PE see debt as a trasition . They have a reasonably short investment horizon.
Debt lowers the WACC and lets them build off market. Their interest is in a target compound annual return largely based on a capital gain on exit.
Any debt in a company they are buying is factored in to the net valuation model they use on the acquisition.
In some cases the PE group has already bought the debt from the financier at a significant discount as distressed debt. They then move in and restructure the target entity to unlock the value.
Greencross I should add in my opinion doesn't fit this scenario. I can't see they are against debt covenants and they seem to be still growing. I would wait for the half yearly guidance before setting any view on its value. At the moment, no guidance tells me they are on track .
GXL Price at posting:
$4.63 Sentiment: Buy Disclosure: Held
