Excerpted from King of Capital by David Carey and John E. Morris © 2010 David Carey and John E. Morris. Reprinted by permission of Crown Business, an imprint of the Crown Publishing Group.
The SunGard deal was notable not only for its size but for the unusual and potentially unwieldy, seven-firm coalition that Silver Lake corralled in order to come up with the $3.5 billion of equity needed. It was a who's who of the buyout world: Bain Capital, Blackstone, KKR, TPG, Goldman Sachs, and Providence Equity Partners. Private equity firms had occasionally teamed up in twos or threes in the past, but one firm usually had a larger stake and took a lead role. SunGard set a new precedent by including so many marquee names with roughly equal shares. No other consortium ever quite matched SunGard's, but increasingly firms that competed on one deal allied on the next in order to come up with the requisite capital. SunGard also signaled that the banks would fund deals on a scale far beyond anything in the preceding fifteen years. It was their debt packages that were pushing the envelope on deal sizes, and even the biggest private equity firms sometimes had to scramble to round up the equity. SunGard was a turning point, but it wouldn't hold its place in the record books for long. Soon Clayton Dubilier, Carlyle, and Merrill Lynch topped that with a $14.4 billion deal to buy Hertz Corporation, the rental car company, from Ford Motor Company. It seemed every time one blinked in 2005, another house hold name was being snapped up in a buyout: the retailer Toys "R" Us ($7 billion: Bain Capital, KKR, and Vornado Realty Trust), Neiman Marcus, Inc., the tony department store chain ($5.1 billion: TPG and Warburg Pincus), and the doughnut and ice-cream chains Dunkin' Donuts and Baskin-Robbins ($2.4 billion: Bain, Carlyle, and Thomas H. Lee). Apart from the size, the other striking thing about the rash of megadeals in 2005 was that, except for Hertz and Dunkin' Donuts, the companies were all publicly traded. The sheer scale of the new LBO funds all but dictated that their sponsors go after public companies, because there simply weren't enough big subsidiaries and private companies for sale to soak up the billions that the firms had to deploy. That meant the focus would shift heavily back from Europe to the United States, where big targets were more plentiful and there were fewer legal impediments to taking public companies private. The take-privates, as they were known, also reflected a new social acceptance of private equity. CEOs who had once looked askance at buyout artists were now only too happy to offer up their companies. The Sarbanes-Oxley law enacted after the Enron and other corporate scandals early in the decade had imposed new disclosure obligations and new liabilities on companies and their managers, which executives groused were a distraction and a drain on their time. Offered the chance to answer only to private equity executives, and not to stock analysts and hedge funds that always seemed to think they knew better than management what to do, many CEOs found the going-private option tempting. At least as important, the private equity firms offered executives equity stakes that potentially could make them much richer than they could ever hope to become collecting stock options in a public company. "Sign me up!" CEOs said.