[outop]

Other end goals than what?

Other end goals than making people happy by serving good quality shrimps for a reasonable price? Obviously they do.

Other end goals than making money? Of course they don't. But neither did Ray Kroc, who was extremely upfront about how McDonald's is a business whose strategy is to acquire real estate, funded by burger sales. Neither do the Waltons, who aggressively cut margins on all their products and compete to drive other retailers out of business. (Neither does General Mills, who used to own Red Lobster, nor Darden Restaurants, the public spin-off that owned Olive Garden and Red Lobster, nor Starboard Value, the activist investor that pushed for Red Lobster to be sold.) None of these companies exists because of a high-minded commitment to customer service, or fair play, or delicious food.

If turning a viable restaurant chain into a chain that no one wants to go to and then selling it is an attractive business proposition for private equity, than it should be for McDonald's and Walmart too. Unless you can point to some specific causal connection between the ownership structure and the decision about whether or not a restaurant should serve stuff that people actually want to eat?

[ImPostingOnHN]

The example of McDonald's acquiring value through real estate, funded by the business, is pretty poingnant, considering the PE firm here did the exact opposite: sold all the valuable real estate and rented it back from the buyer under crippling rent payments, funded by the business.

Why did the PE firm do that when McDonald's didn't?

[devilbunny]

Because the PE firm had partners who bought the underlying real estate for themselves.

I'm sure that there are PE firms that really do try to make businesses successful and profitable, but the vast majority are in it to sell off anything of value and dump all the ensuing debt into a company that will shortly go bankrupt.

If you own a company, and a PE firm buys one of your clients, that should be a hint to require prepayment for everything they ask for after that. They will leave you holding the bag as a creditor.

[outop]

Your first point: this would obviously be serious fraud. I'm not sure if you have any evidence of this in this particular case or is you are alleging this is standard practice by PE funds?

Your second point: why would someone lend money to a company which was going to go bankrupt? If PE firms always made the companies they controlled bankrupt, no one would lend to them.

Your third point: if someone buys a company from you, how does it make you a creditor of the bought company?

[devilbunny]

It’s not fraud if the sales are advertised and fair… even if they’re not widely publicized. But that was just spitballing.

For 2), people loan to the PE firm because they extract all the value for themselves. Their creditors get paid. People who loan to PE-controlled firms don’t seem terribly wise to me, but maybe they can model them like junk bonds.

For 3), if the firm buys one of your clients, be cautious.