The 30 most influential private equity deals

THE 30 MOST INFLUENTIAL

1957 Fairchild Semiconductor
1957 Digital Equipment Company
1980 Applied Molecular Genetics
1982 Gibson Greeting Cards
1988 Reedpack
1989 Isosceles
1989 RJR Nabisco
1990 Lexmark
1992 Snapple
1992 Continental Airlines
1994 Netscape
1995 Reed Regional Newspapers
1996 Angel Trains
1996 Autonomy
1996 Norte
1996 Porterbrook
1996 eToys
1997, 2003 Seat Pagine Gialle
1998 Regal
1998 Boo.com
1999 Honsel
1999 SLEC/Formula One
2000 Seagate
2000 Rover
2000 XO Communications
2000 Shinsei
2001 Homebase
2002 National Car Parks
2002 Yellow Pages Group
2002 BTC

FAIRCHILD PIONEERS SEMICONDUCTORS
1957 The “traitorous” eight

Fairchild Semiconductor put the “Silicon” into Silicon Valley. The company was started when eight disgruntled employers left Shockley Semiconductor and started producing transistors. Fairchild invented the integrated chip, initiating a new chapter in computer technology.

Fairchild's beginnings also coincide with the birth of the US venture capital market. While working as a New York investment banker, Arthur Rock became intrigued by the potential of the eight Shockley defectors and convinced inventor Sherman Fairchild to invest some of his family fortune in the risky venture. Joining Rock on the deal was another noted venture capitalist – Eugene Kleiner, who went on to co-found Kleiner Perkins Caufield & Byers.

Fairchild occupies another important place in the history of venture capital in that it served as a training ground for a next generation of tech business builders, including the founders of Intel, AMD and National Semiconductor.

ARD BACKS DIGITAL EQUIPMENT
1957 General electrifies

After World War II, a US Army quartermaster general named Georges Doriot founded a publicly traded, closed-end venture investment fund called American Research & Development. ARD was notable because it endeavoured to invest based on a set of principles and procedures. In his notes, Doriot wrote that his fund would “assist in creating companies based on the ideas and techniques of competent men/ invest in new companies/ invest in existing small or medium-sized companies which appear to have growth potential”.

ARD's most notable investment occurred in 1957 when Doriot placed $70,000 with Digital Equipment Company. That stake grew to be worth roughly $355 million. Many other ARD investments did not work out, and Digital Equipment ended up representing roughly half of ARD's profits during its more than two decades in business. As a business model, the venture capital firm hasn't changed much since.

AMGEN SPAWNS BIOTECH VC TRADITION
1980 Drug money

In 1980, Frank “Pitch” Johnson, the founder of Asset Management Company and one of the pioneers of the US venture capital industry, teamed up with three other venture capitalists to found Applied Molecular Genetics. The company grew quickly, developing therapeutics using emerging technology advancements in recombinant DNA and molecular biology. The company, re-dubbed Amgen, is now the largest biotechnology company in the world, with $8.4 billion in sales last year. It has inspired an industry presently littered with venture-backed startups looking to develop the next big thing in biopharmaceuticals.

At the beginning of the 1990s, it was the only biotech company with a market capitalisation of more than $1 billion – today, there are almost 50 companies at this valuation or higher. In addition, venture capital investors last year pumped $3.4 billion into biotech startups alone, an industry considered barely out of its infancy.

WESRAY FLIPS GIBSON GREETING GARDS
1982 The seminal LBO

As the 63rd US treasury secretary under presidents Nixon and Ford, William E. Simon had a major impact on America's energy policy during the crippling OPEC oil embargo. Later, as the founder of New Jersey's Wesray Corporation, Simon had a similarly large impact on the nascent private equity market by making “LBO” a household word, starting with the firm's spectacular success flipping Gibson Greeting Cards.

