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>Most people who run a company will not behave like this. No, but companies that are taken over by PE firms are fairly special. In any case, since the fund is
by bobcostas55 11y ago
>Most people who run a company will not behave like this.
No, but companies that are taken over by PE firms are fairly special.
In any case, since the fund is forced to sell the company after a few years, they're still interested in LT value maximization.
Also, high debt levels aren't just a way of taking back some of the money the fund put in. Debt helps to fix the companies. The PE business model essentially focuses on fixing principal-agent issues (i.e. management working against the best interests of shareholders). Improved governance, high equity ownership by management, and high debt loads are how they do it. "Debt disciplines management" because it forces them to eliminate -NPV projects and increase cash flows.
- jsprogrammer 11y agoDid you take this straight from a PE playbook? Debt is what makes PE (and banks) money. That is why it exists. You think Apax and TPG trashed Hellas because they were interested in making its management "more effective"? Is that why they redeemed 1 billion euros right after the purchase? To reward themselves for all the debt-management value they brought to the company and its employees?
- jsprogrammer 11y agoSorry, "redeemed".
- bobcostas55 11y agoThey bought the company for 1.6b in 2005. They sold the company for 3.4b in 2007. Did this happen because they made its management less effective? Do you think people who spend 3.4b to buy a company are unsophisticated investors?
- hippich 11y agoI would love to read more about it (debt as an instrument to help fix companies.) Do you have links to stories about it?