Why Olympus Partners Did A Leveraged Recap
On its website, private equity firm Olympus Partners used to boast about how it had "never executed a leveraged recapitalization of an existing portfolio company." You won't find that claim there today, however, after the firm announced a $110 million leveraged recap of Taco Bell franchisee K-Mac Enterprises Inc. The deal included a $59 million dividend for existing shareholders (i.e., Olympus), $2.7 million in bonuses to 25 K-Mac employees and a bunch of left over working capital that K-Mac can use to buy and build new restaurants. So what happened? "The company had leverage of less than 1x EBITDA before the recap, which wasn't sensible from a tax perspective" explains Rob Morris, managing partner of Olympus. "We increased leverage by doing the recap, but it's effectively less than it was after the original deal -- 2.5x versus 3.5x -- which is also a heck of a lot less leverage than your typical LBO and is a much more efficient balance sheet than no debt at all."