Throughout the 1980s, debt was as plentiful as Rubik's Cubes. In 1982, Wesray took advantage of this bounty – and captured the imagination of Wall Street – by buying out the greeting card division of RCA for $80 million. By today's standard, this isn't very impressive except for one key feature – the deal involved just $1 million of equity from Wesray, with the rest aggressively borrowed against the company's assets. 18 months later the company was taken public at a valuation of $290 million, and was later acquired by Disney. Simon made a reported personal profit of $66 million on his $330,000 contribution to the deal.

Gibson Greeting was the deal that launched a thousand LBOs, changing the financial landscape of the 1980s and channeling billions of dollars into buyout funds. Wesray went on to complete bigger successes, including Avis Rent a Car and Wilson Sporting Goods, but its mark was made with Gibson. Simon died in 2000. In a 1984 interview with the Wall Street Journal, Simon said the windfall had proved a tad embarrassing. “People would say, “Hey, nice going Bill,”” he told the newspaper. “But you could see by the way they looked at you that they resented all the money we made in Gibson.”

BRITISH COAL MINES REEDPACK
1988 Step change

In 1988, a team of professionals practising private equity on behalf of the British Coal Pension Funds approached Reed International (now Reed Elsevier) with a proposal to sponsor a management-led buyout of the company's non-core paper packaging and office supplies businesses.

To Reed's executives, the plan must have seemed just a little far-fetched. They'd heard of buyouts all right, but this was a time when few of those had been sold for more than £10 million. Reed's non-publishing assets would be worth several hundreds of millions. Granted, the financiers from British Coal, who in 1995 went solo to become Cinven, had recently purchased a company called Compass Central Catering for £166 million, but that deal was already considered a monster.

No matter. The suitors persisted, certain that they were looking at a corporate orphan with a great future. Reed agreed to sell for £608 million. British Coal, which was financing buyouts using a fraction of its £20 billion equity portfolio, lined up the cash: £42 million went into a £150 million equity syndicate, with Prudential, 3i, Globe Investment Trust and Citicorp Venture Capital splitting the balance, while Chemical Bank arranged an unprecedented £595 million of senior debt including working capital.

Two years later, while the UK economy was heading into recession, the consortium seized the moment again and sold the business to Swedish trade buyer Svenska Cellulosa AB – for nearly £1 billion in cash.

The pension made 2.6 times its money and booked a 69 percent IRR. More importantly, Reedpack had proven to the UK market that large LBOs could deliver and achieve liquidity. Big buyouts had arrived in Europe.

WASSERELLA IN ISOSCELES FIASCO
1989 Lost in the supermarket

While Reedpack was winning accolades, other UK leveraged acquisitions in the late 80s were falling apart. The largest deal to go up in smoke during the period was the £2.1 billion takeover of UK supermarket chain Gateway through Isosceles, a private equity-backed holding company.

With the UK on the brink of recession, the timing of the deal was awful. If Gateway hadn't been in great shape even before the buyout, subsequent events certainly didn't help. US boutique Wasserstein Perella, investing from a $1.1 billion merchant banking fund, arrived late in the auction, pushed up the price and reportedly invested $350 million before rolling its stake into the rival bidding vehicle of a UK syndicate including 3i, Mercury Asset Management and CIN Ventures. Next, an optimistically levered capital structure was assembled comprising just £200 million in equity, some £400 million of mezzanine and the rest in loans.

Inevitably perhaps, it took the grocer less than a year to run into cash flow problems. What followed was a messy rescue effort involving three separate restructurings. In 1994, a successor entity to Gateway emerged from the wreckage at last, floating as Somerfield on the London Stock Exchange. Just over half of the senior debt in the original deal was eventually repaid, but for the equity and the mezzanine, the turnaround produced too little too late: most of their capital had long been written off.

Today, the saga is remembered for many different reasons. Suffice to say here that Isosceles, alongside other, equally catastrophic bets of the era such as the notorious 1989 buyout of Magnet, the kitchen maker, serves as a stark reminder how easily a badly structured buyout can go wrong.

