The rest of the money would come from leverage debt borrowed against the acquired company s assets. These deals could lead to spectacular profits, but also spectacular problems. Today s buyout firms face a market defined by higher corporate valuations and tighter lending restrictions. Buyout firms can still use leverage to make acquisitions, but with less leeway they must balance a delicate equation of debt, equity, and market factors. That is the art of our job, says Furst.
Firms try to maximize the equation by adding value to the companies they acquire.
They do this through an array of strategies such as strengthening management, adding complementary companies, or rolling up companies and consolidating fragmented sectors. Within four years, investors who cashed in earned 17 times their initial investment, and those who held on until the 1995 sale to Cadbury Schweppes made substantially more than that. We like to buy a good platform company in one of these sectors and then use our capital to play the role of consolidator to add scale, size, and efficiency, he says. In that process, HMTF often takes a business global. We think size matters, says Furst.