dealing with doing a bad deal
Anyone have experience with this?
context is that I started on PE desk and first thing I work on we end up doing. 1 yr later, what we thought was a B platform in a great market is really a C and growth deaccelerated as we invested in OpEx so EBITDA has declined. We are now bumping up against covenants and could reasonably write down our equity double digits… I had raised objections to VP during deal that I didnt like the deal but i think given mixture of inexperience and newness, I didnt know how to articulate or push on my objections. Plus our Partner was hot on deal. I definitely made mistakes and in hindsight / given experience now, I think I would have been able to do better. Not sure how to deal with all of this now… think it probably has affected my perception internally as this deal stinks and frankly I just want to get away from it as it’s made me dislike PE. Any thoughts / advice ?
1) There is nothing for you to do. You’re an associate. If there were mistakes that were made that you think were obvious, learn from it. How can you better diligence in the future so that this doesn’t happen? What specific assumptions did you make that were wrong?
2) With that being said, sometimes there isn’t a real lesson to be learned. Sometimes you make an investment and due to unforeseen circumstance and the randomness of the universe, it doesn’t go well. That’s why funds don’t put all their eggs in one basket. With many investment strategies, it’s actually typical to have a fair amount of losers and a few big winners. Presumably, your firm is getting paid off fund performance, not this one deal.
3) Just because it hasn’t gone well to date, doesn’t mean it can’t turn around. It’s pretty common to see EBITDA fall in year 1 with additional OpEx, that by itself is not a problem. If the market is still as great as you originally thought , then there is still opportunity. Portcos will miss numbers…if your philosophy is to quit or act like you knew it all every time it happens, you won’t last long in PE.
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