KKR DEVOURS RJR NABISCO
1989 Barbarians not so great

At the very least, we have this $31.3 billion deal to thank for getting the first private equity movie made. At the feverish end of the 1980s LBO craze, KKR got into a bidding war with Shearson Lehman Group and RJR Nabisco CEO Ross Johnson. KKR won, sort of. The largest leveraged buyout in history has proved a poor performer for KKR's limited partners. KKR invested a reported $3.6 billion into the deal from its 1987 fund. By 2001, investors were complaining that the deal had generated a paltry 2 percent IRR.

At least KKR did not forget to pay itself roughly $75 million in fees for “consulting” the food and tobacco company on the acquisition. Other beneficiaries were Bryan Burrough and John Helyar, whose book on the deal, Barbarians at the Gates, has become a business publishing classic. In 1993, it was turned into a movie starring Jonathan Pryce as Henry Kravis.

CLAYTON DUBILIER INK LEXMARK DEAL
1990 Printing money

Many market observers see Clayton Dubilier & Rice's roundtrip with Lexmark International as being the quintessential value-add success. No surprise, then, that this deal was initiated just as LBO madness was subsiding.

The New York buyout firm bought Lexmark from IBM through an exclusive negotiation for $1.6 billion, investing $205 million in equity. At the time, Lexmark was a moribund maker of typewriters and dot matrix printers. Clayton Dubilier tapped IBM managers Marvin Mann and Paul Curlander to painstakingly reinvent Lexmark as a leading manufacturer of computer printers. The company was taken public in 1995 and when Clayton Dubilier fully exited in 1998, it had reaped roughly $1 billion from its investment. It had also set a new standard for “value-add” investing, which dominates private equity today while socalled “financial engineering” has gone the way of Bananarama and other discredited '80s phenomenae.

THOMAS H. LEE PARTNERS JUICES SNAPPLE
1992 Lightning in a bottle

In comedy, timing is everything. That said, the fast one that Thomas H. Lee Partners pulled on Quaker Oats is, in retrospect, pretty funny.

Thomas H. Lee, the man, founded his Boston firm in 1974 with a $100,000 inheritance. By 1992, the firm was entrenched as a major private investor, but it was about to enter the Hall of Legends with a drink maker called Snapple. In April of that year, Thomas H. Lee Partners acquired the Valley Stream, New York company for $135 million in a management buyout. In December, the buyout firm took Snapple public, receiving back $80 million but maintaining a majority stake in the company.

Snapple was about to do a secondary offering when, at the end of 1994, food giant Quaker Oats offered $1.7 billion cash for the whole company. Public shareholders grumbled that the offer was about half of where the stock was trading, but Thomas H. Lee Partners took the money and ran, pocketing a more than $800 million profit in two years. The timing was sweet – immediately following Quaker Oats' acquisition, the ‘alternative drinks’ market became flooded with competitors and Snapple failed to live up to its new owners' expectations. Quaker Oats declared defeat in 1997 and sold Snapple to Triarc for a paltry $300 million, making it, at the time, one of the worst US corporate acquisitions ever. Gulp.

BONDERMAN RESURRECTS CONTINENTAL AIRLINES
1992 Runway success

The private equity market learned exactly how much distressed investing can pay in the turnaround success of Continental Airlines, a deal led by David Bonderman and James Coulter.

After cutting their teeth as investment advisors to Texas oil billionaire Robert Bass, Bonderman and Coulter in 1992 formed a Fort Worth, Texas entity called Air Partners to acquire the bankrupt airline for $450 million in conjunction with Air Canada. Air Partners' control stake was worth a reported $60 million. Continental seemed hopeless – this was its second bankruptcy in six years. But a Bonderman-led team is now credited with bringing the New York-based airline back to soaring profitability by the mid 1990s. Bonderman and team sold their stake in 1998, collecting an 11-fold return and raising the profile of turnaround investing as a distinct subset of the private equity asset class. In 1993 they co-founded a firm you may have heard of called Texas Pacific Group.

