How to profit from LBO outside of taking public?
Is there a way a PE firm can profit on an LBO outside of what they gain by selling shares in an IPO?
I am looking at a company that will potentially go public in the next year, and it sure seems like they paid a higher entry price a few years ago than what they will supposedly be pricing shares at coming up.
There has to be something I am missing, right? The company is doing well and the market is hot, so why would they price below what they entered at?
Well sponsors typically take a management fee as well, but thats usually not a material amount compared to the investment itself.
They can take dividends/special dividends/distributions along the life of the investment.
In addition, you're assuming they are doing a block sale which is cashing out 100% of their interests... ie. not issue new stock. For example, if they paid $50/share for 1M shares, they paid 50M to get into the investment. If they are issuing an additional 1M shares (making total ShO 2M) at $40, its they're not losing money on the investment, since they still hold 50% of the company and the proceeds of the IPO will be used to cash-out some of the sponsor's shares. With the above example, the implied equity value after IPO is: $80M, so sponsor received the IPO proceeds of $40M and still holds 50% of the company.
IPO
Exit via M&A
dividends / special dividends
recapitalizing company (relates to dividends)
This particular PE firm bought 100% of the company for, say $2bn, and now with all diluted shares considered and the rumored IPO price, the company will be valued at approx. $1.8bn. However, they are issuing about 15mn new shares, are selling a portion of their shares, and will retain control of about 80% of the company post-IPO.
Why would they take it public now? Are they assuming that the stock price will go up over the next year, and want the opportunity to choose their exit point?
Nobis molestias quisquam ab. Dignissimos voluptas tenetur velit qui. Ut provident est aut magni consectetur. Cum fugit est error minus et ad repellendus.
Impedit inventore soluta dolor et veritatis tempore et. Voluptatem provident qui ipsam nihil voluptatem. Odit est aut dolorem et soluta.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...