8 ms·
Not a mystery: Private equity firm bought them out with borrowed money, raided their resources to enrich themselves, then left Remington to rot. It is a common
by kevin_b_er 7y ago
Not a mystery: Private equity firm bought them out with borrowed money, raided their resources to enrich themselves, then left Remington to rot. It is a common story now. The private equity firm makes a bunch of money and people are jobless.
- mobilio 7y agoWho said greed good?
- mkeeter 7y agoI like Jason Scott's take on it [1]: "I wonder how many times we're going to keep seeing news media post these sorts of news stories as a 'woah, a tornado hit this landmark' without including one single line about 'the landmark was put in the care of a tornado factory a few years back and never saw another repair'" https://twitter.com/textfiles/status/1096630478965260289 https://twitter.com/textfiles/status/1096630478965260289
- deleted 7y ago[deleted]
- deleted 7y ago[deleted]
- rtpg 7y agoI get that money is money, but I feel like we desperately need to make conflict of interests prosecutable, so we can kill the self-serving mess that are LBOs. In what universe is "I borrow a bunch of money, buy a company, then force the company to basically borrow money from me" a value-creating operation? Cuz it sure isn't this one.
- radiator 7y agoInteresting ... "money is money". But what exactly is fiat currency? Some would say it is not really money.
- luckydata 7y agoThe only fix required would be changing slightly the definition of fiduciary duty expanding the concept to ALL stakeholders including customers and the people living where those businesses are based and it would become illegal overnight to do that. It will never happen.
- toast0 7y agoThe alternative to leveraged buyouts is probably not a healthy company, it's more likely a slowly dieing company that goes out with a whimper, not a bang. Is one way better than the other?
- pbhjpbhj 7y agoWe should probably just strip all societal assets that might potentially fail and give the money to the richest guy we can find, they're going to acquire all that money and we're going to die poor anyway, indeed we could just round up the poor people and shoot them and give the proceeds of the sale of any assets to that same guy; optimisation, it's what makes capitalism great, huh.
- FireBeyond 7y agoSo you're saying these firms are just being rewarded for putting the beast out of is misery and being the one to fire the gun? The other way is absolutely better. The "bang" you hear is the bursting vacuum of PE sucking all the value out of the company, depositing it in their bank account, and leaving others holding the bag, a bag that's now far bigger because the company now has less to no ability to satisfy its obligations. But the PE firm made billions for (sometimes, less than a year of) "management and consulting fees". These kind of leveraged buyouts are perilously close to what Tony Soprano does to Ramsey Sports and Outdoors - take a controlling interest (albeit by a different method), utilize the business' credit lines, assets and collateral to bring in a lot of (temporary) value, transfer it out of the company, and leave the smoldering ashes of a company massively bankrupt with bad debts all over town, including many it didn't have before the buyout happened.
- greglindahl 7y agoThose aren't the only possibilities. LBOs don't necessarily strip assets. There are already rules that claw back asset stripping prior to a bankruptcy. Perhaps they need to be strengthened.
- acdha 7y agoYou're leaving out the most common case: a company which is viable not generating enough profit growth to excite Wall Street. Most of these companies had solid businesses until their assets were sold off and other short-term profit maximization measures started to impact their long-term viability.
- jeffdavis 7y agoDo they really buy the whole company, or do they just buy enough to control it?
- mbesto 7y agoPS - the owners of these company's are also complicit as they let the PE shops come in in the first place.
- tsomctl 7y agoHostile takeovers do happen.
- leesalminen 7y agoWhy is it _wrong_ for owners to do what’s best for them? Most people don’t own a business as a charity- they own it to make money. If a PE acquisition is the best path to a lucrative exit, why shouldn’t they do it?
- everdrive 7y agoBecause selfish behavior is still wrong even if it's incentivized by a system.
- leesalminen 7y agoI don’t believe that looking out for one’s own interests (“selfish”) is wrong. My dad taught me a valuable lesson as a child- the world owes you nothing and as long as you understand that you'll be fine. I take that to mean that nobody else will look out for you so you have to do what's best for you. In my situation, my employees profited nicely from a PE acquisition. They all got a sizeable transaction bonus. Not only that, they received additional job security with the backing of a large company.
- stvswn 7y agoYeah the article goes through the mechanism, but it's not a new story that private equity firms buy companies with debt that the target company ends up owning. It's a little bit interesting to read about how it's done but it's basically the same thing you can read about in Barbarians At the Gate. It's not that they wanted or didn't care about Remington going bankrupt -- if Remington doesn't pay back those loans, it'll be harder for Cerberus to fund the next LBO, Cerberus would prefer that the hedge funds who loaned the money make back their money -- it's that it's highly leveraged and very risky. They assume it won't work every time, but the law of averages isn't comforting to the people working at Remington.
- Zenst 7y agohttps://en.wikipedia.org/wiki/Asset_stripping https://en.wikipedia.org/wiki/Asset_stripping by any other name, a scourge of business in the 80's. Today, it's less vocally lambasted and less public outrage as in the 80's, which in today's internet times, raises much thought as why that is so. I suspect that it's due to lack of media attention compared to back then.
- frenchman_in_ny 7y agoThis wasn't asset stripping. They did a dividend recap. Asset stripping is transferring assets outside of the credit group.
- Zenst 7y agoIn this instance they transferred debt from outside the company, into the company. Not sure what terminology you would pick for that - "debt bombing" or "reverse Phoenixing"! The end result is that they stripped it. Then if any liability, they could write that debt off against tax liability and or factor off the debt. Failing that - asset write-off equally works well on tax gaming. Then there are the remaining assets (Like the Brand name for example) that they could sell off cheaply to a company they indirectly own that specialises in licensing... It's a vicious circle at every level when it comes to finance in business. Good news or bad news - somebody profits and a few more people pay. I will confess - I'm still unclear of the legal and accounting practice aspects that allowed the parent company to push down debt like that. But then debt loading is another way of stripping a company. Though does read a bit like Phoenixing, just in variation that appears to skirt the law and respective regulations in finance and companies. Though, how they could push down debt without raising any flags would be a candidate for root cause in this travisty.
- krilly 7y agoYou say this as if it wasn't the message of the article. Did you even read it?
- kpennell 7y agoThat's how Mitt Romney got rich
- perseusmandate 7y agoMitt Romney's deals at Bain Capital were overwhelmingly growth equity oriented
- JetSpiegel 7y ago"Corporations are people, my friend"