KLEINER PERKINS LAUNCHES NETSCAPE
1994 The birth of the bubble

Though long-term investors, Kleiner Perkins Caufield & Byers understand market timing. In 1994 the firm invested $5 million in a fledgling Internet browser company founded by Marc Andreesen and Jim Clarke out of the University of Illinois called Mosaic Communications. A year later, the company (renamed Netscape Communications) went public to massive fanfare, with its shares rocketing up 108 percent and its market capitalisation surpassing $2 billion in the first day of trading. The initial public offering opened up the floodgates for a torrent of Internet-related IPOs in subsequent years. In effect, Netscape ushered in the dotcom era, and venture capital markets – some would argue the world economy – haven't been the same since.

For its part, Kleiner Perkins saw a $400 million windfall on its 11 percent stake in Netscape, which was eventually bought out by AOL in late 1998. A browser battle with Microsoft's Internet Explorer whittled the company's market share to less than 4 percent of total Internet users, and the current Netscape is but a shell of its former self. However, the lessons learned with the browser developer are now being applied to Web search engine company Google, which some are calling Netscape's grandchild, promising to herald in another era of Internet IPOs. Once again, Kleiner Perkins is ahead of the game: in 1999 it made a $12.5 million investment in Google, a stake that might be worth around $3 billion when the company goes public later this year.

KKR BUYS REED REGIONAL NEWSPAPERS
1995 Adapting to European culture

When Kohlberg Kravis Roberts (KKR) landed in Europe with the £205 million purchase of UK-based Reed Regional Newspapers in November 1995, local investors were probably entitled to tremble in fear at the prospect of American financial aggression rocking the clubby European boat. However, they needn't have worried.

For KKR was in fact hailed for a “softly, softly” approach during its stewardship, working closely with the management team to build the business, and helping them towards handsome profits when the business was floated on the London Stock Exchange in 1997.

Reed was among the most notable early forays of US houses into Europe, and heralded KKR's arrival in a surprisingly understated way: it even embraced the collegiate European approach to syndication by bringing Cinven into the deal as a 26 percent shareholder when Reed bolted on Westminster Press from Pearson in 1996. When in Rome …

NOMURA SECURITISES ANGEL TRAINS
1996 Hands up for securities

Angel Trains, a UK privatisation in 1996, wasn't the first deal Guy Hands did on behalf of Nomura Principal Finance Group, but it was the one that made his reputation as a financing visionary.

Unlike Porterbrook, Angel Trains was a securitisation-driven transaction, the first of its kind in the UK: Hands managed to raise almost all of the money required to buy the business through a £549 million securitisation two days before the transaction closed.

Following a second securitisation, Nomura's £127 million equity investment in the £690 million transaction was repaid within three months. Upon exit in December 1997, the group realised a cash profit of £450 million and a gross IRR of 528 percent, earning Hands the sobriquet “King of Securitisation”. It was a great renaissance for financial engineering, and predictably, the copycats didn't take long to arrive on the scene.

APAX BACKS AUTONOMY
1996 European venture works

European early stage investment, as reflected in this selection of landmark private equity deals, has enjoyed fewer home runs and less investment success overall than its US counterpart. As a result, the debate over whether and how Europe can catch up with Silicon Valley is very much ongoing.

Advocates of European venture naturally point to the moments of glory that the industry has enjoyed in the past. One deal remembered by many is Autonomy, the Cambridge-based technology infrastructure and enterprise software company built by Mike Wright, one of the UK's best known entrepreneurs. In 1996 Apax Partners, led by Euro-venture enthusiast Sir Ronald Cohen, invested the equivalent of €2.9 million in the company. Autonomy listed on Nasdaq and the LSE in 2000, enabling Apax to reap a €239 million profit on its investment. Autonomy's share price subsequently collapsed, but the deal stands as one of Europe's most successful venture engagements of all time.

EXXEL GROUP BUYS NORTE
1996 LBOs head south

The rise and fall of Argentina's Exxel Group stands as a cautionary tale of emerging markets investing gone awry. But before Argentina saw its currency collapse in 2002, thus inflating the value of Exxel's dollar-denominated loans, Exxel was the private equity group to back in Latin America, and its 1996 buyout of supermarket chain Norte for $380 million was a galvanising event in the brief history of Latin American private equity.

