Learn how to buy businesses in 5-minutes or less, once a week. Lessons & specific tactics on how invest your money and generate cash flow for your life.
π A business buying strategy that made $3.7 billion
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Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today:
π Turning a $2.3 billion investment into $6 billion+ Corporate carve-outs can be great opportunities for buyers. Today we're going to look at a classic example of one.
A "carve-out strategy" is when a parent company strategically separates a part of its business (a division or subsidiary) to operate independently, often through an IPO, sale, or spin-off, to unlock hidden value, let the parent focus on core activities, or allow the new entity to thrive on its own.
This deal happened just prior to the 2008 Great Recession. That might sound like a gloomy warning. But don't worry, it has a positive ending for the investors. In 2005, Ford Motor Company wanted to divest non-core assets amid its own financial struggles. They put Hertz Corporation, the world's largest car rental company, up for sale. They considered spinning Hertz off into an IPO, or selling it off to a separate business (whichever would net them more - Ford needed cash). Ultimately, a group of private equity investors came together to buy Hertz and take it private. What did they like about the deal? Well, a lot. There was actually an intense bidding war over Hertz. Many viewed it as a good business being dragged down by its struggling owner, Ford. As a standalone business, Hertz would be much better off. With a few small adjustments, investors could make a fortune. The Business Hertz operated in over 150 countries with two main segments:
For 2004, Hertz reported $6.7 billion in revenue and $930 million in EBITDA, with strong cash flows from corporate contracts (about 40% of revenue).
Ford, the nationβs second-biggest automaker, said it will sell all shares of common stock in Hertz, its wholly owned subsidiary, to a private equity group composed of Clayton Dubilier & Rice, The Carlyle Group and Merrill Lynch Global Private Equity in a deal valued at about $15 billion, including debt. β Ford announced in April it was considering shedding Hertz, which it has owned since 1994, to concentrate on its core automotive business. The infusion of cash should help the automaker, which has been struggling with falling sport utility vehicle sales, growing U.S. health care costs and other issues. Fordβs second-quarter profit fell 19 percent to $946 million. β - NBC News, September 8, 2005 The Acquisition
Deal Structure & Financing The transaction was a classic LBO with high leverage, reflecting the 2005-2007 boom era:
Turnaround & Operational Improvements Post-acquisition, the investor group focused on operational excellence under new leadership. Key strategies included:
Results & Aftermath The deal proved resilient despite the Great Recession and later challenges:
Much later, Hertz filed for bankruptcy in 2020 due to COVID-19 but emerged under new ownership. But by then, investors in the 2005 had long exited. Their 2005 LBO of Hertz is still hailed as a success for PE value creation. Key Takeaway for Buyers Great assets like Hertz can weather economic storms if bought with operational upside in mind. The investors' focus on cost discipline and being ready to acquire competitors during a down cycle in the industry made the investment a homerun. π PE is buying again Private equity is buying companies again after a slow couple of years. While the total dollar value of deals done by PE in Q3 of this year hit a record high of $310 billion, the quantity of deals was lower than in 2020-21. PE is doing more blockbuster deals, but fewer deals overall. "With private equity firms announcing 156 deals worth a quarterly high of $310B-driven by five $10B+ megadeals-the market is shifting toward consolidation...GPs are prioritizing scale over volume in a "risk-on" environment." That's just one insight I found in this Q3 Private Equity report. Give it a read if you have a chance. β π I talked to 20+ Business Buyers. They told me exactly how they bought their companies. If you've read this newsletter for any amount of time, you know I'm obsessed with buying businesses. And I love talking to others who have bought companies. I've recorded dozens of conversations with some of the best business buyers I know - and I've put them all online for you to listen to. There are hundreds of years of lessons on business buying for you to absorb. Ranging from a $1 million accounting firm to $100 million hotels, we've got a bit of everything. We've got self-funded searchers, private equity partners with billions under management, and horizontal holding company owners who buy a new business every month. My goal: Assemble the greatest collection of business buying lessons from people who have really done it. No matter what type of business you're looking to buy, I probably have a story for you. Check out the interviews below. βWatch on YouTubeβ βListen on Spotifyβ βListen on Apple Podcastsβ Have a great day, Sieva P.S. - Are you hiring? Get started with top global talent from Somewhere (I'm a customer and investor) What did you think of today's newsletter? Rate this newsletter using the poll below: β Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning. β β β |
Sieva Kozinsky
Learn how to buy businesses in 5-minutes or less, once a week. Lessons & specific tactics on how invest your money and generate cash flow for your life.
Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today: A $1.7 Billion that Returned less than $500 million Here's how I'd buy a business π A $1.7 Billion Acquisition That Failed Last week I wrote about the 1980's LBO of some iconic department stores. The acquisition quickly failed and resulted in bankruptcy. The target company was Federated Department Stores, owners of brands like Bloomingdale's. After bankruptcy, Federated re-emerged and...
Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today: FOMO made him lose a $6 billion business PE is buying again 20+ business buyers told me their secrets πA Cautionary Tale of FOMO We all get FOMO. Fear of Missing Out. Afraid we'll miss out on buying a great business, for example. Today I want to share an example of a deal where FOMO took over and caused disaster. In the 1980s, Federated Department Stores was one of America's top upscale...
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