4 ms·

I wonder if there was an opportunity for the workers to buy the company. Even for pennies on the dollar.

dosinga 2y ago
if they are cash flow negative, that won't really help
bruce511 2y ago
Why would they want to? Since it can't afford to keep the lights on, and pay staff, and likely has debts, what possible upside would they be hoping for? There's this idea that companies would just be fine if it was owned by the workers. The truth though is much more complicated than that. Companies fail because they run out of cash. Who owns it is immaterial at that point. Are you suggesting the workers should not take salaries while they get it back on its feet? Secondly, when you buy a company you don't get access to their working capital/ cash reserves. (By definition that's just buying cash with cash). So on top of the cash-free purchase price you still need to chip in working capital, debt payments and so on. Changing ownership in a company requires a LOT more money than just the sticker price.
- pseudosavant 2y ago
  Ownership structure affects things earlier. This is too late. I’ve seen equity financed companies get “bought” by highly leveraged private equity only to be saddled with 9 figure annual interest payments suddenly. Making them unprofitable overnight. That couldn’t happen with employee ownership unless the majority of employee shares voted that way.
  - bruce511 2y ago
    So what's happening there is that the sellers are turning a long-term asset into short-term cash. The buyer is doing one of two things; either borrowing against future profit (ie taking on debt, then using profits to service the debt - a strategy that works well as long as profits can be maintained) Or they are fooling a lender into paying off the old owners, selling off the assets, and then leaving the debt unsecured in the failed business. Although typically the debt is secured elsewhere etc. To the (fired employee of the now failed business) it seems like the loan caused the company to fail, but in this scenario the company was purchased to sell the parts. The company had already failed, the owners walked away, and the new owners got to be the bad guys. Sometimes the lenders are the suckered here, but usually things are structured so the loans are in fact covered. There are other advantages to taking profit out as interest. So simply redirecting profits into interest isn't necessarily bad for the company or owners.
- rswail 2y ago
  Cash is an asset like any other, why wouldn't that be acquired when the company is purchased?
  - bruce511 2y ago
    It can be, but you pay extra for it. In other words if the company is worth n (with no cash on hand) then it's worth n+c with c cash on hand. Every transaction is different, but each one I've been involved in the cash part is simply removed from the equation. To put it another way, cash is somewhat different because the value is so easily determined. $1 costs $1. I buy a company because I value the asset more than the seller does. I see something the seller does not (or vice versa). So the value to the buyer is more than the value yo the seller. (That includes the notion of asset liquidity.) So, at a fundamental level you don't "buy cash".
    - rswail 2y ago
      I buy a company because it has something I want. The seller is selling because they no longer want what the company offers. The price I buy the company at is at least as much as the seller values it, otherwise they would not sell. If I'm buying a company out of bankruptcy then either I'm taking on both their debts and their assets (including cash), or there's some way to sequester the debts from the assets, which the creditors will not accept.
      - bruce511 2y ago
        I agree with all you are saying. None of which negates the point about nor buying cash. In the case you mention (where the company is bankrupt, it has (by definition) run out of cash. Certainly there's not enough cash lying around to move the needle.
deleted 2y ago
[deleted]
chollida1 2y ago
Possibly they could have, but why would they? The company clearly doesn't work as it is. So you buy the company and you now need $250,000 in hte next week to make payroll and rent. Where does that come from? And each 2 week period you require the same cash infusion just to keep your job while you are losing customers due to the chaos of nearly going bankrupt. Explain your thesis as to why the employees would buy the company and why they'd pay so much just to very tax inefficiently pay the money back to themselves every other week.
- F7F7F7 2y ago
  Companies don’t work until they do. Thats the new mentality anyway. And you don’t get a Series C with SVB involvement if you’re not working at some level. I’m familiar with them. Through M&A activity and debt consolidation / refi. Like visiting a proctologist dentist and then having a colonoscopy while your accountant’s scrolling through quickbooks questioning every line item out loud while the nurse is asking how many copies of keys to your house you have. Count the number of companies that wouldn’t be here today if they had their loan called at any given point.