Exxel, founded by ex-Citicorp Venture Capital pro Juan Navarro, doubled the number of Norte stores, making it Argentina's fourth biggest supermarket chain. In 1999, Exxel sold a 49 percent stake in the chain to French supermarket group Promodes for $420 million. Promodes was soon thereafter acquired by Carrefour, which eventually paid Exxel an additional $260 million. But the success of Norte was a final flash of brilliance before a darkness enveloped the Argentinean economy and with it, Navarro's overleveraged Exxel.

CHARTERHOUSE BOARDS PORTERBROOK
1996 A great train robbery?

The UK government's £527 million sale of rail leasing company Porterbrook to Charterhouse Development Capital (CDC) generated only modest media coverage at the time. But when the business was sold on to Stagecoach Holdings eight months later for £826 million, it gained notoriety.

For CDC, which made a reported £400 million-plus profit, the deal was a blinder. But the public outcry that greeted the apparent fire sale of a state asset made the prospect of similar privatisation bargains a rather remote prospect.

A subsequent investigation into the sale of Porterbrook and fellow rail leasing firms Angel Trains and Eversholt by the National Audit Office drew attention to a number of embarrassing omissions, such as the failure of the government to produce its own valuation ahead of bids being submitted. (When Porterbrook was sold by Stagecoach to Abbey National for £1.4 billion in April 2000 – delivering net proceeds of £773 million to the vendor – it only appeared to further underline the scale of the initial under-valuation.) Rarely has private equity left a vendor more embarrassed.

ETOYS LOSES THE DOTCOM GAME
1996 You need profits, stupid

When online toy retailer eToys went live in 1997, it had the backing of notable venture capital firms Highland Capital Partners and Sequoia Capital Partners. In May 1999, eToys went public and its stock soared 283 percent in the first day of trading.

Unfortunately, like many of its dotcom peers, eToys was too big for its britches – despite an $11.4 billion market cap, the company recorded a mere $30 million in 1999 sales. The public soon caught on and between October 1999 and May 2000, eToys' share price fell from $86 to $6. The company went bankrupt in 2002. eToys is now a prime illustration of the excesses of the dotcom era, up there with other notable online failure WebVan, a grocery home delivery service, which itself managed to pull in – and spend – $400 million in venture capital finance before tanking.

SEAT PAGINE GIALLE DOUBLES THE FUN
1997, 2003

Ringing up all the right numbers

Few company names have a more magical ring to European private equity ears than Seat Pagine Gialle, the Italian yellow pages business. The first buyout of the business, a €1.7 billion transaction in November 1997, returned over €10 billion to investors and sparked a wave of profitable directories deals across Europe. A consortium of investors led by Bain Capital took Seat private before selling a 61 percent stake in the company to Telecom Italia in 2000, returning over 20x money invested.

Six years later, Seat became the largestever European LBO, valued at €5.6 billion, after a fiercely contested auction process among some of the world's largest private equity firms. The Sub Silver consortium comprising BC Partners, CVC, Permira and Investitori Associati beat off intense competition from a dozen major league private equity players to acquire 62 percent of SPG for €3.03 billion.

What surprised insiders most about the second transaction was just how hard the rival bidders fought for the company. Valuations varied greatly, and the winning bid exceeded not only the vendor's price expectations, but was a whopping ten percent higher than the next nearest offer. Sub Silver et al may have paid a full price but, having already refinanced the deal and passed a 12.4 percent equity stake on to US-based investment bank Lehman Brothers in April 2004 for €804 million, Seat seems once again set for great profits. Its place in the history books is secure.

HICKS MUSE, KKR IN REGAL FLOP
1998 Horror show

In 1998, about the last thing America needed was more movie screens. And yet this was precisely the opposite view of Hicks Muse and KKR when the two buyout giants partnered to take private Regal Cinemas, the nation's largest cinema chain, for $1.2 billion (DLJ Merchant Banking also participated in the deal).

