Hi guys,
I'll keep it simple... what tricks will private equity managers use to make returns look bigger, improve balance sheet, legally decrease taxes, make money out of thin air, etc... Please share secret sauce ingredients.
Comments appreciated & looking forward to a constructive debate.
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Magic
I came across an interesting example where a smaller-mid cap European PE fund sold a brand and the entire trademarks portfolio of a recently acquired company a to the unknown offshore company b for X millions. Company a has made X millions "on paper", but it never got that money, because since the sale, the a has been paying royalties to b for the use of the brand (the royalties has been deducted from the purchase price). Afterwards, the a got the brand and its trademarks' portfolio back by using another interesting maneuver. The b has undertaken the recapitalization of the company a and invested its brand in a's capital. As a result, offshore company b became (50%) owner of a.
The tricky part of this maneuver is that before the recapitalization, b re-valued and increased the value of the previously purchased brand for 3X.
... magic
Right now reading about Cerberus and their practices...
Didn’t understand any of that. Will drink my coffee then re read
Slap 11x EBITDA in debt financed by Jefferies
Not really cheating...but counting tax distributions in excess of what you actually owe in taxes as dividends for your IRR and MOIC calculations. Did this recently on a portfolio company we exited
I was going to share this one - because it's not cheating, but it's total bullshit. Especially when the GP just counts tax distributions, period, as capital returned for the purpose of IRR calc. Seen that one done, couldn't believe it.
The smart LPs have started to ask for returns as if all portcos were C-corps.