Private equity in the 1990s

Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital, experienced growth along parallel although interrelated tracks.

The development of the private equity and venture capital asset classes has occurred through a series of boom and bust cycles since the middle of the 20th century.

At the time, the RJR Nabisco deal was showing signs of strain, leading to a recapitalization, in 1990, that included the contribution of $1.7 billion of new equity from KKR.

[citation needed] Drexel Burnham Lambert was the investment bank most responsible for the boom in private equity during the 1980s, due to its leadership in the issuance of high-yield debt.

Largely based on information Boesky promised to provide about his dealings with Michael Milken, the Securities and Exchange Commission (SEC) initiated an investigation of Drexel on November 17.

[2] For two years, Drexel consistently denied any wrongdoing, claiming that the criminal and SEC cases were based almost entirely on the statements of an admitted felon seeking to reduce his sentence.

[3] In the 1980s, the boom in private equity transactions, specifically leveraged buyouts, was driven by the availability of financing, particularly high-yield debt, also known as "junk bonds".

[8] Private equity in the 1980s was a controversial topic, commonly associated with corporate raids, hostile takeovers, asset stripping, layoffs, plant closings and outsized profits to investors.

Although in the 1980s, many of the acquisitions made were unsolicited and unwelcome, private equity firms in the 1990s focused on making buyouts attractive propositions for management and shareholders.

Additionally, private equity firms are more likely to make investments in capital expenditures and provide incentives for management to build long-term value.

[11][12] The following year, David Bonderman and James Coulter, who had worked for Robert M. Bass during the 1980s, together with William S. Price III, completed a buyout of Continental Airlines in 1993, through their nascent Texas Pacific Group, (today TPG Capital).

Unlike Carl Icahn's hostile takeover of TWA in 1985.,[13] Bonderman and Texas Pacific Group were widely hailed as saviors of the airline, marking the change in tone from the 1980s.

As of the end of 2007, ILPA members had total assets under management in excess of $5 trillion with more than $850 billion of capital commitments to private equity investments.

After a shakeout of venture capital managers, the more successful firms retrenched, focusing increasingly on improving operations at their portfolio companies rather than continuously making new investments.

[30] The late 1990s were a boom time for the venture capital, as firms on Sand Hill Road in Menlo Park and Silicon Valley benefited from a huge surge of interest in the nascent Internet and other computer technologies.