4 ms·

Private equality bought Rackspace out. Layoffs are part of that playbook. They basically pump cash in to grow sales, while cutting costs, so they can chop it

Private equality bought Rackspace out. Layoffs are part of that playbook. They basically pump cash in to grow sales, while cutting costs, so they can chop it up and sell it off for a multiple of what they paid for it.

xenadu02 10y ago
> They basically pump cash in to grow sales, They usually borrow money at really high leverage to buy the company so they risk very little of their own capital. Then they cut anything and everything to minimize costs (and choke off the ability to compete in the future) then dump the carcass(es) on whatever suckers they can find because they made the balance sheet look better temporarily. Banks line up to lend them money because there is a never-ending supply of suckers and these firms usually manage to find one before the inevitable crash and burn.
tyingq 10y ago
Worked at a place that was bought out by private equity right at the apex of the tech bubble. As you can imagine, the value of what they paid for dropped like a rock right after the check was cashed. So, like working at a post PE buyout company, only amplified. They had little cash left to pump sales, so all the effort went to cutting costs.
bogomipz 10y ago
Yes a firm called Apollo Global Management. I have to wonder what their end games is though. Apollo chops up, repackages with other pieces of their portfolio and then sells. I have to wonder where Rackspace fits into that.
forgetsusername 10y ago
So why aren't the sellers before PE and buyers after PE aware of the fact that no value is being added by PE in the interim, and hence sell cheaply and overpay? Why is it so obvious to you, but not these other people? How does this charade perpetuate? Maybe there is value in there somewhere?
- toyg 10y ago
  People selling to PE can usually see the writing on the wall, so they're eager to leave with whatever cash they can still get. That makes for low prices. Buyers always think that they have some insight about the business that can materialise some yet-unrealised potential. You've probably done it yourself a few times, "if only Company X did this and that, instead of what they're doing now -- they'd make loads!". Everyone knows PE don't know how to run businesses beyond the basics, so buyers will always see untapped potential. That makes for high prices.
  - icebraining 10y ago
    Why aren't the sellers and buyers meeting directly?
- amalag 10y ago
  Business owners happy to get a payday, banks happy to loan money to a successful business. PE firms happy to be a middleman.

xenadu02 10y ago

> They basically pump cash in to grow sales, They usually borrow money at really high leverage to buy the company so they risk very little of their own capital. Then they cut anything and everything to minimize costs (and choke off the ability to compete in the future) then dump the carcass(es) on whatever suckers they can find because they made the balance sheet look better temporarily. Banks line up to lend them money because there is a never-ending supply of suckers and these firms usually manage to find one before the inevitable crash and burn.

tyingq 10y ago

Worked at a place that was bought out by private equity right at the apex of the tech bubble. As you can imagine, the value of what they paid for dropped like a rock right after the check was cashed. So, like working at a post PE buyout company, only amplified. They had little cash left to pump sales, so all the effort went to cutting costs.

bogomipz 10y ago

Yes a firm called Apollo Global Management. I have to wonder what their end games is though. Apollo chops up, repackages with other pieces of their portfolio and then sells. I have to wonder where Rackspace fits into that.

forgetsusername 10y ago

So why aren't the sellers before PE and buyers after PE aware of the fact that no value is being added by PE in the interim, and hence sell cheaply and overpay? Why is it so obvious to you, but not these other people? How does this charade perpetuate? Maybe there is value in there somewhere?

toyg 10y ago
People selling to PE can usually see the writing on the wall, so they're eager to leave with whatever cash they can still get. That makes for low prices. Buyers always think that they have some insight about the business that can materialise some yet-unrealised potential. You've probably done it yourself a few times, "if only Company X did this and that, instead of what they're doing now -- they'd make loads!". Everyone knows PE don't know how to run businesses beyond the basics, so buyers will always see untapped potential. That makes for high prices.
- icebraining 10y ago
  Why aren't the sellers and buyers meeting directly?
amalag 10y ago
Business owners happy to get a payday, banks happy to loan money to a successful business. PE firms happy to be a middleman.