Divvy, a company that took on $735 million in debt during the low-interest-rate era of 2021, faced financial ruin when interest rates surged and housing market conditions deteriorated. The debt consumed most of the proceeds from their $1 billion acquisition by Brookfield, leaving founders, executives, and employees with nothing due to the waterfall structure of payouts. This case highlights the risks associated with large debts relative to realistic exit scenarios and underscores the importance of modeling financial outcomes at various stages. It also reveals that management carve-outs, common in distressed acquisitions, did not occur here, emphasizing the lack of guaranteed safety nets for founders in such situations.
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