Question

9. Henry & Murdock LLC., is PE firm. Three years ago the firm acquired 60% stake in Kandles Inc., valuing it at a PPM of 5.5x. Today Henry and Murdock have agreed to sell their 60% stake to another PE firm at a PPM of 6.5x. Which of the following can be inferred based on this information? I. Henry & Murdock is profiting through multiple arbitrage. II. Kandles is involved in a secondary buyout. III. Henry & Murdock is conducting a leveraged recapitalization of Kandles.

A. II only B. II and III C. I and II D. I and III E. I, II and III

Answer 1

The Correct Answer is "A".

Kandles is involved in secondary buyout as first it was brought by Henry and Murdock and now by another private equity. So this is secondary Buyout.

As Henry and Murdock has not sold the company immediately and kept it for 3 years, so we are not sure whether they have done any operational changes or not. So they are not trying to generate profit through operational arbitrage

Leverage recapitalization is taking debt to buyback equities. Which is not the case here