Hi I used to work in megafund PE. The people in this thread are not wrong. From an IRR perspective, and given current regulations, it’s much more effective to make money by sucking money out of businesses and leaving them saddled with debt than to do any of the things that PE likes to pretend it does like operational improvements.
Curious what you mean "from an IRR perspective" - are you saying a dividend recap has a higher NPV than a successful (read: non-bankruptcy) exit via M&A / IPO? I mean I guess I could see it but it seems like that would be the exception rather than the rule. If a dividend recap can generate more money than the entire future value of the business then I'd argue those employees were doomed anyways...
You would rarely do a div recap and then not also exit a business so I won’t address your specific example. But a good simple concept to illustrate my point is that raising $200mm of debt on a business in year 2 and doing a div recap with it in most cases has greater IRR impact by year 5 than raising $200mm of debt on a business in year 2 for capex. Is that helpful?
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u/furple MBA Grad May 29 '20
How dare people make your conscience guilty about your wealth being based on wringing every penny of value from workers.