> If they have enough cash/free cash flow, they don't have to take money at a lower valuation
Sort of? You're describing either a healthy business, at which point their market value shouldn't be an issue, or management holding the business hostage because they prefer their salary to shareholders having a return.
There isn't a return for shareholders if the valuations are lower. The problem is not management holding the business hostage today, the problem was investing at unsustainable multiples a few years ago.
Now the only options are to either cash out at a lower valuation and not make any money, or wait and hope the business grows to the point where you can get a higher total valuation despite the lower multiple and see a return on your capital.
> management holding the business hostage because they prefer their salary to shareholders having a return.
But Ive been fed that the principal agent solution of equity and executive privilege prevents this! Next you'll tell me capitalism doesn't allocate resources efficiently.
Sort of? You're describing either a healthy business, at which point their market value shouldn't be an issue, or management holding the business hostage because they prefer their salary to shareholders having a return.