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Sure, private equity can mean a lot of things, but for Bain, the caricature is appropriate: • 1988: Bain put $10 million down to buy Stage Stores, and in the m

Sure, private equity can mean a lot of things, but for Bain, the caricature is appropriate: • 1988: Bain put $10 million down to buy Stage Stores, and in the mid-’90s took it public, collecting $184 million from stock offerings. Stage filed for bankruptcy in 2000. • 1992: Bain bought American Pad & Paper, investing $5 million, and collected $107 million from dividends. The business filed for bankruptcy in 2000. • 1993: Bain invested $25 million when buying GS Industries, and received $58 million from dividends. GS filed for bankruptcy in 2001. • 1994: Bain put $27 million down to buy medical equipment maker Dade Behring. Dade borrowed $230 million to buy some of its shares. Dade went bankrupt in 2002. • 1997: Bain invested $41 million when buying Details, and collected at least $70 million from stock offerings. The company filed for bankruptcy in 2003.

JumpCrisscross 6y ago
> for Bain, the caricature is appropriate Not mounting a general defense of leveraged buyouts. Just against the point that private equity, or Bain for that matter, tends to guide companies into bankruptcy. It looks like Bain did about 68 deals in the 1990s [1]. About five of them went bankrupt, a 7% frequency. Even if we double that to 10, it's about a 15% frequency. That's high! But it doesn't suggest a norm. By and large, private equity-backed companies don't end up in bankruptcy. That doesn't mean everything is perfect. But the facts don't sustain this line of attack. [1] https://en.wikipedia.org/wiki/Bain_Capital https://en.wikipedia.org/wiki/Bain_Capital
- netcan 6y ago
  Since we're down to argueing degrees... Of course it's not deterministic. If 100% (or even 15%) went bankrupt, no one would finance them. It's impossible to get to this point. Every deal is a snowflake, but the reductive caricature of Bain and "private equity leveraged buyouts" is: "(1)buy a company. (2) get your money back quickly by borrowing on behalf of the company (3) profit on your free option. This caricature is not that far from the truth, as caricatures go, and it's a pretty good guideline to speculations about what they plan to do with Virgin Blue. My guess is that a covid-related bailout or stimulus will provide the capital. Again, situations differ, but generally these deals don't capitalize a company... lenders do. What they bring to the table is risk tolerance and a mercenary attitude... much of it related to the free option they are exercising.
  - formercoder 6y ago
    How can you argue that this strategy is a “good guideline” of what they are planning to do with this asset when it’s only been the result of 15% of previous assets?
    - __s 6y ago
      1-out-of-6 might be high. But true, most businesses that are having to sell out are probably on their way out, so maybe 1-out-of-6 is low. Would have to compare relative numbers of roi to overall business There's also the thought that they should be making their profits from the 85% that succeed, as opposed to not taking a loss on 15% which fail. But question then becomes who's actually losing out on these 15%? ie who's actually paying for the risk, since it seems like a "heads I win, tails you lose" arrangement if losses on 15% aren't being repaid by profits from 85%
      - abakker 6y ago
        I do not think "most businesses that are having to sell out are probably on their way out" is even remotely born out by fact. Many businesses - Dell, Marketo, Informatica, have been bought by PE when they wanted to restructure or change their operating models. But, those companies are not dead or gone. There is nuance here, and the data suggests that bankruptcy is not the end state of every PE buyout.
      - formercoder 6y ago
        Doesn’t have anything to do with “having to sell out.” Often management gets rollover equity and participates in the upside of the deal.
    - netcan 6y ago
      I'm not arguing that bankruptcy is part of the strategy. The strategy is about "how to buy a company for free, without downside liabilities." This, results in bankruptcy sometimes... significantly less than 15% of the time, I imagine. What I am predicting is that Bain will leverage this asset to borrow, and use this money to pay themselves back whatever they put in. At this point they have no money in the deal... a free option. This is just what a leveraged buyout is, and Bain does leveraged buyouts... one way or another.
rayiner 6y ago
I don’t get it. Bain likely invested in hundreds of companies in that time frame. What conclusions can you draw from these instances? (Moreover, it looks like these companies went bankrupt in the early 2000s recession, like thousands of others.)
mam2 6y ago
I'm confused how a compagny who goes bankrupt ~8 years later is supposed to be the end of the world
buyx 6y ago
You can add Edgars, one of South Africa's oldest, most profitable, and largest retailers to that list. They filed for bankruptcy recently in the aftermath of a botched Bain Capital 3.5bn USD buyout in 2007. https://businesstech.co.za/news/business/407279/edgars-creditors-include-goldman-standard-bank-and-absa/ https://businesstech.co.za/news/business/407279/edgars-credi...
- smabie 6y ago
  Considering the state of things in SA, I would hardly call that Bain's fault. Well, of course it's their fault, but there's a massive amount of systemic risk that is common to all companies in SA.
bradleybuda 6y ago
Another anecdote: • 2005: Bain buys Dunkin' Donuts for $2.4B. In the ensuing 15 years, the number of stores has doubled from 6,500 to 13,000. https://www.nytimes.com/2005/12/13/business/parent-of-dunkin-donuts-sold-for-24-billion-to-equity-firms.html https://www.nytimes.com/2005/12/13/business/parent-of-dunkin... When you buy distressed companies, you are going to have a lot of failures - you can't save them all. You are also going to have enough successes to justify those failures, otherwise you won't have any LPs for your next fund.

