Author: Eric Linser, Green Valley Wealth Advisors
Covestor model: Green Valley Eagle
Disclosures: Long KCI
On July 13th the disposal wound-care and hospital bed manufacturer, Kinetic Concepts (NYSE: KCI), was taken private by a consortium of private equity and pension funds for $6.3 billion, including debt. The deal will take out shareholders at $68.50/share in cash. We do not expect a higher bid, and we expect that shareholders will approve this offer.
The free cash flow yield of ~ 9% plus new wound care products should generate generous returns in the years ahead for Apax Partners, the lead private equity firm.
This is the biggest private equity LBO since the height of the financial crisis in September 2008.
We initially purchased Kinetic Concepts for the Covestor Eagle Portfolio on March 31, 2011 at $54.41. The intrinsic long-term value (and future free cash flow expectations) that we saw at that time has been unlocked.
Sources:
Free Cash Flow Yield calculated from Morningstar.com, 7/13. http://financials.morningstar.com/ratios/r.html?t=KCI®ion=USA&culture=en-US
“Kinetic Concepts Agrees to Be Acquired by Apax-Led Group for $4.98 Billion” Bloomberg, 7/14. https://www.bloomberg.com/news/2011-07-13/kinetic-concepts-agrees-to-be-acquired-for-68-50-a-share-1-.html
