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Patient capital

7 June 2021 By John Foley, Lauren Silva Laughlin

The private equity club deal is back, but this time without its whiff of adolescent arrogance. Blackstone, Carlyle and Hellman & Friedman are teaming up to buy a majority stake in Medline Industries, which supplies gowns, gloves and drugs to healthcare providers. It values the family-held company at $34 billion, a number reminiscent of a bygone boom era. This time, however, there’s less leverage, less financial wizardry and less scope for friction.

Compared with golden oldies like KKR’s $45 billion acquisition of power company TXU in 2007, the Medline transaction looks more conservative. It will be paid for roughly with one-half debt, or around 7 times Medline’s EBITDA. That’s above a protective 6 times cap the U.S. Federal Reserve imposed after the global financial crisis, but also less than the double-digit multiples seen before it. It’s feasible because of the nearly $1 trillion in firepower buyout shops have in reserve, according to research outfit Preqin. This investment is also simpler, lacking the preferred shares or pay-in-kind notes that cluttered past mega- deals.

There’s another important difference. Unlike, say, Blackstone’s $39 billion takeover of Equity Office Properties in 2007, which saw founder Sam Zell sell out, Medline’s Mills clan will stick around with roughly a one-quarter stake. A power-sharing agreement means the three private equity firms and the family each get an equal say regardless of their equity holdings, but because top brass including Chief Executive Charles Mills are insiders, the founding faction is likely to keep the upper hand.

Since the company is growing revenue at around 25% a year, in contrast to fixer-uppers from the turn of the millennium, who calls which shots also shouldn’t matter as much. Plus, after parceling out some of their stakes to other investors, the leading trio may end up putting in less than $4 billion each, reducing their risk. In their more youthful days, buyout shops such as Blackstone would strive for complete control, boasting a secret sauce that could generate returns former owners couldn’t. This less ambitious, more collaborative kind of club deal suggests teenage bravado has given way to respectable middle age.


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