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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 sa
by 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 agoSo 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.