Back in April of 2004, Sealy, the mattress company, was bought out by Kohlberg Kravis Roberts & Co. For $436.1 million in equity and after raising $1.05 billion in debt, KKR initially took 92% of the firm's common shares. The financial structure is interesting.
The debt was made up of:
$125 million in a senior secured revolver.
$560 million in a senior secured tranche.
$100 million in a senior unsecured tranche.
$390 million in a senior subordinated notes (at 8.25%).
Transaction fees were apparently around $115.9 million on the buyout (i.e. some bankers got rich on this deal alone).
Of the remaining funds, $259 million in proceeds were used to pay off existing debt and $478 million was used to buy up the old notes Sealy had issued. (These notes were for around 10 and 11% interest, by the way, not a bad recap for Sealy).
Sealy is due to IPO. If they do it looks like KKR will get the following "windfalls":
An $11 million fee for the cancellation of the "management services agreement" with KKR. Generally, buyout firms put a fee arrangement in place with the firm they buy for oversight and supervision. This payment is likely the result of an early cancellation clause in the agreement to KKR's benefit.
Around $41.5 million from KKR shares being sold to the public.
$100 million in dividends due KKR. KKR has probably been "accruing" dividends since the buyout. This $100 million is KKR's share of $125 million in dividends going to all the shareholders.
KKRs remaining shares will be worth around $809 million.
If Sealy's stock does nothing, KKR will have pulled around $961 million
out of the transaction after 2 years and on a $436 million investment.
That's an IRR of around
121.53% 48.50% with 2.21x Cash on Cash.
Welcome to the buyout world.
(See Sealy's S-1 here)
(Note: Was asleep at the wheel on the IRR calc. Note to self: Remember that Excel ignores empty cells when computing IRR and therefore cells representing years with no cash-flow should always be filled with "0." Rookie mistake. Bad Equity Private, no bone. Thanks: KB for the catch).