Wall Street Prep Private Equity Exam 2024 Update
What is dividend recapitalization? - ANSWER-Sponsor raises additional debt to pay off more of the original debt and pay a dividend to capitalize on some of the intial investment without an outright exit
What is rollover equity and why do private eq...
What is dividend recapitalization? - ✔✔✔ANSWER-Sponsor raises additional
debt to pay off more of the original debt and pay a dividend to capitalize on some
of the intial investment without an outright exit
What is rollover equity and why do private equity firms perceive it as a positive
sign. - ✔✔✔ANSWER-When management will rollover some or all of its equity
, into the new company. This is an additional source of funds which reduces the
amount of funds needed to be raised by the financial sponsor
What is the intuition underlying the usage of debt in an LBO? - ✔✔✔ANSWER-
High percentage of borrowed funds with small initial equity investment. As debt
principal is paid down the sponsor will realize greater gains on exit. Therefore
firms try to maximize leverage while keeping the debt level manageable to avoid
bankruptcy risk. Want more debt because it is cheaper and interest expense is tax
deductible which creates a tax shield.
Blackstone buys out Australias Crown Resorts - ✔✔✔ANSWER-6.3 Billion
buyout of casino firm. Cheap because of COVID setbacks. Blackstone will try to
overcome some regulatory setbacks put in place by the australian govenment.
Blackstone, Carlyle and Hellman & Friedman invest in Medline - ✔✔✔ANSWER-
Countries largest privately help manufacturer and distributor of healthcare supplies
with 2020 revenue of $17.5 billion. Company will still be led by the Mills family
(largest shareholders) but will use the funds to expand its product offerings,
accelerate international expansion and continue to make new infrastructure
investments to strengthen its global supple chain.
Can you name a scenario when multiple contraction is common? -
✔✔✔ANSWER-Normal for large companies to see minor contractions. Since the
company is larger there are less buyers leading to lower exit multiples.
Common IRR estimates - ✔✔✔ANSWER-2x initial in 3 years = 25%
2x initial in 5 years = 15%
2.5x initial in 3 years = 35%
2.5x initial in 5 years = 20%
3x initial in 3 years = 45%
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