The payment services giant agreed to KKR's nearly $29 billion buyout offer in the latest high-profile M&A deal
Private equity firm Kohlberg Kravis Roberts & Co. is planning to buy First Data (FDC) for around $29 billion, the Denver electronic payment services giant announced Apr. 2. It's the latest score for KKR in a red-hot environment for private buyouts of public companies.
The deal involving an unspecified KKR affiliate, subject to approvals, is expected to end by the third quarter of 2007. "We believe that current market conditions present an exceptional opportunity," First Data's CEO Ric Duques said in a press release April 2.
First Data, which handles the payments on everything from employee paychecks to prepaid cards, is still planning to solicit other bids during the next 50 days -- in a world where private equity honchos, with bulging wallets, have been elbowing one another over to buy ever-larger companies during recent months. Multi-billion dollar deals have grown increasingly common, as investors continue looking to private markets amid worry about stock market volatility and increased regulatory scrutiny.
First Data shares jumped in morning trading Apr. 2 after the announcement, fetching $32.54 per share in on the New York Stock Exchange. That's nearly 21% higher than the previous session's close. Under the agreement with KKR, First Data stockholders will receive $34 in cash for each share they hold, representing a premium of around 26% over First Data's closing share price of $26.90 on March 30.
Standard & Poor's equity analyst Zaineb Bokhari estimated that KKR is offering to pay 3.7 times what First Data will earn in revenue during 2007. To reflect the proposed purchase price, Bokhari raised her target price on First Data's stock to $34 from $27 per share. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Cos.)
But First Data's deal with KKR involves leverage. Citigroup, Credit Suisse, Deutsche Bank, HSBC, Lehman Brothers, Goldman Sachs and Merrill Lynch, which are acting as financial advisors to KKR, have committed to provide the debt financing for the deal.
KKR has a history of mammoth takeovers; its leveraged buyout of RJR Nabisco for $31 billion in the late 1980s, documented in the book Barbarians at the Gate, had claimed the record for decades as the largest ever (see BusinessWeek.com, 5/3/06, "Barbarians at Your Gate").
But recent events have led to even bigger deals. The Chicago-based Equity Office Properties Trust (EOP) said in November that it would sell itself to New York's Blackstone Group for $39 billion, including debt. Even at that astronomical price, Blackstone had to win a bidding war for the company against the office properties owner Vornado Realty Trust (VNO) (see BusinessWeek.com, 2/7/07, "At Last, Blackstone Bags Equity Office").
Meanwhile KKR has been gobbling up other companies. Only weeks ago on March 12 the private equity firm announced plans to buy the discount retailer Dollar General Corp. (DG) for around $7.3 billion, including about $380 million of net debt. Over the past 30 years, KKR has invested in eleven transactions in the financial services and processing sectors alone, representing over $35 billion of aggregate value.
KKR has also teamed up recently with other private equity firms to do deals. In December, for example, the firm was part of a consortium of investors including affiliates of the Blackstone Group, Goldman Sachs Capital Partners, and Texas Pacific Group said they would buy the medical device maker Biomet (BMET) for around $10.9 billion.