Kohlberg Kravis Roberts & Co. completed its $26-billion acquisition of First Data Corp., the biggest leveraged buyout to be wrapped up since financing for deals dried up in July.
The takeover of First Data, the largest processor of credit-card payments, may make it easier to fund $370 billion of still-pending buyouts, including KKR's takeover of power producer TXU Corp. The New York-based firm and its bankers agreed to cut the size and price of First Data's debt to attract investors.
"There's a lot of motivation to get deals done," said Paul Schaye, managing director of New York-based Chestnut Hill Partners, which helps private equity firms find transactions. "In most of these cases, the fundamental reasons to do the deal in the first place haven't gone away."
KKR, run by Henry Kravis and George Roberts, agreed to buy Greenwood Village, Colo.-based First Data in April, before rising defaults of sub-prime mortgages scared investors away from bonds and loans used to fund buyouts.
Selling the First Data deal to investors has been difficult. KKR's investment banks cut the initial loan sale to $5 billion from $14 billion and reduced the price of the loans by 4%. The banks, led by Credit Suisse Group, will hold about $8 billion in loans awaiting sale.
Investment banks, which have committed to fund a record $735.7 billion in announced private equity deals this year, may be forced to write off as much as $25 billion of takeover debt, according to estimates by Citigroup Inc. analysts.
KKR and TPG Inc., another private equity firm, expect to complete the buyout of Dallas- based TXU by the end of the year. Other deals haven't been so lucky. KKR and New York-based Goldman Sachs Group Inc. walked away last week from their $8-billion purchase of Harman International Industries Inc., the maker of audio equipment including JBL speakers. They said a decline in the Washington-based company's financial performance allowed them to cancel the transaction.