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Agreed. This isn't a unique tale for a firearms manufacturer. This is a common tale for nearly any type of manufacturer that is bought out by private equity f
by sparrish 7y ago
Agreed. This isn't a unique tale for a firearms manufacturer. This is a common tale for nearly any type of manufacturer that is bought out by private equity firms. They reduce costs and quality, load it with debt, suck it dry, and then dump it on their creditors.
- bluejekyll 7y agoI’ve read about this scenario many times, but I’m curious about why any creditor would lend money to a company that’s poised to do this. Wouldn’t these private equity firms lose the ability to borrow money based on past practices like this?
- Spooky23 7y agoRead the toys r us threads here on Hacker News from a year ago to understand. The cult of modern business thinking blinds folks in business from the obvious stupidity of the private equity business model. Self dealing almost never ends well.
- refurb 7y agoLenders lend money because it's not always a failure. Lenovo is a great example of a successful PE strategy.
- kgwgk 7y agoHN (and the world in general, I guess) has a tendency to focus on the successful VC outcomes and the PE failures.
- ptah 7y agothe pe firm never borrows, the company they own does the borrowing to pay the pe firm for "services rendered"
- freyr 7y agoYes, but why does the creditor play along?
- anon1m0us 7y agoThe people who make the deal happen get a commission, so there's a sales person selling the deal to the people selling the money. Everyone is getting sold, so no one really knows the truth.
- perlgeek 7y agoIf the article is to be believed: > When these so-called “leveraged buyouts” worked, investors made a hundred or a thousand times their money. then it only needs to work a small percentage of times they try it to remain highly profitable.
- AJ007 7y agoBuyers searching for yield. Take a look at the current state of covenant light loan and leveraged loan markets. They assumption should be based on the winners paying for the losers, just like in VC, but it isn’t clear that the yields are high enough now to make up for it. Consider the alternative for where people can park their money - sovereign debt paying effectively zero paid for in an inflationary currency. There is logic here. It isn’t great, but it’s there.
- parrellel 7y agoPartly, it sometimes works. Partly, the people who own the private equity firms also sit on bank boards. Because you know, we stripped out most of those laws.
- icelancer 7y agoBain Capital and others who do LBOs don't have a 100% failure rate. It's just that the failures are reported and the successes (Lenovo) are not celebrated.
- coredog64 7y agoI would add TPG and OnSemi to the success column. It was painful working there when TPG was keeping things lean for a sale, but they did eventually invest in the business an OnSemi was much better for it.
- pkaye 7y agoWhat do creditors willingly allow this to happen? When a private equity firm buys up a business, it makes sense for creditors to renegotiate their contracts to protect themselves.