Hi guys,
I am currently building my own lbo model for one of my course and I'd like to include a dividend recap in year 3 as I assume I wasn't able to get a lot of debt at the entry.
I looked in the archives but couldn't find anything pertinent. So could someone provide a template? I understand the whole concept but I am not sure how to include it in my LBO and Debt Schedule.
Many thanks in advance.
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Doubt someone is going to have a template for you to do a dividend recap. Generally you wouldn't incorporate that into your initial LBO model. I would just take a normal LBO template, build a tab from scratch for the dividend recap, and have it flow into the template. Wouldn't be too difficult
You don't necessarily need to build in a tab, just do the following:
Determine how much you want to pay out as a dividend-one good way is to determine max net leverage and issue additional debt with the proceeds going to the dividend Make sure equity value is decreased by the amount of the dividend Make sure cash flow for sweep build is impacted by additional issuance and payment of dividend
The incremental debt component is assuming that you either add to your term loan or issue a new security as opposed to drawing on your revolver
D
Agree with above. You don't and shouldn't need a new tab. You are simply adding new debt to the capital structure and taking out the existing debt.
So, you could either model it with a bump in TLA from $X to $Y or if it would be easier, just add new tranches. That way, you can see the TLA pay-off and new debt TLA1.
Dividend Recap Modeling Question (Originally Posted: 08/22/2014)
Heard about this question being asked in a PE interview. "What is the MOIC on a dividend recap".
Any thoughts on how to approach this one?
Thanks
Multiple on invested capital, so I believe you would take the cumulative returns and exit value over paid-in capital.
So, if PE firm pays $100 EV and uses $40 of equity, the paid-in portion is $40. If it conducts a dividend recap and pulls out $20 and then exits a few years later for $160 EV, with $60 in debt to be paid, the MOIC would be ($20+($160-$60))/$40 = 3x.
Bullet-Tooth,
Thanks for your comment. That makes sense but I was hoping to hear thoughts not on MOIC for an LBO in general, but MOIC specifically for the dividend recap itself.
It seems like the MOIC on the actual recap would be 0x, since you are not increasing the amount of cash that you get, you are just getting the cash earlier. Going off of your example from above, you would just exit for $180 with $60 of debt if you hadn't done the recap (having the same $120/40 = 3.0x multiple).
Seems like a good IRR play, but that it wouldn't actually affect your MOIC.
Any other thoughts?
I would guess that this questions is meant to be in the context of the initial investment. Otherwise the MOIC would be infinity since a dividend recap you lever up the balance sheet with 100% debt (typically) and take out a dividend. So cash equity in for the re-cap = 0 but money out = $100 (for example), and $100/0 = infinity which would be a dumb question
I think what you should understand for the MOIC concept, is that with a dividend recap, your MOIC at the end of the investment cycle could be similar or the same, but your IRR can be much higher (or lower) since you've taken your money out earlier (or later).
Typically, in PE you think of making 3x your money in 5 years (25% return), or 2x your money in 3 (26% return). Formula is MOIC ^ (1/years) - 1
So for example, if you put in $100 equity to buy a company, take a dividend out of $100 in year 2, and sell the company in year 5 for $200 in equity proceeds, your MOIC is still 3x but now your IRR is going to be more like 35%
Came across this post - and thought I'd share dividend recap guide. Some of you probably already found it, but here you go..
Dividend Recap Model & Guide
Dividend Recaps (Originally Posted: 02/01/2018)
Thanks @pebitch for sharing this site - they just released new dividend recap model (detailed LBO):
https://multipleexpansion.com/2018/01/31/Dividend-Recap/
Hi bridge_troll, check out these threads:
Or maybe the following users have something to say: Pegg Stefan-Popov Justin-Sampson
Fingers crossed that one of those helps you.
Anyone know where you can find a list of PE firms that utilize dividend recaps...is that logged with the SEC or elsewhere? Thanks!
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