Private Equity Dividend Recaps are Rising
What product managers should know
Earlier this year Ancestry.com refinanced their debt and paid a $910 million dividend to its private equity owners. A dividend recap happens when a company incurs a new debt in order to pay a special dividend to private investors or shareholders. This usually involves a company owned by a private equity firm, which can authorize a dividend recapitalization as an alternative to the company declaring regular dividends, based on earnings. Dividend recaps allow private equity sponsors to receive a return on their original investment without having to sell the company or conduct an IPO. The portfolio company, however, has to service the debt with interest/principal payments and are subject to various covenants (cash flow, EBITDA, etc.) that can impede their operations and ability to operate. In 2019 private equity dividend recaps are rising again. Product managers should learn how debt recaps could affect them
A Case Study from 2006
In 2006 I was a senior executive for a private equity backed technology firm. Like many companies in the post DotCom era it had struggled and been purchased by a well known private equity firm in 2002. The company had
been unprofitable and required significant operational restructuring. In 2006 the company conducted a dividend…
