It seems like such a long time ago when Wall Street firms did the classic trade – you take a company private, pay yourself big bucks for doing it, grab huge recurring fees, take the company public and pull more money out along the way. After the credit crisis of last fall, it felt like those days would never return or if they did, it would be a long, long time from now.
Well, it’s back. Now.
Dollar General Corp., the discount retailer that private-equity firm KKR took private in 2007 and has benefitted hugely from recession-hobbled consumers looking to fill their cabinets at home with the cheapest goods possible, filed its initial public stock offering late this afternoon.
And along with it the reminder that the more things change, they don’t really.
For starters, Dollar General says in its filing that it doesn’t plan to pay a dividend to people who buy stock in this offering. But KKR will receive a $200 million dividend prior to the offering.
When Dollar General was taken private, the folks at KKR and Goldman arranged to help out with management issues of the company when necessary. So, they got management fees – $5.1 million paid out last year with $1.1 million to Goldman and the rest to KKR. And the way they wrote up that contract, these two are entitled to a termination fee if assets or sold or the company goes public. That is estimated to be about $64 million.
And then there is the issue of how proceeds get used. Investors in IPOs usually like to see the money plowed back into the business, you know, to help it grow. Here, the money will be used to pay down some debt. This was a leveraged buyout after all. And the company’s debt load is high.
For the 13-weeks ended May 2 of 2008, the company had $110.9 million of operating profit and interest expense of $100.9 million. Not much wiggle room there. And this is before the recession crippled the consumer like it has today. In the comparable 13-week period this year, operating profit was $224.9 million and interest income $89.2 million. But again, Dollar General has benefitted greatly from the trade down trade by consumers. So you can see the wisdom in wanting to reduce the nearly $200 million of interest payments annually in the two bond issues it is looking to retire a chunk of – but again, you can’t feel great about money not being invested in the business.
Oh, by the way – Goldman and KKR are part of the underwriting team. And that means they will grab some fees from that.