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I think they do what other private equity groups do with medium sized tech businesses. These companies are usually profitable to some degree, but don’t really h

I think they do what other private equity groups do with medium sized tech businesses. These companies are usually profitable to some degree, but don’t really have a pathway to growth. This generally makes the unattractive to most investors. However, companies pick up these brands, remove redundancies by combining core aspects of different businesses, try to increase profit margin and just ride it out. Rinse and repeat and you build a portfolio. Once one dries up, you pick up another. A bit like combining good and bad loans together. As a package the good ones can support the bad ones to a degree.

CPLX 5y ago
That’s a highly charitable take on what private equity actually does with legacy businesses. In reality they feast on them like bloodsucking leaches. The usual playbook is to load the companies down with as much debt as they possibly can, and use the loan proceeds to pay themselves lucrative fees and dividends. Then they cut expenses to the core and demolish the quality of the product or service and see how long it takes people who aren’t paying attention to realize that the 100 year old brand with a reputation for quality doesn’t really exist any more. Once that’s done they leave the loan underwriters and current employees holding the bag and abscond to a vacation destination of their choice with the money and discuss their next target over Aperol spritzers.
- tehjoker 5y ago
  Can you clarify something that I never understood about this process, are they literally using the loan money to pay themselves?
- peytoncasper 5y ago
  I don't technically disagree with you, but I do think this is just a bit hyperbolic. If you just spent $2B on a company, you probably did it to make money at the end of the day. After all, business is rarely charitable. The company you just acquired likely has a declining and unhealthy cash flow and little to no cash reserves. You're unlikely to go and then infuse it with more of your capital. As a result, you're going to turn to outside capital to finance whatever plans you have. These plans are used as justification to creditors with which to take out these loans at whatever interest rate they deem appropriate. Additionally, you're likely going to reward yourself for any profits or turn around that does happen at the company. After all, you do have $2B tied up in this company. I agree, these companies are now more than likely walking corpses. As an employee, I probably wouldn't want to be stuck there as there is likely going to be little spent on employee retention and growth. However, it also does provide extended life to these brands that with a declining cash flow and no outside leadership change would likely meet the same fate and likely much quicker at that. As with everything, there is a spectrum. There are likely examples that did exactly what you just said. And there are also probably examples where the business turned around and went public again some day. The vast majority are going to sit in the middle, with no sinister plan and slowly fade away as the last customers stop giving them money. I think it's unfair to paint the companies being acquired as perfect companies. They have likely already lost customer confidence and as I mentioned in my first post can't find a path to growth. After all, that is why they are in this position to begin with. The morality of this process can certainly be debated, but I think it's fair to say that most people don't invest a lot of money into a business just to run it into the ground as quickly as possible. It does exist, no doubt, but running a firesale is far from the most profitable way earn money on your investment.

CPLX 5y ago

That’s a highly charitable take on what private equity actually does with legacy businesses. In reality they feast on them like bloodsucking leaches. The usual playbook is to load the companies down with as much debt as they possibly can, and use the loan proceeds to pay themselves lucrative fees and dividends. Then they cut expenses to the core and demolish the quality of the product or service and see how long it takes people who aren’t paying attention to realize that the 100 year old brand with a reputation for quality doesn’t really exist any more. Once that’s done they leave the loan underwriters and current employees holding the bag and abscond to a vacation destination of their choice with the money and discuss their next target over Aperol spritzers.

tehjoker 5y ago
Can you clarify something that I never understood about this process, are they literally using the loan money to pay themselves?
peytoncasper 5y ago
I don't technically disagree with you, but I do think this is just a bit hyperbolic. If you just spent $2B on a company, you probably did it to make money at the end of the day. After all, business is rarely charitable. The company you just acquired likely has a declining and unhealthy cash flow and little to no cash reserves. You're unlikely to go and then infuse it with more of your capital. As a result, you're going to turn to outside capital to finance whatever plans you have. These plans are used as justification to creditors with which to take out these loans at whatever interest rate they deem appropriate. Additionally, you're likely going to reward yourself for any profits or turn around that does happen at the company. After all, you do have $2B tied up in this company. I agree, these companies are now more than likely walking corpses. As an employee, I probably wouldn't want to be stuck there as there is likely going to be little spent on employee retention and growth. However, it also does provide extended life to these brands that with a declining cash flow and no outside leadership change would likely meet the same fate and likely much quicker at that. As with everything, there is a spectrum. There are likely examples that did exactly what you just said. And there are also probably examples where the business turned around and went public again some day. The vast majority are going to sit in the middle, with no sinister plan and slowly fade away as the last customers stop giving them money. I think it's unfair to paint the companies being acquired as perfect companies. They have likely already lost customer confidence and as I mentioned in my first post can't find a path to growth. After all, that is why they are in this position to begin with. The morality of this process can certainly be debated, but I think it's fair to say that most people don't invest a lot of money into a business just to run it into the ground as quickly as possible. It does exist, no doubt, but running a firesale is far from the most profitable way earn money on your investment.