Apollo and TPG Each Paid Themselves $100 Million Just to Buy Caesars
Then they charged the casino company about $30 million a year to monitor their own investment.
The Wall Street Skinny · Private Equity Knows Something Private Credit Doesn't | This $30B LBO Holds the SecretWhen Apollo, a buyout firm, and TPG, another buyout firm, closed the $30 billion purchase of casino operator Harrah's, later renamed Caesars, each paid itself a $100 million consulting fee just for getting the deal done.
Then they charged about $30 million a year, roughly 1 percent of its EBITDA, a cash-flow measure, for monitoring their own investment. Firms often also charge a termination fee when they take a company public and no longer provide those services, which the hosts estimated might run $60 million to $100 million.
Even Gary Loveman, the chief executive of Caesars, had a $100 million payday on paper. He reinvested roughly one-fourth of his payout, while he and other Harrah's managers kept skin in the game and stayed on.
Questions people ask
Where does the money for those fees come from?
The hosts explain that buyout debt is taken in the company's name, not the sponsors'. Of the $30 billion price, $6 billion was equity and $24 billion was debt. The fees were paid out of the company's own cash, which also covers its debt payments.
What is EBITDA, the number the $30 million fee was based on?
EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It is a rough measure of cash a business generates from operations, before debt payments and accounting charges. Here it was the basis for the monitoring fee.
Are these kinds of fees unusual?
The hosts present them as something buyout firms often do, saying they find ways to take fees from just about everybody. Closing and monitoring fees are often written into deal agreements, with a termination fee often added if the company goes public.