I hope I’ve mentioned it before… private equity is firstly about risk mitigation and secondly about earnings growth. This is why private equity firms rarely invest cash as ordinary equity; they want the extra protection that comes with preference equity. One of the most common points of contention though, is the use of coupons on preference equity (or interest payments on convertible notes). Vendors often feel that private equity firms shouldn’t get the benefits of a debt while enjoying the upside of equity.
Preference coupon payments mitigate risk by returning cash to the private equity investor sooner. The returned money can’t be lost and it is worth more than money returned at exit (time value of money). But, this is hardly consolation for the vendor who is stuck with ordinary equity and no guaranteed periodic payments.