Breakdown of LBO exit strategies?

Awon Eleyi Awon Eleyi Won Bad Gan:

Sandhurst:

Awon Eleyi Awon Eleyi Won Bad Gan:

Those are the two exits.

However, if you want to consider cash distribution to the sponsors, I guess you can count dividend recaps as well (basically re-LBOing a portfolio company). With dividend recaps, a sponsor could theoretically keep a portfolio company till infinity and just keep doing dividend recaps after X number of years of debt amortisation from operating FCF. No idea if this is done in practice.

I doubt that anyone would have an ongoing "re-LBO" strategy.. might as well just keep paying out dividends equal to total FCFs for every year. Re-LBOing would just add in interest expense.

The original debt still has to be refi'd at some point, and even without a FCF sweep in the debt terms, sponsor will rather use FCF to amortize debt (so long as their equity is still in the money). However, assuming sufficient debt has amortized over say 5 years through OFCF (especially if EBITDA is growing), at dividend recap date, entity may only be levered 4x, say down from 7x at acquisition date. So through dividend recap to put 7x of leverage back onto the entity, sponsor gets 3x in a dividend, and gets to keep the entity and basically just repeat. I just see it as an easy way to extract cash out of a good target without having to sell/IPO it.

Like I said, don't know if its done in practice, but I see no reason why it can't be (and would be interested to hear from someone on the PE side as to why this may or may not be done). I suspect strict investment and harvesting periods built into termsheets with LPs might make it difficult though.

Sponsors absolutely re-lever portfolio companies via dividend recaps all the time. Usually they've either paid down the original debt or increased total EV (via growth, improvements, etc) but sometimes they just get more aggressive and add leverage. That said, usually firms eventually look to exit because of the life cycle of a PE fund (some "evergreen"-style funds or "conglomerate holdcos" like Rank Group, MacAndrews & Forbes, etc can hold a portfolio company indefinitely).

Within private sale, there are basically two types of buyers, just like in any other M&A process: strategic and financial. Sponsor-to-sponsor LBOs are very common.