medium · Private Equity & LBOs

In a dividend recapitalization, why does the IRR often increase even if the total MOIC slightly decreases?

1. Because the sponsor receives a fee from the lenders for issuing new debt.
2. Because a dividend recap signals to the market that the business is high quality, leading to multiple expansion.
3. Because the recap pulls forward a portion of the cash return, benefiting from the time value of money despite the incremental costs.
4. Because the recap increases the terminal Enterprise Value of the business.

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