Debt necessity is proving to be the mother of private equity invention. With the cheap borrowing that fueled record-breaking years of leveraged buyouts gone, firms are digging deeper into their bags of tricks. Some methods involve unhealthier short-term thinking, but others are repeatable and sustainable, at least for a while – assuming frozen loan markets thaw before long.
Businesses that went public by way of a special-purpose acquisition company could be a rich seam for such transactions. The de-SPAC Index is down 84% over the past two years.With credit tight, “change of control” clauses, which often require cashing out lenders if a company gets new owners, loom large.
Such deals can crystallize a valuation without a control premium or debt refinancing. The Internet Brands recap valued it at $12 billion, 12 times what KKR spent on its initial investment in 2014, according to Reuters. Combining two companies with $200 million bottom lines adds up to $400 million. Dealmakers prefer abstract math, using promised cost savings or revenue uplift, that produces a $500 million sum.
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