Alliance boots’ leveraged buyout: is KKR a true barbarian at the gate?

Abstract

This case study discusses the leveraged buyout (LBO) of Alliance Boots, a multinational company operating in the pharmaceutical, health and beauty industry. The case is particularly focused in the investing part of the private equity cycle and, more specifically, on the motivations for a LBO, on private equity returns and on the relationship between pricing under a competitive bidding process and limited partners' returns. In March 2007, a consortium composed by KKR and Stefano Pessina intended to buy Alliance Boots, however there was another bidder who also wanted to acquire the firm. In face of this competitive market situation, KKR and Pessina had to decide whether to increase the offer price to acquire the firm, while guaranteeing good future returns.