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Small(er) businesses can be poorly run. In theory private equity takes knowledge already in practise in other locations and shares it with this new location, im
by afavour 12d ago
Small(er) businesses can be poorly run. In theory private equity takes knowledge already in practise in other locations and shares it with this new location, improving results. Downside of course is that they care a lot less about that specific location than the previous owners would have.
One specific practise I’d like to see banned is private equity buying companies with debt the company then assumes. It staggers me that it’s legal.
- lazide 12d agoI’ve literally never seen that happen. what does always happen is cutting ‘non essentials’ that are essential until the company implodes.
- ironSkillet 12d agoThat is one of the core strategies in the private equity playbook.
- 0xDEAFBEAD 12d agoWhy would it be profitable for the company they just paid a lot of money to acquire to implode?
- TylerE 12d agoThey sell off everything of value before it implodes and cash out. THEN they let it implode with nothing but the debt remaining.
- 0xDEAFBEAD 12d agoWhy would banks lend to such an enterprise if they don't expect to get paid back?
- TylerE 12d agoThey don't. They lend to the target company BEFORE the buyout.
- lazide 12d agothey usually get the company to take out the debt to actually be acquired. it’s the key first step. then they extract as much cash as possible while the debt ballons. so called ‘extracting brand value’. the investors usually do quite well
- afavour 12d agoI suspect there’s a survival bias at work here. The PE purchased companies that continued to thrive are ones you probably never even knew got bought out.
- lazide 12d agocites?
- alex43578 12d agoHilton Hotels, Dell, Burger King, Dunkin Donuts? Google works if you use it.
- lazide 12d agoI guess not everything is a Sears, K-Mart, LastPass, HCR/Carlyle, etc, etc. [https://www.congress.gov/119/meeting/house/118337/documents/HHRG-119-SM27-20250605-SD004.pdf https://www.congress.gov/119/meeting/house/118337/documents/...].
- AngryData 12d agoThose are certainly some... examples. Not things I would hold up as a sign that PE is a good thing since all those businesses look like they are perpetually on the edge of collapse around my area. Dilapidated, mostly empty parking lots, poor service from understaffing. I think we would all be better off if those businesses died and left room for others to replace them.
- thaumasiotes 12d ago> One specific practise I’d like to see banned is private equity buying companies with debt the company then assumes. It staggers me that it’s legal. What alternative are you imagining?
- dghlsakjg 12d agoThat the buying company keeps the debt on their books instead of offloading it onto the company that they bought.
- alex43578 12d agoSo form a shell buying company A and secure the debt of company A with the assets of the newly purchased company B? Congrats, you added about 5 minutes of paperwork.
- dghlsakjg 12d agoHow would that be an example of what I described? If you are putting the debt on a shell company’s books, you aren’t putting debt on the buying companies books.
- alex43578 12d agoThe buying company is the shell company. Are you proposing that only an established company can buy another business with profits from their operations or something? If I start a company with a loan and want to buy 3 HVAC companies in my area, is that allowed under your rule?
- dghlsakjg 12d agoI’m arguing against the practice of leveraged buyouts. You aren’t describing all of the steps of a leveraged buyout. You are just describing a buyout. Buyouts are fine. Leveraged buyouts are what I think is not. I cannot be more clear or keep explaining until you go learn the difference since you aren’t understanding what I’m saying.
- nradov 12d agoThat's a silly suggestion. The lenders buying that debt know what they're getting into. Those are sophisticated investors. If lenders want to limit what borrowers are allowed to do then there's nothing stopping them from imposing debt covenants on the deal. No need for the government to ban anything.