The plot sickened from there. After making a $25 million profit in 1997, Regal slid to a $74 million loss in 1998. Regal built giant new stadium theaters that stole business from existing screens. As losses mounted, Regal management played the two buyout firms against each other until 2001, when distressed sharks Philip Anschutz and Oaktree Capital wrestled the company from the control of the equity sponsor group. Hicks Muse and KKR each lost $500 million, but set an example of how not to do a co-investment.

BOO.COM BURNS A PILE OF CASH
1998 From Boo to bust

“The first major casualty of the Internet age” ran the press release hyping the launch of a new book in 2001 entitled “Boo Hoo”, detailing the rise and fall of online fashion retailer Boo.com. Not a surprising assessment of a business that burnt through around £85 million of venture capital in 15 months before going into liquidation. More surprising perhaps was the identity of the book's author: Boo.com co-founder Ernst Malmsten.

Backed by blue-chip investors including Goldman Sachs and JP Morgan as well as Bernard Arnault and the Benetton family, Boo.com was formed in December 1998 to sell clothing over the Web. By setting up offices in five cities around the world, recruiting 420 employees and spending a reported £30 million on TV advertising, Boo.com proved it was not short of ambition.

Sadly, the firm's supposedly cutting edge website (complete with virtual shopping assistant Miss Boo) missed its launch date by six months and then proved extremely temperamental which deterred customers and enraged investors. Amid poor trading conditions for e-tailers generally, the plug was pulled on Boo in May 2000. The company became an international icon of dot com excess and was among a rash of high-profile failures that presaged a period of disastrous losses for venture investors.

CARLYLE BUYS HONSEL
1999 Germany's first PTP

Germany, with its many rules and regulations, isn't the easiest market for private equity deals to happen. In the past, private equity sponsored public-to-privates were deemed particularly hairy until Honsel, a family controlled but Frankfurt-listed maker of light metal castings for the automotive industry, broke the mould in 1999 in a €162 million delisting. Along the way, the deal was considered so unlikely that several law firms asked to help turned down Honsel's sponsor, the intrepid Carlyle Group, led by Hans Albrecht. Eventually Boesedrock Droste (now part of Lovells) stepped up to the plate, and several innovative manoeuvres – and surprisingly little shareholder resistance – later, Honsel became a private equity backed company.

It was the signal that other houses had been waiting for. Later that year, BC Partners privatised sanitary goods maker Grohe. Many other PTPs have been done since, including bigger and riskier ones. Blackstone's recent €3 billion take-private of Celanese showed just how much the market has developed since, but Honsel was the one to crack the code.

MORGAN GRENFELL INVESTS IN FORMULA ONE
1999 Driven to destruction

Rarely can one decision have had such a dramatic impact on a private equity house as the one taken by London's Morgan Grenfell Private Equity in February 2000: the firm accepted 4.1 million shares in German media company EM.TV in exchange for its 12.5 percent stake in SLEC, the Formula One holding company it had backed in 1999. Fatefully, no cash changed hands.

Afterwards MGPE watched in horror as EM.TV's share price headed downhill faster than a Ferrari in sixth gear. When the company hit the wall, MGPE lost €240 million. Those wishing to rub salt in its wounds were able to point out that SLEC co-investor Hellman & Friedman had pocketed $713 million in cash (as well as a chunk of shares) when selling its 37.5 percent stake at the same time.

MGPE, which had originally paid $325 million for the stake in October 1999, never recovered from the debacle. All the key protagonists left, and eventually the remains of the business were buried in another Deutsche private equity unit, DB Capital. Once one of Europe's finest, the firm's demise is a cautionary tale of the dangers of greed and all-share exits.

