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 May 4, 1979, KKR & Co. L.P. Unit 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.

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%.

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% 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.