Pre-IPO Dividend? Fine By Investors
If the HCA dividend-to-IPO showed us anything, it’s that investors don’t mind PE backers taking money off the table before a (probable) public offering. The consensus at Buyouts West last week was that the HCA dividend recap was not an isolated case, with others to follow in the coming months. But that just seems greedy, you say. Why do PE pros need a payday before an IPO, which essentially counts as a payday? Why don’t investors rail against this practice? The answer is simple: If it doesn’t substantially increase the company’s debt, investors don’t care. Furthermore, most PE backers take very few shares off the table in an IPO; the returns come from follow-on offerings or private sales. They may remain in a company for three more years before fully exiting their position. Therefore, investors in an IPO don’t view a sudden dividend recap as a risk. PE backers would be working against their own interest if they took a large, risky dividend recap on a soon-to-be public company.
