Dividend recaps are a means by which a company raises new debt which is used to pay back its investors / shareholders.
Over the past few years, banks have been reluctant to lend for such ‘cash out’ deals, but the tide seems to be turning: activity in Q1 2013 has been significant, with dividend recaps returning €2.3bn to investors – 20% more than the dividends they received during 2012.
In addition to our expertise in the Media & Technology sector (technology, content, marketing services), our Debt Advisory team can help work with new or existing lenders to assist raising new debt facilities, whether for investing in growth or returning to investors.
What’s driving the return of the recap?
Larger businesses have found it easier to raise debt to return to investors as liquidity has increased in the credit markets, aided by the European Central Bank’s intervention last year. In this low-interest rate environment, the higher yield offered by non-investment grade debt is particularly attractive.
And so investors such as KKR and Blackstone have seen strong demand for the refinancings of their portfolio companies Pets at Home and Mivisa respectively, securing these investors a nice profit before a full exit event.
In the mid-market, bank lending confidence has slowly been increasing, and banks are more willing than they were to consider advancing new facilities even if the cash is going out of the company – but only for the right business. For example, at the end of last year we successfully raised new debt for iprism Underwriting Agency Ltd, which it used to pay out to its founder and investors.
What about the tech sector?
Like iprism, technology companies can often demonstrate the key characteristics the banks are looking for:
- high levels of recurring revenue;
- good visibility of earning;
- high margins;
- strong growth; and
- strong cash generation.
These all help a company to support its debt, and help the bank build comfort that the business will repay its loans even if it’s paying this cash out to its investors.
How can we help?
If you’re thinking about releasing capital through a dividend recap or other refinancing, contact us in the strictest confidence.