JumpCrisscross 6y ago

> for Bain, the caricature is appropriate Not mounting a general defense of leveraged buyouts. Just against the point that private equity, or Bain for that matter, tends to guide companies into bankruptcy. It looks like Bain did about 68 deals in the 1990s [1]. About five of them went bankrupt, a 7% frequency. Even if we double that to 10, it's about a 15% frequency. That's high! But it doesn't suggest a norm. By and large, private equity-backed companies don't end up in bankruptcy. That doesn't mean everything is perfect. But the facts don't sustain this line of attack. [1] https://en.wikipedia.org/wiki/Bain_Capital https://en.wikipedia.org/wiki/Bain_Capital

netcan 6y ago
Since we're down to argueing degrees... Of course it's not deterministic. If 100% (or even 15%) went bankrupt, no one would finance them. It's impossible to get to this point. Every deal is a snowflake, but the reductive caricature of Bain and "private equity leveraged buyouts" is: "(1)buy a company. (2) get your money back quickly by borrowing on behalf of the company (3) profit on your free option. This caricature is not that far from the truth, as caricatures go, and it's a pretty good guideline to speculations about what they plan to do with Virgin Blue. My guess is that a covid-related bailout or stimulus will provide the capital. Again, situations differ, but generally these deals don't capitalize a company... lenders do. What they bring to the table is risk tolerance and a mercenary attitude... much of it related to the free option they are exercising.
- formercoder 6y ago
  How can you argue that this strategy is a “good guideline” of what they are planning to do with this asset when it’s only been the result of 15% of previous assets?
  - __s 6y ago
    1-out-of-6 might be high. But true, most businesses that are having to sell out are probably on their way out, so maybe 1-out-of-6 is low. Would have to compare relative numbers of roi to overall business There's also the thought that they should be making their profits from the 85% that succeed, as opposed to not taking a loss on 15% which fail. But question then becomes who's actually losing out on these 15%? ie who's actually paying for the risk, since it seems like a "heads I win, tails you lose" arrangement if losses on 15% aren't being repaid by profits from 85%
    - abakker 6y ago
      I do not think "most businesses that are having to sell out are probably on their way out" is even remotely born out by fact. Many businesses - Dell, Marketo, Informatica, have been bought by PE when they wanted to restructure or change their operating models. But, those companies are not dead or gone. There is nuance here, and the data suggests that bankruptcy is not the end state of every PE buyout.
    - formercoder 6y ago
      Doesn’t have anything to do with “having to sell out.” Often management gets rollover equity and participates in the upside of the deal.
  - netcan 6y ago
    I'm not arguing that bankruptcy is part of the strategy. The strategy is about "how to buy a company for free, without downside liabilities." This, results in bankruptcy sometimes... significantly less than 15% of the time, I imagine. What I am predicting is that Bain will leverage this asset to borrow, and use this money to pay themselves back whatever they put in. At this point they have no money in the deal... a free option. This is just what a leveraged buyout is, and Bain does leveraged buyouts... one way or another.

rayiner 6y ago

I don’t get it. Bain likely invested in hundreds of companies in that time frame. What conclusions can you draw from these instances? (Moreover, it looks like these companies went bankrupt in the early 2000s recession, like thousands of others.)

mam2 6y ago

I'm confused how a compagny who goes bankrupt ~8 years later is supposed to be the end of the world

buyx 6y ago

You can add Edgars, one of South Africa's oldest, most profitable, and largest retailers to that list. They filed for bankruptcy recently in the aftermath of a botched Bain Capital 3.5bn USD buyout in 2007. https://businesstech.co.za/news/business/407279/edgars-creditors-include-goldman-standard-bank-and-absa/ https://businesstech.co.za/news/business/407279/edgars-credi...

smabie 6y ago
Considering the state of things in SA, I would hardly call that Bain's fault. Well, of course it's their fault, but there's a massive amount of systemic risk that is common to all companies in SA.

bradleybuda 6y ago

Another anecdote: • 2005: Bain buys Dunkin' Donuts for $2.4B. In the ensuing 15 years, the number of stores has doubled from 6,500 to 13,000. https://www.nytimes.com/2005/12/13/business/parent-of-dunkin-donuts-sold-for-24-billion-to-equity-firms.html https://www.nytimes.com/2005/12/13/business/parent-of-dunkin... When you buy distressed companies, you are going to have a lot of failures - you can't save them all. You are also going to have enough successes to justify those failures, otherwise you won't have any LPs for your next fund.