Case: HCA Inc. LBO Exit

1. Define what is meant by a dividend recapitalization. Why do you think HCA began issuing dividend recaps when it was privately held by the consortium of private equity firms? Do you believe it is possible for HCA to continue these payments as a public company?

Based on what is presented in the case, why do you think HCA went public in 2011 despite a cool IPO market rather than just continuing to issue dividend recaps? Briefly discuss why you believe that Bank of America was open to selling their stake in HCA.

Given what is mentioned in the case, who do you think has an upper-hand in the negotiation of the block sale between HCA and Bank of America? Do you think the shares ultimately sold at discount or a premium versus HCAs September 14, 2011 closing price of $18.61 per share?

Suppose that you worked for BAML Capital Partners (Bank of Americas private equity division) and your boss informs you that according Prequin (a database of private equity transactions) that the average return for a PE deal is around an internal rate of return (IRR) of 17.4% with a multiple on invested cash (MOIC) of 1.89. Using this as a benchmark, determine the IRR and MOIC for Bank of America if it chooses to sell its stake in HCA for $18.61 per share. Do you believe that Bank of America would earn an acceptable return versus the historical benchmark mentioned above? (a) In your response, be sure to provide a table of how you calculated the IRR and MOIC for Bank of Americas block sale. 1