Re-financing through gearing up a portfolio company to enable a shareholder to realise some of its investment is a means of partial exit. We can assist PE houses to build credible plans to support a re-financing case made to lenders, who may view a partial exit by the equity provider before they receive their capital return in a sceptical light.
The banks' requirement may be different. They may ask for an independent report on the projections underpinning the re-financing case. There may also be the need for the disposal of certain elements of a business post re-financing as a means to lower debt to an acceptable level.
With a total exit, we are often asked to help find a buyer for an investment and to determine whether the company has been groomed effectively for a disposal e.g. preparing information that a potential buyer would be interested in. In helping our clients prepare for a successful exit, we challenge the projections at an early stage to determine if they are robust. In a climate where the pressure to achieve good returns is high, vendor initiated due diligence can be a vital tool for achieving a successful sale.
Thought should also be paid to whether a portfolio business can be broken up and sold piecemeal where a whole business sale is not possible. This may only prove to be possible where the business has distinct elements that lend themselves to separate disposals at attractive prices.
Another important consideration is increasing the post tax returns to the fund investors, PE house executives and management, who in complex cases could be based in numerous jurisdictions. The tax elements of realising the value of an investment should not be underestimated. Any tax cost can affect investors' returns, particularly where multi-jurisdictional businesses are involved.
KPMG’s PE teams are there to provide the PE houses with necessary support.