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There all sorts of companies PE invests in, few are dying. Typically it’s companies where your firm can add value. They can be 1) Poorly run, just needing bett
by valuearb 7y ago
There all sorts of companies PE invests in, few are dying. Typically it’s companies where your firm can add value. They can be
1) Poorly run, just needing better management.
2) Poorly capitalized, just needing access to more capital to prosper.
3) Businesses that can be franchises, like restaurants.
4) regional businesses that can be combined (rolled up) into a more valuable national business.
5) National businesses that can be expanded internationally.
6) Liquidations, where the operating business is no longer viable but there are assets (real estate, buildings, patents) valuable enough to turn a profit on the purchase.
7) Inefficiently run with hidden assets. Companies that might own their real estate for example, but don’t reflect that in their price. You buy the company and sell the real estate to fund part of the purchase.
PE firms are no different than any VC, hedge fund or investment partnership. They usually have their own investors and get paid a yearly percentage for managing the investments, and a share of the profits.
Some of their investments will fail, some will succeed. If they make good profits for their investors they’ll get rich and do it as long as they want. If they lose money or struggle, they’ll lose their investors and have to close shop.
- JamesBarney 7y agoOne of the articles he linked to is #7. It describes a PE firm that buys a hospitals and immediately makes a profit selling the land in a sale-leaseback. Then the article goes into how the hospital is failing because of this. No what you had a failing hospital and a successful real estate company masquerading as a mildly profitable hospital.
- valuearb 7y agoIf the hospital can’t afford market rent, it was never successful to begin with.
- cheriot 7y agoYet it's also common for PE to take a perfectly fine business, lever it up in pursuit of higher returns, and watch it shrivel under the debt load. That risk may be fine for PE investors, but there are a lot of industries where the "creative" side of creative destruction can't keep up with the debt cycle.
- dehrmann 7y agoDoes PE usually go after "perfectly fine businesses?" Usually they go after businesses with some sort of problem.
- valuearb 7y agoYea, a perfectly fine business sells for a perfectly high price. There is little room to improve it and sell it, and leverage can only go so far, and brings lots of risks.
- cheriot 7y agoKraft wasn't taken over buy 3G because it was loosing money, it just wasn't profitable "enough". That someone thinks there's more money to be made is not the same thing as a problem. The Sealy LBO is another one that got more attention than usual because of Mitt Romney's association.