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No, Bain Capital wanted their fees and after the buyout servicing the deb wasn't their problem. I'm not the best person to explain LBOs really.

toomuchtodo 9y ago
[removed] Please see exelius's sibling comment, as it's a better and more in depth explanation.
- ambicapter 9y ago
  Why do all these CEO's (who I'm told are the smartest) and creditors keep on falling for this? I'm guessing they are getting paid off as well?
  - deleted 9y ago
    [deleted]
  - JustSomeNobody 9y ago
    They would have to be, right? Otherwise I just don't see the point.
  - Bartweiss 9y ago
    The creditors make sense - they're getting high rates of return to compensate for that risk. LBOs are net positive for creditors, even though a lot of them blow up. But I can't explain what CEOs and shareholders are up to; surely they know when an LBO is over-leveraged and likely to bankrupt them. Can anyone explain why these offers keep getting accepted?
    - mywittyname 9y ago
      > why these offers keep getting accepted? You only hear about the failures, not the successes. So the likely explanation is somewhere between, "because it works" and "because they don't have much choice."
      - Bartweiss 9y ago
        I guess my confusion is what the successes even look like. Are these all companies that would fold if they didn't take the buyouts? Because otherwise I can't work out what the potential upside is.
        mywittyname 9y ago
        Sometimes, though distressed investments are not their primary focus. Also, they often buy and hold. So it's not like they go about gutting every company they acquire.
exelius 9y ago
Here’s how an LBO generally works: 1. PE company secures a loan in the company’s name (usually contingent on a turnaround plan executed by the PE with a history of turning companies around) 2. Company turns around and loans the money for purchase to PE firm 3. PE firm buys the company 4. PE firm runs the company, normally collecting management fees (paid out of the pool of cash used to buy the company) 5. PE firm cashes out by IPOing the company (usually at the same or higher price paid during LBO process). 6. PE firm uses the proceeds from the IPO (which the PE keeps because they are the sole shareholders; NOT the company itself) to pay back the loan. The PE usually breaks even on the transaction itself once transaction fees are taken into account; but they make a killing on the management fees (which can be hundreds of millions a year). Normally, the company is left in roughly the same situation as before the buyout, just with a lot more debt on the balance sheet.
- Bartweiss 9y ago
  So the part I've never understood is why companies accept these offer. Are we talking about hostile takeovers? Or just already-failing companies that accept the turnaround plan because they're short on options? It looks like investors and the PE firm have obvious ways to profit here, but I can't work out what the company gets out of this.
  - Jesus_Jones 9y ago
    That's really my question too. I can guess that if you are say the ceo with a golden parachute agreement if your company is bought out, then you want to 'sell' into this, cause you win, and you leave. But it's terrible for shareholders (eventual ones at least) and for employees, and I don't know if I've ever used this phrase, but it's terrible for the world, for my country.
  - irrational 9y ago
    And, who are the, apparent, idiots who invest in these companies during the IPO?
    - exelius 9y ago

toomuchtodo 9y ago

[removed] Please see exelius's sibling comment, as it's a better and more in depth explanation.

ambicapter 9y ago
Why do all these CEO's (who I'm told are the smartest) and creditors keep on falling for this? I'm guessing they are getting paid off as well?
- deleted 9y ago
  [deleted]
- JustSomeNobody 9y ago
  They would have to be, right? Otherwise I just don't see the point.
- Bartweiss 9y ago
  The creditors make sense - they're getting high rates of return to compensate for that risk. LBOs are net positive for creditors, even though a lot of them blow up. But I can't explain what CEOs and shareholders are up to; surely they know when an LBO is over-leveraged and likely to bankrupt them. Can anyone explain why these offers keep getting accepted?
  - mywittyname 9y ago
    > why these offers keep getting accepted? You only hear about the failures, not the successes. So the likely explanation is somewhere between, "because it works" and "because they don't have much choice."
    - Bartweiss 9y ago
      I guess my confusion is what the successes even look like. Are these all companies that would fold if they didn't take the buyouts? Because otherwise I can't work out what the potential upside is.
      - mywittyname 9y ago
        Sometimes, though distressed investments are not their primary focus. Also, they often buy and hold. So it's not like they go about gutting every company they acquire.

exelius 9y ago

Here’s how an LBO generally works: 1. PE company secures a loan in the company’s name (usually contingent on a turnaround plan executed by the PE with a history of turning companies around) 2. Company turns around and loans the money for purchase to PE firm 3. PE firm buys the company 4. PE firm runs the company, normally collecting management fees (paid out of the pool of cash used to buy the company) 5. PE firm cashes out by IPOing the company (usually at the same or higher price paid during LBO process). 6. PE firm uses the proceeds from the IPO (which the PE keeps because they are the sole shareholders; NOT the company itself) to pay back the loan. The PE usually breaks even on the transaction itself once transaction fees are taken into account; but they make a killing on the management fees (which can be hundreds of millions a year). Normally, the company is left in roughly the same situation as before the buyout, just with a lot more debt on the balance sheet.

Bartweiss 9y ago
So the part I've never understood is why companies accept these offer. Are we talking about hostile takeovers? Or just already-failing companies that accept the turnaround plan because they're short on options? It looks like investors and the PE firm have obvious ways to profit here, but I can't work out what the company gets out of this.
- Jesus_Jones 9y ago
  That's really my question too. I can guess that if you are say the ceo with a golden parachute agreement if your company is bought out, then you want to 'sell' into this, cause you win, and you leave. But it's terrible for shareholders (eventual ones at least) and for employees, and I don't know if I've ever used this phrase, but it's terrible for the world, for my country.
- irrational 9y ago
  And, who are the, apparent, idiots who invest in these companies during the IPO?
  - exelius 9y ago