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I'm not saying there are no inefficiently run companies in the world, but these PE buyouts all seem to follow the same plan. Buy a company, pay yourself a fat
by x0x0 12y ago
I'm not saying there are no inefficiently run companies in the world, but these PE buyouts all seem to follow the same plan.
Buy a company, pay yourself a fat fee. Force the company to borrow a ton of money and pay yourselves back. Start cutting costs. Some is fat, but much of it (like Mark Hurd slashing R&D at HP) is cutting R&D or sales in ways that don't hurt for long enough for the PE firm to cash out. It's a hell of a business model, particularly when it seems like these PE firms often financial engineer themselves into a position where they succeed financially whether the acquired company succeeds or fails.
It seems to often work out well for the PE firm, and much less well for the company, customers, and employees.
- walterbell 12y agohttp://www.newyorker.com/magazine/2012/01/30/private-inequity http://www.newyorker.com/magazine/2012/01/30/private-inequit... "Having already piled companies high with debt in order to buy them, many private-equity funds had their companies borrow even more, and then used that money to pay themselves huge “special dividends.” ..As if this weren’t galling enough, taxpayers are left on the hook. Interest payments on all that debt are tax-deductible; when pensions are dumped, a federal agency called the Pension Benefit Guaranty Corporation picks up the tab; and the money that the dealmakers earn is taxed at a much lower rate than normal income would be, thanks to the so-called “carried interest” loophole."