if they are cash flow negative, that won't really help

Why would they want to? Since it can't afford to keep the lights on, and pay staff, and likely has debts, what possible upside would they be hoping for? There's this idea that companies would just be fine if it was owned by the workers. The truth though is much more complicated than that. Companies fail because they run out of cash. Who owns it is immaterial at that point. Are you suggesting the workers should not take salaries while they get it back on its feet? Secondly, when you buy a company you don't get access to their working capital/ cash reserves. (By definition that's just buying cash with cash). So on top of the cash-free purchase price you still need to chip in working capital, debt payments and so on. Changing ownership in a company requires a LOT more money than just the sticker price.

pseudosavant 2y ago
Ownership structure affects things earlier. This is too late. I’ve seen equity financed companies get “bought” by highly leveraged private equity only to be saddled with 9 figure annual interest payments suddenly. Making them unprofitable overnight. That couldn’t happen with employee ownership unless the majority of employee shares voted that way.
- bruce511 2y ago
  So what's happening there is that the sellers are turning a long-term asset into short-term cash. The buyer is doing one of two things; either borrowing against future profit (ie taking on debt, then using profits to service the debt - a strategy that works well as long as profits can be maintained) Or they are fooling a lender into paying off the old owners, selling off the assets, and then leaving the debt unsecured in the failed business. Although typically the debt is secured elsewhere etc. To the (fired employee of the now failed business) it seems like the loan caused the company to fail, but in this scenario the company was purchased to sell the parts. The company had already failed, the owners walked away, and the new owners got to be the bad guys. Sometimes the lenders are the suckered here, but usually things are structured so the loans are in fact covered. There are other advantages to taking profit out as interest. So simply redirecting profits into interest isn't necessarily bad for the company or owners.
rswail 2y ago
Cash is an asset like any other, why wouldn't that be acquired when the company is purchased?
- bruce511 2y ago
  It can be, but you pay extra for it. In other words if the company is worth n (with no cash on hand) then it's worth n+c with c cash on hand. Every transaction is different, but each one I've been involved in the cash part is simply removed from the equation. To put it another way, cash is somewhat different because the value is so easily determined. $1 costs $1. I buy a company because I value the asset more than the seller does. I see something the seller does not (or vice versa). So the value to the buyer is more than the value yo the seller. (That includes the notion of asset liquidity.) So, at a fundamental level you don't "buy cash".
  - rswail 2y ago
    I buy a company because it has something I want. The seller is selling because they no longer want what the company offers. The price I buy the company at is at least as much as the seller values it, otherwise they would not sell. If I'm buying a company out of bankruptcy then either I'm taking on both their debts and their assets (including cash), or there's some way to sequester the debts from the assets, which the creditors will not accept.
    - bruce511 2y ago
      I agree with all you are saying. None of which negates the point about nor buying cash. In the case you mention (where the company is bankrupt, it has (by definition) run out of cash. Certainly there's not enough cash lying around to move the needle.

deleted 2y ago

[deleted]

chollida1 2y ago

Possibly they could have, but why would they? The company clearly doesn't work as it is. So you buy the company and you now need $250,000 in hte next week to make payroll and rent. Where does that come from? And each 2 week period you require the same cash infusion just to keep your job while you are losing customers due to the chaos of nearly going bankrupt. Explain your thesis as to why the employees would buy the company and why they'd pay so much just to very tax inefficiently pay the money back to themselves every other week.

F7F7F7 2y ago
Companies don’t work until they do. Thats the new mentality anyway. And you don’t get a Series C with SVB involvement if you’re not working at some level. I’m familiar with them. Through M&A activity and debt consolidation / refi. Like visiting a proctologist dentist and then having a colonoscopy while your accountant’s scrolling through quickbooks questioning every line item out loud while the nurse is asking how many copies of keys to your house you have. Count the number of companies that wouldn’t be here today if they had their loan called at any given point.