Firm Valuation Essay
Hertz group had initiated an IPO in July 2006 when Carlyle group, together with Clayton, Dubilier &Rice, and Merril Lynch Global Private equity , three prominent firms had filed to take the firm public. However this action has come just seven months after the three had combined to purchase Hertz from Ford Motor Company for Approx. $15 million. Berg, MD of Vandelay Capital Management debated whether to invest in this IPO.The LBO sponsors had borrowed an additional $1 billion on top of the buyout financing to pay themselves a special dividend in June 2006 , being the biggest reason why the IPO generated widespread criticism along with the speed with which the IPO was conducted . In the face …show more content…
However, coming down to the more skeptical reasons why the PE partners went Public on July 14th, 2006 just seven months after an LBO ,it can be said that perhaps the equity partners had overestimated the value creation associated with Hertz and after not seeing the desired value creation decided to go public. Moreover , the high financial leverage , $6 billion in September 2006, was a deterrent in any form of Private Equity value creation. Extreme critics would argue that the IPO happened soon after an LBO as the partners got what the wanted i.e personal returns , by paying themselves a $1 billion special dividend, and now saw no more interest in Hertz.
Sponsors’ Bad move?
Whatever the reasons for the IPO, it was dealt with great public and media skeptism due to the sponsors’ actions of paying themselves a special dividend of $1billion, $4.32 per share, from pre-IPO debt borrowed in June 2006 . Furthermore, the net proceeds of the IPO which were approx. $1,425 million were used to repay Hertz Holding loan facility and the balance would be used to pay out a second