Dennis Pereira Quoted in Private Equity Law Report on Captive Investing

Akin Gump investment management partner Dennis Pereira has been quoted in the Private Equity Law Report article “How to Use LPACs and Third Party Valuation Providers to Mitigate the Inherent Risks of Captive Debt and Equity Investing (Part One of Two).” The article offers some suggestions on how best to identify and mitigate risks associated with pursuing captive debt and equity investments in the same company.

PELR reports that a defining characteristic of the private equity industry is the use of debt financing to perform leveraged buyouts of portfolio companies. Traditionally, the article says, a PE fund would put up a portion of the purchase price as equity, with a bank or other large financial provider delivering the rest in the form of debt on the portfolio company.

While it is now increasingly common for PE sponsors to launch their own private credit funds, Pereira said there are also instances in which a sponsor’s private equity and private credit funds will independently discover the same company to invest in, “because they use a similar strategy that the firm believes in.” This might happen, he said, if a private credit fund were to lend to a company it likes, and then several years later, the PE team at the sponsor discovers the same company and decides to acquire it.