Repackaging in the private equity industry involves acquiring all the stock in a struggling public company, taking it private, revamping its operations, and aiming to resell at a profit.
For many years, the primary goal was often to prepare a company for re-entry into the market through an Initial Public Offering (IPO). However, private equity firms have recently adopted alternative strategies to maximize their returns, less affected by regulatory and shareholder restrictions.
Key Takeaways
- Swift Turnarounds: Repackaging allows private equity firms to buy out unprofitable public companies and transform them to profitability with strategic changes.
- Potential High Returns: Post-revamp, firms may return a company to the stock market via an IPO, aiming for substantial returns.
- Leverage for Purchase: These acquisitions are primarily financed through borrowed money, known as a leveraged buyout.
How Repackaging in Private Equity Works
Private equity firms target companies that show financial struggles or are underperforming. Upon acquisition, the firms take these businesses private, enabling freedom to implement necessary measures such as selling divisions, changing leadership, or reducing overhead expenses. The firm’s goal could be to relaunch the rejuvenated company via IPO, sell to another buyer, or merge them.
Significantly, most of the investment capital employed in such transactions is borrowed, categorizing the transactions as leveraged buyouts.
Cashing in on Repackaging
Repackaging geared towards new IPO launches has historically been profitable for private equity firms. The resurgence of this trend was noticeable in 2020, with 22 IPOs valued at $74.5 billion initiated by such firms. Despite the decline in IPOs since 2013 with brief improvements, other lucrative and less scrutinized avenues have emerged.
Successful Example: Burger King
Once owned by entities including Pillsbury, Burger King was acquired by TPG Capital in 2002, revamped, and reintroduced to the public markets in 2006. However, it faced challenges again during the Great Recession and was acquired by 3G Capital, becoming a subsidiary of Restaurant Brands International, which also holds Tim Hortons and Popeyes.
Real-World Examples
Panera Bread
In 2017, BDT Capital Partners and JAB Holding Co. acquired Panera Bread for $7.5 billion, after previous acquisitions of Peet’s Coffee and Krispy Kreme. As of 2021, Panera Bread positions for potential public entry post a significant refinancing deal.
Staples
Similarly, Staples was bought by Sycamore Partners for $6.9 billion in 2017, after having presence in the market by acquiring OfficeMax. It remains under speculation for an IPO exit, initially foreseen in 2020.
In essence, the essence of private equity repackaging revolves around strategic acquisitions of dwindling companies, crafting their essence into profitable entities ready for new market ventures, highlighting a profound method of rediscovery and monetization.
Related Terms: Private Equity, IPO, Leveraged Buyout, Mergers, Conglomerate.
References
- Pitchbook. “Private Equity’s Surge of 2020 IPOs Capitalizes on Frothy Public Markets”.
- Business Insider. “Panera May Go Public Again After the Pandemic Made It Determine How to Be ‘Better and Stronger’”.
- CNN Business. “Staples Is Selling Itself For a Fraction of Its Former Value”.
- Pitchbook. “Sycamore Set to Take $1B Out of Staples”.
