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This Day In Market History: The First Modern Leveraged Buyout

This Day In Market History: The First Modern Leveraged Buyout

Each day, Benzinga takes a look back at a notable market-related moment that occurred on this date.

What Happened?

On this day 39 years ago, KKR & Co. L.P. Unit (NYSE: KKR) completed the first modern leveraged buyout of a public company, taking over manufacturer Houdaille Industries for $355 million.

Where The Market Was

The Dow finished the day at 847.57. The S&P 500 traded at 100.69. Today, the Dow is trading at 23,930.15 and the S&P 500 is trading at 2,629.73.

What Else Was Going On In The World?

In 1979, Michael Jackson released his breakthrough solo album “Off The Wall.” The Entertainment and Sports Programming Network — ESPN — launched on cable television. The year-end U.S. Federal Reserve interest rate was 15.25 percent.

The Leveraged Buyout

KKR used $300 million of debt financing by a collection of banks and insurance companies to take Houdaille Industries private. The effort to assemble the financing reportedly took nearly a year. Incredibly, out of the $355 million paid for Houdaille, only about $1 million came directly from KKR.

Houdaille shareholders received $40 per share for a stock that traded at around $15 prior to the buyout. Over the next six years, Houdaille generated an average annual return of more than 33 percent for KKR investors.

A recession in the early 1980s derailed Houdaille, and the company ultimately announced a “business restructuring program” that involved splitting off seven of the company’s divisions. Tube Investments Group eventually acquired what remained of Houdaille in 1986.

KKR’s leveraged buyout of Houdaille created a blueprint for leveraged buyouts that private equity investment groups still follow to this day.

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