acquired by R.J. Reynolds in 1985 and becoming part of RJR Nabisco, Nabisco was sold in 2000 to Philip Morris Companies (renamed Altria Group, Inc.), which was the parent company of Kraft Foods. Nabisco’s brands were thereafter marketed by Kraft.

What makes a good buyout target?

Key Takeaways. A good takeover company is one that has carved out a niche, and is ready to expand, but needs greater capital. Good candidates should have only one class of common stock and little debt; what debt they have should be able to be refinanced.

Who owns RJR Nabisco?

Kohlberg Kravis Roberts & Co.RJR Nabisco was formed in 1985 by the merger of Nabisco Brands and R.J. Reynolds Tobacco Company. In 1988 RJR Nabisco was purchased by Kohlberg Kravis Roberts & Co. in what was at the time the largest leveraged buyout in history.

Why was RJR Nabisco an attractive candidate for an LBO?

Several features of RJR Nabisco made it a particularly attractive LBO candidate. Its operations exhibited moderate and consistent growth, required little capital investment and carried low debt levels. Its problems—a declining return on assets and falling inventory turnover—appeared fixable.

How much money did KKR make on RJR Nabisco?

After a long battle, Kohlberg Kravis won the right to take control of the food and tobacco giant in the largest leveraged buyout ever. The $25 billion deal captured the public imagination and provoked talk that leveraged buyouts could only grow larger.

How much is Nabisco worth?

NEW YORK — Philip Morris Cos., owner of Kraft Foods, clinched a deal to acquire Nabisco Holdings Corp. for $55 a share, or $14.91 billion in cash, and is planning an initial public offering of 10% to 15% of the combined food business.

Who said the barbarians are at the gate?

Bryan BurroughPreview — Barbarians at the Gate by Bryan Burrough. “Planning, gentlemen, is ‘What are you going to do next year that’s different from what you did this year? ‘” he told them. “All I want is five items.”

What are the benefits of leveraged buyouts?

LBOs have clear advantages for the buyer: they get to spend less of their own money, get a higher return on investment and help turn companies around. They see a bigger return on equity than with other buyout scenarios because they’re able to use the seller’s assets to pay for the financing cost rather than their own.

What are five examples of a leveraged buyout?

Private equity companies often use LBOs to buy and later sell a company at a profit. The most successful examples of LBOs are Gibson Greeting Cards, Hilton Hotels and Safeway.

How does an LBO create value?

An LBO model analyzes the effect of debt servicing on a target company’s ongoing business operations. Interest requirements result in an increased use of free cash flow; thus, the model must project future activities of the business and its ability to grow value and meet its financial obligations.