Blackstone Group LP, a leading private equity firm, bought Equity Office Properties for $39 billion in its largest leveraged buyout that closed on Feb 9, 2007. To fund this buyout, Blackstone raised $31.9 billion in debt and a $3.5 billion of bridge loan. The remainder was funded by equity. Since closing the transaction on Feb 9, Blackstone has sold about $14.6 billion worth of assets of Equity Office. For reference, private equity is a term for equity investment in which the equity is not traded on a public stock market. Private equity is invested in various types of investments, for example, leveraged buyout, venture capital (focusing on new start-up companies), and mezzanine capital (focusing on structured debt). Private equity funds pools contributions from smaller investors to create a capital pool. As their name suggests, private equity funds make private equity investments and typically control management of the firms in which they invest. The goal is to create more value for the target firms.

a. How does an acquisition like this create value for Blackstone?

b. What would be Blackstone’s motivation for selling a significant portion of the target’s (Equity Office Properties) assets immediately after the buyout?

c. Based on the leverage raised in this deal, this buyout is considered as an LBO. What would be a good valuation framework or model to use to value the target firm in this deal?

Answer rating: 100% (QA)

a An acquisition like the one described can create value for Blackstone in several ways 1 Operational Improvements Blackstone may identify operational inefficiencies within Equity Office Properties an... View the full answer