Artificial Value
Just saw on a MF website that they have a cloud services provider and they invested in the business based on discussions with portco management teams and there being a demand for the specific cloud service....with that being said how do inter-portco business relationships work...let's say 10 of this PE firm's portcos use the cloud service, thereby driving up revenue/editda/etc...and again, the PE firm owns this cloud service company as well..when they eventually exit they've 'organically' created all of that business which, in theory, drives up the exit multiple/EV...does this happen? What are peoples thoughts?
Bump
If there is any meaningful concentration you would heavily scrutinize and do deep diligence to ensure it was an arms length deal. People aren't retarded
Yes, but I'm saying if the PE firm vouches for its portcos to continue doing business with the company (via contract or something)
The exit multiple will not change simply due to the additional earnings generated by other PortCo’s using Cloud PortCo’s services...
You may generate marginally higher EBITDA, however it is unlikely to be material. For example, BX only has 97 PortCo’s sitting within their PE arm. If 96 of those used the Cloud service @ 250k /yr @40% margins you’re looking at an additional c.$10m EBITDA/yr - pretty good right? However, it’s more likely to be a handful rather than the majority...
depends whether the business falls away and whether its at arms length. Super easy to DD. If PE creates revenue by introducing PF companies, that's actually real value add and not artificial....
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