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I didn't know what "PE looting" meant when I saw this title, so here's what I would say it is based on the article: When a private equity (PE) firm buys a comp
by civicsquid 7y ago
I didn't know what "PE looting" meant when I saw this title, so here's what I would say it is based on the article:
When a private equity (PE) firm buys a company (usually taking on large debts to do so) and strips any valuable assets from it. The firm then neglects the purchased company and lets it sink, sometimes with the debt that was used to buy it in the first place.
If I misinterpreted please feel free to give feedback. I'm always curious to learn more about these types of financial distortion devices that are in play. I also figured a lot of people probably didn't know what this term meant either.
- xkcd-sucks 7y agoFrom the specific items in the article: >For example, private equity firms often sell off a company’s real estate — and then lease it back from the new owners. While this may seem an odd maneuver, the practice allows the private equity firm to distribute a quick real estate profit to their investors. The Warren proposal would block such a maneuver for the first two years after a company is purchased. >Another piece of the legislation would essentially block companies from taking “monitoring fees” or “transaction fees” out of the companies they buy. These fees simply force companies to turn over money to the private equity firms. >Finally, what may be the most critical piece of the proposal would rein in one of private equity’s characteristic methods of investment: They use a lot of debt to buy companies. That debt often becomes a burden to the company and has played a key role in many bankruptcies. The proposal would make the use of debt far less attractive for private equity firms because it would hold the private equity firms — and not just the company — responsible for its repayment.