Carlyle’s owners extracted some value from their firm. So what?
As regular readers are aware, I loathe dividend recaps. They usually are greedy, parasitic transactions that give the rest of private equity a bad reputation.
So it wasn’t surprising to see the following tweet from @The_Buyside: I have a hunch
@danprimack
will slam Carlyle in today’s Term Sheet for news of the pre-IPO dividend recap.
He was referring to a Bloomberg story about how Carlyle borrowed $500 million from Abu Dhabi’s Mubadala Development Co. in December 2010 — nine months before filing for its IPO — in order to pay around $398 million in dividends to firm owners like David Rubenstein, William Conway and Dan D’Aniello.
Sorry to disappoint, but there will be no slamming here. My complaint about dividend recaps is that it misaligns interests, and allows private equity firms to profit by placing extra burdens on portfolio companies that they control. Self-dealing.
Carlyle, on the other hand, is simply placing the added burden on itself. If the extra debt makes Carlyle less valuable, then the only group to suffer will be Carlyle, via a lower price when it goes public. If the firm is comfortable with that trade-off, so am I.
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