SILVER LAKE LEADS SEAGATE BUYOUT
2000 Hard drive

It was the dawn of the “venture buyout”. Silver Lake Partners, a newly minted private equity firm that had raised its $2.2 billion Fund I in a matter of weeks, led Texas Pacific, Chase Capital (now JP Morgan Partners), Goldman Sachs and August Capital in a highly complex acquisition that saw Seagate Technologies, a California-based steady-eddy disc-drive maker, unload nearly $20 billion worth of high-flying Veritas Software stock. Long story short, Veritas shares subsequently fell back to earth, while Seagate was taken public again two years later, fashionable once more. The IPO valued the Silver Lake group's investment at approximately nine times cost, and the firms have already taken more than $1 billion off the table.

The Seagate success has allowed Silver Lake to raise an even bigger Fund II ($3.6 billion) and has spawned a succession of venture firms who claim to be good at squeezing value from “mature” technology companies.

ALCHEMY BIDS FOR ROVER
2000 Close, but no car

“Jon Moulton is as ruthless as Larry the Liquidator, Danny DeVito's asset stripper in the film “Other People's Money”,” claimed UK broadsheet The Guardian in the wake of Alchemy Partners' bid for troubled UK car maker Rover in March 2000. True or not, those who know the man might suspect that he probably liked the description.

Moulton revelled in the publicity the bid attracted – memorably stepping outside Alchemy's Covent Garden office to distribute slices of cake to a throng of journalists gathered outside – while Rover workers were struck by fear at the prospect of mass redundancies that appeared part of alleged asset stripper Alchemy's plans for the business.

For better or worse, the deal thrust UK private equity into the public spotlight in unprecedented fashion. Moulton toured the television studios, taking aback media pundits with his characteristic bluntness, but he maintained he was merely being honest about what he thought was needed to rescue the company.

In the event, Alchemy withdrew its bid on 28 April, after Rover's German owners BMW insisted that Alchemy pick up the tab for redundancy payments, possible union claims and financial guarantees to Rover franchise car dealers. Eventually, the company was sold to rival consortium Phoenix for a nominal £10. Moulton, bitter at what he saw as preferential treatment given to Phoenix by then Trade and Industry Secretary Stephen Byers, predicted the imminent demise of the company under its new owners.

Given how much political capital the government had to lose, Alchemy perhaps never stood a chance to really buy the company. But Moulton came close, and the episode is remembered as private equity's most audacious challenge of Britain's political and corporate establishment to date.

FORSTMANN DOUBLE-CROSSED ON XO
2000 Unspeakable loss

Ted Forstmann is a legendary investor, in large part because of his heroic resuscitation of Gulfstream Aerospace, an airplane maker in which his firm, New York's Forstmann Little, invested $100 million and took back more than $1 billion.

But by the end of the 1990s, Forstmann was determined to own a piece of the “information superhighway”. His play was to sink roughly $1.5 billion into a “competitive local exchange carrier” called XO Communications. The company was publicly traded, and Forstmann Little's investments took the form of PIPEs, or private investments in public entities. As XO's stock sank, Forstmann doubled down until the company declared bankruptcy in 2002. The loss looms as the largest ever in private equity history, and got Forstmann Little sued by an LP, Connecticut's state treasury, for breach of fiduciary duty. The XO debacle stands as Exhibit A for what can happen when GPs stray from core investment competencies.

RIPPLEWOOD BUYS SHINSEI
2000 A new day in Japan

“Maybe the most profitable private equity deal of all time” is how Carlyle co-founder David Rubenstein described Shinsei following the Japanese bank's IPO on the Tokyo Stock Exchange in February 2004.

The need to qualify the accolade is due to the fact that the investment consortium led by US private equity firm Ripplewood Holdings that bought Shinsei in March 2000 retains a two-thirds stake in the bank, meaning the eventual return is not yet known. What is on record is that the entire business was acquired for $1.1 billion, while the 33 percent stake that was sold on flotation fetched $2.2 billion. There is speculation that ultimately the initial investment may be returned 12 times over.

