Talking Deal Prices: Jumbo buyouts from First Data, SunGard seek exits as multiples rise

Starting with the $44 billion buyout of electricity producer TXU (now Energy Future Holdings) in 2007 and working down from there, these behemoths continue to stand out both in terms of the sheer dollar size of their price tags as well as their levels of debt (see accompanying chart).

While buyout firms rarely purchase anything for more than $20 billion nowadays, corporate buyers have been snapping up competitors for much more than that. This raises the comparable market prices of the biggest portfolio companies.

Overall, purchase price multiples by U.S. sponsors averaged 9.94x EBITDA in the second quarter, up from 9.28x EBITDA in the year-ago period, according to S&P Capital IQ. Rising purchase price multiples and a bullish stock market beckon to private equity firms keen to start exiting these deals via IPOs before the window closes. With outright sales of these mammoth companies often difficult or impossible, sponsors can gradually pare down their stakes over time by selling public shares.

In July alone, two major LBOs from the peak years prior to the collapse of Lehman Brothers filed to go public: First Data Corp and SunGard Systems.

First Data’s buyout by Kohlberg Kravis Roberts & Co tipped the scales at $27 billion back in 2007. KKR said on July 22 that it ended the second quarter with total exposure of $4.5 billion to the company from its own balance sheet and its funds. If the IPO of the payment processing firm raises $5 billion as planned, KKR may be in line to get a return of about 1.1x.

The New York firm co-founded by Henry Kravis appears to be optimistic. “We have line of sight to liquidity in the portfolio, and the exit environment is good,” KKR executive Scott Nuttall said July 23.

Enterprise value estimates in the marketplace for First Data range from $10 billion up to $30 billion, or about 3.7x to 11.1x its 2014 adjusted EBITDA of $2.7 billion. Meanwhile, the company’s total debt remains high at about $21.1 billion as of March 31.

Tipping the scales at $10.8 billion, SunGard was bought out by a consortium of private equity firms back in 2005. A decade later, it has filed to go public with seven of its backers planning to sell shares: Bain Capital, The BlackstoneGroup, Goldman Sachs, KKR, Providence Equity Partners, Silver Lake and TPG Capital. The software maker for financial institutions held total debt of $4.7 billion as of December 31, down from $6.4 billion in 2013. Adjusted EBITDA remained about flat at $765 million.

Ongoing bankruptcies

Energy Future Holdings filed an amended plan on July 23 that endorsed a plan for the largest power company in Texas to reorganize with a group supported by Hunt Consolidated Inc, the flagship of the Ray L. Hunt family of companies.

As part of the plan, Hunt plans to raise more than $12 billion with junior creditors to pay down debt and launch a real estate investment trust (REIT) of the company’s power distribution business, Oncor. The fate of the reorganization effort will be taken up this fall by U.S. Bankruptcy Court in Wilmington, Delaware.

Also on the bankruptcy front, shares of Caesars Entertainment lost more than half of their value on July 22 after a federal judge declined a request to protect it from creditor lawsuits attempting to get $11 billion from its operating unit. The case centers around lawsuits from hedge fund creditors for the operating unit, which filed for Chapter 11 earlier this year. Further court proceedings await in coming months.