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The private equity playbook for buying a public company: 1. Find company with lots of cash on the books but trading very cheaply 2. Acquire company and use ca
by chollida1 11y ago
The private equity playbook for buying a public company:
1. Find company with lots of cash on the books but trading very cheaply
2. Acquire company and use cash on books to fund it
3. Cut costs as deeply as you can and still have a company
4. (Optional) Combine it with anther firm to create "synergy"
5. Spin it back out for a profit
Corel was a company that got eaten and spit out in this fashion by Vector Capital.
It was purchased for about $120 million but it had $90 million of cash on its books, meaning the deal didn't require putting up alot of capital.
After the deal was done, there was a large head count reduction, which for a technical company is the equivalent of a retailing dumping inventory and not restocking it.
It was then merged with WinZip, WinDVD and a few other companies and then spun back out as a new company under the Corel name again.
It turns out that this didn't work so well for Corel and Vector reacquired them in 2009 to try this all again.
see: http://247wallst.com/banking-finance/2009/10/29/corel-strangest-go-private-ma-ipo-story-of-the-decade-crel-msft-adbe/ http://247wallst.com/banking-finance/2009/10/29/corel-strang...
- rayiner 11y agoCompanies with lots of cash on the books trade very cheaply because investors think they'll burn through it without producing additional revenues.
- trgn 11y agoOut of curiosity; what about apple, exxon and other of these juggernauts? Does cash depress stock price here? Or do they come out on the other end of the wormhole, where they have so much cash because they cannot conceivably put it to work profitably in their domain/industry?
- jonnathanson 11y agoWall Street has been on Apple's ass re: its cash holdings for years and years now. Until recently, by sheer force of its market growth, Apple has been able to shrug off these concerns. Not as easy to do these days.
- rayiner 11y agoI meant that companies that are trading very cheaply despite having a lot of cash on the books do so because investors think they'll burn through it without producing revenue.
- trgn 11y agocool thx
- Zigurd 11y agoSome people think Apple is undervalued. Others think the value is about right because of Apple's cash mountain.
- lmm 11y agoThose companies probably are low-value for the amount of cash they have, and quite likely should be loading up on debt and finding ways to return cash to their shareholders. Many of then are doing that.
- kolbe 11y agoThis is definitely the "rose colored glasses" way of describing their playbook. I think, more accurately it's this: 1) Find a company that hasn't optimized the look of its cash flows and balance sheet to the tastes of pension funds and other institutional investors who manage "dumb" money (a.k.a. mom and pop). 2) Buy said company, and make the superficial changes necessary that will fool the dumb money into paying more than the company is really worth. 3) Sell to the public pension funds, whose managers are well-known for being the dumbest in the business, and whose failures are backstopped by taxpayers who will have to make up for this stupidity (and in some cases, corruption[1]) by paying truly scary amounts of taxes. [1] http://www.sfgate.com/business/bottomline/article/Former-CalPERS-CEO-Fred-Buenrostro-pleads-guilty-5616331.php http://www.sfgate.com/business/bottomline/article/Former-Cal...