Analyst: It's the private equity way'

Monday, April 26, 2010

Now that you know what a dividend recapitalization is, here’s some additional insight on The Blackstone Group and Apria Healthcare from Bob Leonard, an analyst with the Pittsburgh-based mergers and acquisition firm, The Braff Group.

What Blackstone’s $500 million dividend recap from Apria means in his own words

“They’re basically paying themselves. I mean, they still own what they own. They haven’t reduced their ownership position at all. They’ve just further leveraged the company to take some cash out.”

The private equity way

“It’s no different than when you buy a house. If you put 10% down on a $1 million house and then you sell it for $1.5 million, really that’s $500,000 in profit on $100,000 of your own money. That’s kind of what they do. It’s the private equity way.”

So we shouldn’t read between the lines?

“I don’t think this is any commentary on the company or the industry. Whenever they can, investors pay themselves a dividend to have as little of their money tied into an investment as possible.”

A better market may have been the driver

“When Blackstone first did the deal, they probably weren’t able to put as much external debt into it as they wanted, because the credit markets were in pretty bad shape. Now that they’re slightly better, they’re taking some cash out and laying on mode debt. That’s how they get their big returns.”