Hertz group had initiated an IPO in July 2006 when Carlyle group, together with Clayton, Dubilier &Rice, and Merril Lynch Global Private equity , three prominent firms had filed to take the firm public. However this action has come just seven months after the three had combined to purchase Hertz from Ford Motor Company for Approx. $15 million. Berg, MD of Vandelay Capital Management debated whether to invest in this IPO.The LBO sponsors had borrowed an additional $1 billion on top of the buyout financing to pay themselves a special dividend in June 2006 , being the biggest reason why the IPO generated widespread criticism along with the speed with which the IPO was conducted . In the face of this criticism, the demand …show more content…
Furthermore, it should be noted that the debt caused the cash flows to obtain a RAC operations value that had to be adjusted to reflect asset backed financing in a bankruptcy –remote special purpose vehicles (SPV). Due to this, the Returns to investors fell due to interest and depreciation arising owing to SPV .Moreover, the competitor market such as Dollar Thrifty had no corporate debt suggesting that in an economic downturn, the sponsors’ actions might cause Hertz limited financial flexibility.
Sponsor backed IPOs
The $14 billion buyout of Hertz by trio Clayton, Dubilier &Rice,Carlyle Group and Merrill Lynch followed by a sponsor-backed IPO had its pros and cons. All companies listed in 2007 , whether private equity-backed or not, registered an average drop in their share-price valuation. However, those with private equity backing on average held a