The deal, orchestrated by Ripplewood CEO Tim Collins and investment banker Chris Flowers, was galvanising for the nascent Japanese buyout market, which, while promising, had been viewed with scepticism by international investors. Ironically, it was the market's opacity that many observers believe was responsible for Ripplewood being able to get such an outstanding result – exploiting the financial naivety of the Japanese government behind closed doors. Others say a fair price was paid, given that the alternative was the bank's imminent collapse.

While one after-effect will surely be the arrival of more private equity investors in Japan, another will be a determination among Japan's officials not to allow a similar “steal” in future. The government was severely embarrassed by the episode, not least because it had used public funds to mop up the bank's bad loans in preparation for the sale.

PERMIRA REACHES HOMEBASE
2001 The right tools

How do you build a behemoth? In the case of Permira buy big, sell bigger. When the Londoners acquired UK do-it-youself (DIY) retailer Homebase for £750 million, market observers suggested the firm had overpaid for a tired-looking business stuck in third place in its sector that offered little potential to generate returns for investors.

Less than two years later, Permira exited via trade sale to UK retail group Great Universal Stores for £900 million, having tripled operating profits from £26 million to £86 million, returning almost 6x its equity investment and posting an IRR of close to 200 percent.

In what was an impressive demonstration of the potency of genuine private equity value added, the firm had achieved a dramatic strategic overhaul of the company into a home-furnishings-oriented business. The deal triggered a private equity stampede into the UK retail sector and confirmed Permira's position as an industry leader: the firm went on to raise Europe's largest ever buyout fund, which closed in October 2003 on €5.1 billion.

RBS SAVES NCP FOR CINVEN
2002 Gone in 60 seconds

National Car Parks proved that banks aren't there just to make up the numbers. Competition for the deal was fierce: “They were clawing each other's eyes out for this one,” remembers an eyewitness. At the 11th hour, just when everyone thought that Apax Partners had won the day, Royal Bank of Scotland (RBS), led by Leith Robertson, moved fast and ruthlessly to help Cinven trump the bid and clinch the deal.

Cinven's offer of £820 million was slightly higher than Apax's, but what settled it was RBS' ability to make cash immediately available to the vendors. Having delivered on price and timing the bank, whose private equity arm took a 30 percent stake in the bid vehicle, showed that in the cut and thrust world of LBO negotiations, front runners can't take a seemingly done deal for granted, however clear their lead may appear.

KKR AND ONTARIO TEACHERS BUY YELLOW PAGES
2002 Enter the income exit

Yet another KKR deal that made people say, “Damn, why didn't I think of that?” Buying yellow pages publishers is nothing new in private equity, but in the past these deals have been consolidation plays. KKR had other plans.

In 2002, KKR and the innovative Ontario Teachers' Pension Plan joined to acquire Canada's Yellow Pages Group for C$3 billion, the largest private equity deal in the country's history. In 2003 the duo took Yellow Pages Group public as an income fund, a security peculiar to Canada that requires the listed company to pay out much of its profits to shareholders as dividends. Steady-cash-flow yellow pages companies are perfectly suited to this. Now these Canadian-style income funds have come to the US in the form of ‘income deposit securities,’ and US buyout firms are lining up to sell their cash cows to the public. Growth stocks? That's so '90s.

ADVENT GETS THROUGH TO BTC
2004 If at first you don't succeed …

The privatisation of the Bulgarian State Telecommunications Carrier (BTC) earns a place on this list for a number of reasons, including the political significance of a private equity firm leading the privatisation of a major state-owned company in Central and Eastern Europe. Equally important however was the sheer bloodyminded perseverance with which lead sponsor Advent International, the Boston-headquartered global private equity house, pursued the deal.

Viva Ventures, a group containing Advent and Poland's Enterprise Investors, was first named a bidder for the company in June 2002. There then ensued a tortuous, seesaw process of negotiations, political chicanery and numerous court appearances before the sale was finally agreed in January 2004. Under the much-revisited final terms of the deal, the group acquired a 65 percent stake in BTC for €230 million. Relief all round, and evidence to international limited partners that Eastern Europe's private equity market is coming of age.