A few of the LBO summaries I've seen don't include dividend cash flows in the IRR calculation? Doesn't sound intuitive to me. I've always heard PE shops look for 20-30% IRRs, and assumed that has to do with all CFs coming to them until exit.
I can't imagine a PE shop looking for a 20-30% IRR on a 3-5 year flip with no dividends in between.
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It's nice that you can't imagine that they don't receive dividends for 3-5 years especially since in reality they don't... The debt issued after the boom restricts any dividend pay-outs to the equity...
A business that is spinning off loads of cash, is not depleting the asset base, maintaining/improving debt/coverage ratios and they're not paying dividends?
My questions is the IRR a company seeks to obtain is indicative of ALL cash flows associated with the investment, correct? Not just exit proceeds. Thats what I was referring to as I can't imagine a PE shop looks for 20-30% IRR, in addition to dividends.
The LBO summary I was looking at is from a 3 year old financial sponsors group deal, so I doubt they're considering current credit market conditions.
true, often times these days credit terms for LBO's call for 100% cash sweep until a certain threshold leverage, interest coverage ratio is met. Doesn't make a huge difference to returns in the end since you will have a larger slice of equity upon exit
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