AC*. Alliance For Capital Access

Transcription

1 AC*. Alliance For Capital Access LEVERAGED BUYOUT SUCCESS STORIES 1919 Pennsylvania Avenue, N.W. Suite 701 Washington, DC / MaaneTek, Inc. Los Angeles, CA Five years ago, MagneTek existed only as an idea. In 1988, MagneTek broke into the Fortune 500. This remarkable growth was achieved through the leveraged acquisitions of several electrical equipment manufacturing divisions of other Fortune 500 companies, including the Magnetics Group of Litton Industries and the Universal Manufacturing Division of Parley Industries. After seven acquisitions over the past five years all financed primarily with debt, all friendly and all divisions of larger companies MagneTek has become a national and world leader in the production of lighting ballasts, generators, power supplies and other electrical products. Since 1984, MagneTek's worldwide sales have grown to $910 million, including a 49% growth in 1988, with operating profit growing to $83 million in MagneTek has created over 650 new jobs nationwide, and currently employs over 13,000 people. Its capital expenditures building of new plants and purchases of new equipment have risen from $4 million in 1986 to $25 million in 1988.

2 Exide Corporation Horsham, Pennsylvania Exide, the nation's largest manufacturer of lead acid batteries, was purchased by an investment group including management in 1983 from its multinational corporate parent, INCO Ltd. This buyout was financed almost entirely with high yield debt. At the time of the purchase, INCO had developed plans to close down all of the operations of Exide, which at the time employed 3,500 workers across the Midwest, including over 1,000 in Pennsylvania, because of increased foreign competition and low demand in the battery market. Instead of shutting down the company, Exide's new owners restructured its operations, closing a plant in Indiana and reopening one in Atlanta. Overall employment at the company has remained constant, sales have risen strongly over the past five years, and profits have steadily improved.

3 Warnaco. Inc. Bridgeport, Connecticut Warnaco is one of the largest diversified brand name clothing companies in the nation. Warnaco f s products are marketed under brand names such as Christian Dior, Chaps by Ralph Lauren, White Stag, Geoffrey Beane and Speedo. In 1986, the company was acquired in a $500 million leveraged buyout, after a competitive bidding process with the company's management, by an investment group headed by Ms. Linda Wachner, former chief executive officer of Max Factor. Since the buyout, Warnaco has been transformed from what the New York Times called a "complacent, insular company" into a strong competitor in the domestic retail markets. The company's sales in 1988 were up eleven per cent over pre-buyout sales, and its operating profits have increased over 67% over the same period. At the same time that its new management has improved the company' s operating efficiency, it has created over 1,500 new jobs across the nation and increased the capital expenditures budget for the company in each of the past three years.

4 Vons Companies El Monte, California Vons was purchased by its senior management in 1985 in a leveraged buyout from its corporate parent, Household International. At that time, Vons was the fourth largest food retailer in Southern California, and the 14th largest in the nation. Before the buyout, Vons was only marginally profitable, and was losing market share to its main competitors in Southern California, Ralph's and Lucky Stores. Since the buyout, through acquisitions and expansions into new areas, Vons has become the largest supermarket chain in Southern California. It has opened an average of 12 new stores every year since 1985, and has created over 2,000 new jobs. In each of the past four years, its budget for capital expenditures, store remodelling and store expansion has increased by at least 20%.

5 Ceco Corporation Hinsdale, Illinois Ceco is a manufacturer of products for and a supplier of services to the office building construction industry. Its largest product is the supply of poured-in-place concrete services. In 1986, Ceco was taken private in a leveraged buyout financed with debt by its senior management. Ceco's shareholders were paid nearly double the pre-buyout market price for their shares, a level that had never been reached by the shares previously. Since the buyout, Ceco has prospered. Improved operating efficiencies and higher sales allowed the company to repay 50% of its buyout debt within the first two years after the transaction. In addition, Ceco has expanded into new markets, creating over 300 new jobs and boosting the long-term prospects for the company.

6 Bora Warner Industrial Products Long Beach, California BWIP was formed in May, 1987 as the result of a leveraged buyout by an investment group including senior managers of the Industrial Products Division of Borg-Warner Corporation. BWIP designs and manufactures centrifugal pumps, mechanical seals and hydraulic equipment for the energy and aerospace industries. As a division of Borg-Warner, BWIP was at one time very profitable. However, during the 1980's, the parent corporation began concentrating primarily on expanding the financial services segment of the company, ignoring the Industrial Products division. As a result, sales for the division fell, profits were down, operations were closed and, between 1981 and 1987, employment was reduced by over 35%. Since the buyout, sales for the newly independent company have stabilized and lay-offs have stopped. New product research has expanded and improved operating efficiencies have produced a 20% increase in operating earnings over the first full year of independent operation. In short, an ignored corporate "stepchild," which had been suffering from neglect as part of a large corporation, has been revitalized by the leveraged buyout and is looking forward to new successes.

7 P.M. Scott & Sons Marysville, Ohio A 120-year-old company, Scott, which manufactures and markets fertilizers and other lawn care products, was acquired in 1972 by ITT Corporation. In 1986, ITT made the decision to divest Scott and actively courted buyers for the subsidiary. In late 1986, Scott was acquired in a leveraged buyout by an investment group led by senior managers. Over the past two years, Scott has increased its sales by 35%, its operating profit has increased by 50% and debt levels are down by 20%. At the same time, Scott has managed to keep employment stable, and is adding new seasonal employment opportunities each year. Its capital expenditure budget, which has never been large, has been increased over the past two years as Scott brings new products and new applications of its products to market.

8 Oklahoma Division of Safewav Stores Oklahoma City, Oklahoma The leveraged buyout of the Oklahoma Division of Safeway Stores is the product of one of the most well-known leveraged buyouts of recent years, that of its parent corporation, Safeway Stores. The Oklahoma Division, comprising over 110 supermarkets in Texas, Oklahoma and Kansas, was sold by Safeway to an investment group led by regional managers in In the year since the buyout, the new owners of the division, now an independent company, have increased sales at the stores, increased the company's market share in its operating areas and doubled the funds available for the remodelling of existing stores and opening new ones. Not one store has been closed nor one worker fired. In fact, since the buyout, the company has hired 600 new workers. 8

9 Edacomb Corporation Tulsa, Oklahoma Edgcomb is the largest independent processor and distributor of metal products in the United States. The company was taken private through a management buyout in A unique aspect of this buyout was its impact on workers. Edgcomb had a substantial Employee Stock Ownership Plan in place at the time of the buyout. As a result of the premium paid for the shares of the company, a basic plant worker or foreman who had been with the company for 20 years received nearly $1 million. Since the buyout, the company has been a shining star in an otherwise depressed metals industry. Sales and profits have risen, operating efficiency is up and response time to customers orders is down. Employment has remained stable in an industry that has experienced massive layoffs in recent years.

10 Budget Rent A Car Corporation Chicago, Illinois Budget, currently the nation's third largest car rental company, was acquired through a leveraged buyout from its former corporate parent, Transamerica Corporation, by its senior management in Budget's operations, which had been largely ignored by its corporate parent as the larger company concentrated on expansion into financial services, has strengthened considerably since it became an independent company. Since the buyout, Budget has moved from the fourth to the third position in the domestic rental car market. It has expanded its workforce, and has the fastest growing market share of any major rental car company in the nation. The company has concentrated on expanding its operation in the largest metropolitan areas, as well as adding to its marketing strength through acquiring new franchises around the country. Currently, Budget is experiencing record rentals, revenues and profits, and has repaid over 50% of the debt incurred in financing the buyout from Transamerica. 10