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Whatabout all those physicists who doubted Einstein, isn't that proof that most physicists are idiots? The author doesn't understand the process of how private

Whatabout all those physicists who doubted Einstein, isn't that proof that most physicists are idiots? The author doesn't understand the process of how private equity is able to use debt in their purchase process. Bankrupting a company you just bought by over leveraging often means you took a massive loss. In the cases where it doesn't, means the business was no longer viable to begin with and a necessary separation of viable assets from a dying business occurred.

raverbashing 7y ago
> Bankrupting a company you just bought by over leveraging often means you took a massive loss No, the company took a loss. You took dividends. Then the company went bankrupt. Do you disagree that's what happened with Toys'r'Us? https://www.theatlantic.com/magazine/archive/2018/07/toys-r-us-bankruptcy-private-equity/561758/ https://www.theatlantic.com/magazine/archive/2018/07/toys-r-...
- JamesBarney 7y ago
  That looks like a fairly straightforward case of private equity company buys struggling retail business, tries to turn it around, fails and company declares bankruptcy. They bought Toys R Us for a price of 6.6 billion and had 5 billion in debt after the sale. So PE borrowed 5 billion against Toys R Us and invested 1.6 billion in cash. There is no way an institutional investor let them pay themselves 1.6 billions in dividends while the company struggled. Here's an article that basically says all the PE companies lost all their money on the investment. https://www.forbes.com/sites/nathanvardi/2017/09/19/the-big-investment-firms-that-lost-1-3-billion-on-the-toys-r-us-bankruptcy/#db99357308fb https://www.forbes.com/sites/nathanvardi/2017/09/19/the-big-...
- Lazare 7y ago
  The PE firms who bought Toys "R" Us put up $1.3b of their own money to do it. After they bought it, they did, yes, extract some handsome returns in fees and salaries; by the time Toys "R" US went under in 2018, it paid its PE masters several hundred million; Bloomberg has the number as $470m all up (https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-vornado-suffer-wipeout-in-toys-r-us-bankruptcy https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-...). Certainly a case can be made that those fees, given how poorly Toys "R" Us was doing, were ridiculous. However, if you buy something for $1.3b of your own money, extract a bit less than $500m in fees, and then drive it into bankruptcy, zeroing out your investment, you haven't come out ahead, and in fact have made a major loss. Even to the extent that PE and LBOs are about looting companies at the expense of other stakeholders (which is debatable). Toys "R" Us is a pretty clear example of PE firms selecting a target in a dying line of business and getting burned. (It's worth noting that large toy chains have been flaming out globally. In most countries the large chains have either gone under or are closing stores rapidly. If a bunch of large toy store chains are having issues, but only one was bought by PE, what's the common factor here?)

raverbashing 7y ago

> Bankrupting a company you just bought by over leveraging often means you took a massive loss No, the company took a loss. You took dividends. Then the company went bankrupt. Do you disagree that's what happened with Toys'r'Us? https://www.theatlantic.com/magazine/archive/2018/07/toys-r-us-bankruptcy-private-equity/561758/ https://www.theatlantic.com/magazine/archive/2018/07/toys-r-...

JamesBarney 7y ago
That looks like a fairly straightforward case of private equity company buys struggling retail business, tries to turn it around, fails and company declares bankruptcy. They bought Toys R Us for a price of 6.6 billion and had 5 billion in debt after the sale. So PE borrowed 5 billion against Toys R Us and invested 1.6 billion in cash. There is no way an institutional investor let them pay themselves 1.6 billions in dividends while the company struggled. Here's an article that basically says all the PE companies lost all their money on the investment. https://www.forbes.com/sites/nathanvardi/2017/09/19/the-big-investment-firms-that-lost-1-3-billion-on-the-toys-r-us-bankruptcy/#db99357308fb https://www.forbes.com/sites/nathanvardi/2017/09/19/the-big-...
Lazare 7y ago
The PE firms who bought Toys "R" Us put up $1.3b of their own money to do it. After they bought it, they did, yes, extract some handsome returns in fees and salaries; by the time Toys "R" US went under in 2018, it paid its PE masters several hundred million; Bloomberg has the number as $470m all up (https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-vornado-suffer-wipeout-in-toys-r-us-bankruptcy https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-...). Certainly a case can be made that those fees, given how poorly Toys "R" Us was doing, were ridiculous. However, if you buy something for $1.3b of your own money, extract a bit less than $500m in fees, and then drive it into bankruptcy, zeroing out your investment, you haven't come out ahead, and in fact have made a major loss. Even to the extent that PE and LBOs are about looting companies at the expense of other stakeholders (which is debatable). Toys "R" Us is a pretty clear example of PE firms selecting a target in a dying line of business and getting burned. (It's worth noting that large toy chains have been flaming out globally. In most countries the large chains have either gone under or are closing stores rapidly. If a bunch of large toy store chains are having issues, but only one was bought by PE, what's the common factor here?)