Comments on: Silicon Flatirons Roundtables http://www.feld.com/wp/archives/2007/11/silicon-flatirons-roundtables.html Mon, 13 Feb 2012 21:06:34 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: ispivey2706 http://www.feld.com/wp/archives/2007/11/silicon-flatirons-roundtables.html/comment-page-1#comment-6899 ispivey2706 Wed, 07 Jan 2009 01:55:49 +0000 http://www.feld.com/wp/?p=1930#comment-6899 I think the simplest way to assess loose credit's impact on PE over the last few years is that it allowed sellers to sell high and forced buyers to buy high. The two risks to firms that bought in recent years are (1) refinancing risk (either having to inject equity because banks are not willing to lend as much as the original facility or simply seeing reduced returns because of bullish refi assumptions in the investment case) and (2) "terminal value" risk, or having made overly bullish exit assumptions (assuming asset values would remain inflated) in the investment case. The latter point is really the same as Brad's "eliminating equity value" point. Anyone who made appropriately conservative exit and refinancing assumptions, or were comfortable with their returns if multiples and debt terms reverted to historical averages, shouldn't have much to worry about. The other mitigant to refi risk is that loose credit markets led to longer-term debt and cheaper hedging, so many deals have five or seven years at fixed rates before they are faced with refinancing. <br /> <br /> Everyone knew credit markets were historically generous, so realizations over the next three to seven years will tell us who did their diligence and who was asleep at the switch. Most investors I know spent the last two years being scared silly about a reversion to historical debt pricing and valuations, and so made investments that could live through such a reversion. I'm sure plenty of firms didn't. I think the simplest way to assess loose credit's impact on PE over the last few years is that it allowed sellers to sell high and forced buyers to buy high. The two risks to firms that bought in recent years are (1) refinancing risk (either having to inject equity because banks are not willing to lend as much as the original facility or simply seeing reduced returns because of bullish refi assumptions in the investment case) and (2) "terminal value" risk, or having made overly bullish exit assumptions (assuming asset values would remain inflated) in the investment case. The latter point is really the same as Brad's "eliminating equity value" point. Anyone who made appropriately conservative exit and refinancing assumptions, or were comfortable with their returns if multiples and debt terms reverted to historical averages, shouldn't have much to worry about. The other mitigant to refi risk is that loose credit markets led to longer-term debt and cheaper hedging, so many deals have five or seven years at fixed rates before they are faced with refinancing.

Everyone knew credit markets were historically generous, so realizations over the next three to seven years will tell us who did their diligence and who was asleep at the switch. Most investors I know spent the last two years being scared silly about a reversion to historical debt pricing and valuations, and so made investments that could live through such a reversion. I'm sure plenty of firms didn't.

]]> By: IPA-IBA http://www.feld.com/wp/archives/2007/11/silicon-flatirons-roundtables.html/comment-page-1#comment-6912 IPA-IBA Wed, 07 Jan 2009 01:55:49 +0000 http://www.feld.com/wp/?p=1930#comment-6912 Sounds like a fascinating roundtable! In particular, looking at the investment sector is especially interesting with some predicting a second internet bubble appearing. Sounds like a fascinating roundtable! In particular, looking at the investment sector is especially interesting with some predicting a second internet bubble appearing.

]]> By: IPA-IBA http://www.feld.com/wp/archives/2007/11/silicon-flatirons-roundtables.html/comment-page-1#comment-42910 IPA-IBA Thu, 06 Dec 2007 07:05:11 +0000 http://www.feld.com/wp/?p=1930#comment-42910 Sounds like a fascinating roundtable! In particular, looking at the investment sector is especially interesting with some predicting a second internet bubble appearing. Sounds like a fascinating roundtable! In particular, looking at the investment sector is especially interesting with some predicting a second internet bubble appearing.

]]> By: ispivey http://www.feld.com/wp/archives/2007/11/silicon-flatirons-roundtables.html/comment-page-1#comment-42909 ispivey Thu, 29 Nov 2007 10:44:45 +0000 http://www.feld.com/wp/?p=1930#comment-42909 I think the simplest way to assess loose credit's impact on PE over the last few years is that it allowed sellers to sell high and forced buyers to buy high. The two risks to firms that bought in recent years are (1) refinancing risk (either having to inject equity because banks are not willing to lend as much as the original facility or simply seeing reduced returns because of bullish refi assumptions in the investment case) and (2) "terminal value" risk, or having made overly bullish exit assumptions (assuming asset values would remain inflated) in the investment case. The latter point is really the same as Brad's "eliminating equity value" point. Anyone who made appropriately conservative exit and refinancing assumptions, or were comfortable with their returns if multiples and debt terms reverted to historical averages, shouldn't have much to worry about. The other mitigant to refi risk is that loose credit markets led to longer-term debt and cheaper hedging, so many deals have five or seven years at fixed rates before they are faced with refinancing. <br /> <br /> Everyone knew credit markets were historically generous, so realizations over the next three to seven years will tell us who did their diligence and who was asleep at the switch. Most investors I know spent the last two years being scared silly about a reversion to historical debt pricing and valuations, and so made investments that could live through such a reversion. I'm sure plenty of firms didn't. I think the simplest way to assess loose credit's impact on PE over the last few years is that it allowed sellers to sell high and forced buyers to buy high. The two risks to firms that bought in recent years are (1) refinancing risk (either having to inject equity because banks are not willing to lend as much as the original facility or simply seeing reduced returns because of bullish refi assumptions in the investment case) and (2) “terminal value” risk, or having made overly bullish exit assumptions (assuming asset values would remain inflated) in the investment case. The latter point is really the same as Brad's “eliminating equity value” point. Anyone who made appropriately conservative exit and refinancing assumptions, or were comfortable with their returns if multiples and debt terms reverted to historical averages, shouldn't have much to worry about. The other mitigant to refi risk is that loose credit markets led to longer-term debt and cheaper hedging, so many deals have five or seven years at fixed rates before they are faced with refinancing.

Everyone knew credit markets were historically generous, so realizations over the next three to seven years will tell us who did their diligence and who was asleep at the switch. Most investors I know spent the last two years being scared silly about a reversion to historical debt pricing and valuations, and so made investments that could live through such a reversion. I'm sure plenty of firms didn't.

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