I was a product of the Leveraged Buyout (LBO) craze in the eighties and nineties. That’s right, the big ones. When they just started. I was a young banker helping to finance Wesray, the celebrated pioneer of buyouts spearheaded by William Simon, former Treasury Sectretary and Ray Chambers back in 1982. The LBO was in its infancy and Wesray was at the very beginning of a great LBO wave of the eighties which culminated in the 1987 mega deal RJR Nabisco which was orchestrated by KKR.

The good old days were great for the big shots. Bill Simon took Gibson Greeting Card public with a $300,000 investment and instantly became $150 Million rich. However, they did not start out that way. The early deals I saw from their shop were tiny deals generated from chicken scratch on envelopes and in forlorn industries like oyster farming, some such companies never to be seen or heard from again. The fact is Bill could pull it off because he had the name. Us average guys could never mobilize such big money and big deals without a lot of help and connections. Bill was once quoted saying: “I’m not doing anything the average person couldn’t do”. While he might have been a bad liar, his words were indeed inspirational and at least half truthful.

Over the ensuing years, LBO’s would become a commonly accepted strategy by everyone: buyers, sellers lenders and investors – and Wall Street. Indeed by the end of the eighties nearly everyone was familiar with them and all big financial institutions set up special lending functions to accommodate them. Enter Mike Milken and Drexel. With that you had a colossal amount of money careening around the system chasing deals. By the nineties LBO’s were so commonplace that they started to permeate bank portfolios and some of them actually (gasp!) went bad. They then became known as Highly Leveraged Transactions (HLT’s) named so by regulators that became nervous about too much loan exposure in those areas.

Interstingly, LBO’s never battered too many banks and as a result never completely went away. In fact the phenomenon exists today as strong as ever, although admittedly in somewhat different forms and deploying different strategies. ONe can argue that there are two forms of LBO proponents, Private Equity Groups (PEGs) and everyone else. PEGs are essentially LBO “boutiques” (named because they consist of a few people in an office) with an extreme amount of investors’ money committed to doing deals. Everyone else consists of everyone else who would pull off an LBO without such access to extreme money.

PEGs have taken the L out of LBO. They throw so much money at a deal that it ceases to become leveraged. This, of course, puts most of the big deals out of reach for even the most well financed entrepreneur. Wesray, who initially used their own money to invest in LBOs, could never have done their deals in today’s environment. Way to much competition by well financed players.

Anyway back to us average guys/gals. The purpose of this blog is to show how LBO’s are still done, and still can be done by the little guy/gal. In fact why they will always be doable by the little guy/gal and how things have changed against us and in our favor.