Regarding the refinancing of the debt, with Manulife Comvest set to replace Elliott, Alessandro F. Giudice explains in today’s print edition of Corriere dello Sport:
"When assessing whether to opt for new financing rather than repaying the vendor loan with equity, two aspects need to be understood. First of all, for a private equity fund, capital has a cost and the approach is necessarily different from that of an individual. A fund must remunerate the capital raised from investors with returns in the region of 15–20% per year. In the absence of dividends, this return is achieved by selling the acquired company at a higher price than the initial investment. The greater the gap between the exit value and the purchase price, the higher the financial return, naturally depending on the duration of the investment, because the longer the horizon, the more the return is diluted. Therefore, the choice to use debt does not stem from a lack of money, as is often mistakenly believed, but from return objectives. If a fund manages to finance part of an acquisition with debt on which it pays interest lower than its 15–20% cost of capital, that objective comes closer. The other aspect to consider is that in finance, the weight of debt is not measured using accounting metrics but in relation to financial value. In Milan’s case, accounting logic would suggest comparing the €500 million of debt to the €1.2 billion acquisition price, when in reality, at current multiples (five times operating revenues, the same multiple paid by Apollo for Atlético Madrid), Milan’s value is approaching €2 billion, and the leverage of the acquisition is almost halved," as relayed via Milan News.
