🔑 FOMO made him lose a $6 billion business
Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today:
- FOMO made him lose a $6 billion business
- PE is buying again
- 20+ business buyers told me their secrets
🔑 Cautionary Tale of FOMO
We all get FOMO.
Fear of Missing Out.
Afraid we'll miss out on buying a great business, for example.
Today I want to share an example of a deal where FOMO took over and caused disaster.
In the 1980s, Federated Department Stores was one of America's top upscale retail chains, owning iconic names like Bloomingdale’s and Abraham & Straus.
In the mid-1980s the company emerged from restructuring and was viewed as a high-quality but under-leveraged asset in a booming retail M&A market.
Enter Robert Campeau, a Canadian real-estate developer.
Despite no previous retail experience, he successfully acquired Allied Stores Corp in 1986 for $3.6 billion.
Allied owned brands like Brooks Brothers.
Feeling confident a couple years later, Campeau turned his attention to the much larger and more prestigious Federated Department Stores.
The result was one of the most highly leveraged transactions of the 1980s LBO era.
He got into a heated bidding war over the business and levered up to pay for it.
Deal Details
- Announcement: January 1988
- Target: Federated Department Stores, Inc.
- Acquirer: Campeau Corporation
- Enterprise Value: ≈ $8.2 billion ($6.6 billion equity value + assumed debt)
- Price per Share: $73.50 cash (later increased from an initial $68 bid)
- Premium: ≈ 60% over the pre-bid trading price
- Bidding War: Macy’s entered as a white-knight bidder. After a public battle, Campeau prevailed.
Deal Structure & Financing
- $4.2 billion in junk bonds
- $2.0 billion bank debt (revolving credit + term loans)
- $1.5 billion bridge loans
- Minimal equity contribution from Campeau himself (estimated < $200 million)
- Total debt: 95–97% of the capital structure
🚩🚩🚩 Interest coverage was projected to be extremely tight even under optimistic same-store sales growth assumptions
Campeau planned to sell off non-core divisions (like Ralphs Grocery) and use excess real estate value to reduce debt quickly.
Campeau's moves post-acquisition
- Sold several divisions for about $2 billion in 1988–1989 (less than originally hoped)
- Attempted aggressive cost-cutting and centralization that alienated store management and damaged merchant culture
- Real-estate sales proved slower and yielded lower proceeds than underwritten because of a declining commercial property market
Here's what Time Magazine wrote about the business in September 1989, just months before bankruptcy:
Sometimes, winning your heart’s desire is the first step toward losing it. Canadian developer Robert Campeau is learning that lesson, and has only begun to pay the price. A onetime machinist’s apprentice and a self-made real estate tycoon, Campeau, 66, borrowed his way to the top shelf of the U.S. retailing industry. He spent $3.6 billion in 1986 to buy the Allied group of stores. Last year he won a $6.6 billion bidding war with R.H. Macy for control of Federated Department Stores, a costly victory that gained him a crown jewel for his retailing kingdom: Federated’s glittering, 17-store Bloomingdale’s chain. But now Campeau is being forced to put Bloomie’s on the block as his highly leveraged empire begins to crumble.
- "The Empire Shrinks Back", Time Magazine (full article)
Results & Aftermath
- By late 1989, Federated and Allied were hemorrhaging cash.
- January 15, 1990: Campeau Corporation filed for Chapter 11 bankruptcy. This was the largest retail bankruptcy in U.S. history at the time.
- Bondholders and banks took massive losses, Junk bonds traded as low as 15 to 20 cents on the dollar.
- Federated emerged from bankruptcy in February 1992 under new ownership. The company eventually merged with Macy’s in 1994 and continues to operate today.
- Campeau personally lost control of his businesses and returned to Canada; his reputation was destroyed.
Key Takeaway for Buyers
The Federated disaster is the classic cautionary tale of over-leverage and “deal fever.”
Even a collection of trophy assets can be destroyed in less than 24 months if the capital structure has no margin of safety.
When interest expense consumes nearly all free cash flow, even modest sales shortfalls or delays in asset sales become fatal.
Leverage works until it doesn’t - and it didn't work long in this deal.
🔑 PE is buying again
Private equity is buying companies again after a slow couple of years.
While the total dollar value of deals done by PE in Q3 of this year hit a record high of $310 billion, the quantity of deals was lower than in 2020-21.
PE is doing more blockbuster deals, but fewer deals overall.
"With private equity firms announcing 156 deals worth a quarterly high of $310B-driven by five $10B+ megadeals-the market is shifting toward consolidation...GPs are prioritizing scale over volume in a "risk-on" environment."
That's just one insight I found in this Q3 Private Equity report. Give it a read if you have a chance.
🔑 I talked to 20+ Business Buyers. They told me exactly how they bought their companies.
If you've read this newsletter for any amount of time, you know I'm obsessed with buying businesses.
And I love talking to others who have bought companies.
I've recorded dozens of conversations with some of the best business buyers I know - and I've put them all online for you to listen to.
There are hundreds of years of lessons on business buying for you to absorb.
Ranging from a $1 million accounting firm to $100 million hotels, we've got a bit of everything.
We've got self-funded searchers, private equity partners with billions under management, and horizontal holding company owners who buy a new business every month.
My goal: Assemble the greatest collection of business buying lessons from people who have really done it.
No matter what type of business you're looking to buy, I probably have a story for you. Check out the interviews below.
Have a great day,
Sieva
Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.
