Posted by:
Lot's Wife
(
)
Date: March 19, 2018 02:33PM
Yes, it's a standard private equity deal as I outlined above.
Bain, KKR and Vornado put $1.3 billion of their own money into the purchase, with the other $6.2 billion raised from banks and other lenders. Since TRU was generating about a billion a year in pre-tax profit, Bain thought it could pay the $400 million annual interest, invest in expansion, and still yield $200 million a year in net annual profit. Meanwhile the investment would push up both the profits and the enterprise value.
The gamble didn't work. The financial crisis and online competition undermined profitability, forced TRU to reduce investment in its business, and ultimately left it unable to service its debt. The investors received $470 in dividends, interest, etc., between the purchase and the bankruptcy, leaving a net loss for Bain, KKR and Vornado of about $800 million.
https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-vornado-suffer-wipeout-in-toys-r-us-bankruptcy