3 ms·

Private equity firms are notorious for being focused on the short term, to the point of doing LBOs to acquire firms and in the process encumbering the acquired

Private equity firms are notorious for being focused on the short term, to the point of doing LBOs to acquire firms and in the process encumbering the acquired firm with a debt load that cripples its ability to compete. The PE firm may also make the acquired company take on additional debt in order to pay dividends. Or it may sell off assets of the company in order to take dividends out. The PE firm doesn't get hurt if one of their looted companies goes bust, so there's no incentive to keep the acquired company healthy and viable. PE firms are like parasitic wasp larvae eating their prey from inside. Just this year this sort of thing drove Toys R Us out of business, and iHeartMedia into chapter 11 bankruptcy.

matwood 8y ago
PE firms are like vultures. They are not going around and taking out healthy companies. Accelerating the demise of struggling companies could be argued as a good thing. Talking about Toys R Us specifically, yes a PE firm came in and finished them off, but they had plenty of problems before then. Video games used to be a huge revenue driver for TRU, but the move to digital downloads cut TRU out of the stream (a lot like Gamestop, and what happened to Blockbuster with movies). Then you have Amazon which is assaulting every large retailer. Who has less time to visit a store than parents? The last thing a parent wants to do is make extra trips to stores when they do not have to. When I heard about TRU going under recently, I was surprised. I had assumed they already went out of business years ago because of Amazon.
- jonhendry18 8y ago
  "Talking about Toys R Us specifically, yes a PE firm came in and finished them off" No. Bain, KKR, and Vornado took TRU private in 2005, in the process loading up TRU with debt. TRU was spending $400 million a year for paying off that debt, money which would have undoubtedly helped had it been invested in online operations or store refreshes, etc. The private equity firms hoped to dump TRU on the market with an IPO, which TRU filed for in 2010 but that never took place, probably because it was crippled with debt by the geniuses who did the LBO.
qeternity 8y ago
> The PE firm doesn't get hurt if one of their looted companies goes bust, so there's no incentive to keep the acquired company healthy and viable. What?! The “BO” in LBO stands for buy out, meaning the PE shop buys the whole company. Of course bankrupting a company you own is a bad thing. I think what you really mean to imply is that someone buys the company later from an LBO shop (maybe even the public in an IPO) and then it goes bust. Does this happen? Of course. But you’re also conveniently ignoring all the enormous PE/LBO success stories. You may not morally approve of the industry, but if there was no value, who would buy a company from the likes of KKR?
- jonhendry18 8y ago
  "Of course bankrupting a company you own is a bad thing." Not if you already got your profit out of it and aren't carrying any of the losses. The company's creditors and employees take the loss, not you.

matwood 8y ago

PE firms are like vultures. They are not going around and taking out healthy companies. Accelerating the demise of struggling companies could be argued as a good thing. Talking about Toys R Us specifically, yes a PE firm came in and finished them off, but they had plenty of problems before then. Video games used to be a huge revenue driver for TRU, but the move to digital downloads cut TRU out of the stream (a lot like Gamestop, and what happened to Blockbuster with movies). Then you have Amazon which is assaulting every large retailer. Who has less time to visit a store than parents? The last thing a parent wants to do is make extra trips to stores when they do not have to. When I heard about TRU going under recently, I was surprised. I had assumed they already went out of business years ago because of Amazon.

jonhendry18 8y ago
"Talking about Toys R Us specifically, yes a PE firm came in and finished them off" No. Bain, KKR, and Vornado took TRU private in 2005, in the process loading up TRU with debt. TRU was spending $400 million a year for paying off that debt, money which would have undoubtedly helped had it been invested in online operations or store refreshes, etc. The private equity firms hoped to dump TRU on the market with an IPO, which TRU filed for in 2010 but that never took place, probably because it was crippled with debt by the geniuses who did the LBO.

qeternity 8y ago

> The PE firm doesn't get hurt if one of their looted companies goes bust, so there's no incentive to keep the acquired company healthy and viable. What?! The “BO” in LBO stands for buy out, meaning the PE shop buys the whole company. Of course bankrupting a company you own is a bad thing. I think what you really mean to imply is that someone buys the company later from an LBO shop (maybe even the public in an IPO) and then it goes bust. Does this happen? Of course. But you’re also conveniently ignoring all the enormous PE/LBO success stories. You may not morally approve of the industry, but if there was no value, who would buy a company from the likes of KKR?

jonhendry18 8y ago
"Of course bankrupting a company you own is a bad thing." Not if you already got your profit out of it and aren't carrying any of the losses. The company's creditors and employees take the loss, not you.