[nashashmi]

Gibson Greeting Cards (1982) by Wesray Capital, Bought for $80M (only $1M in equity), sold for $220M within 18 months

Hilton Hotels (2007) by Blackstone Group, Despite the 2008 crisis, refinanced and sold with a $14B profit

Safeway (1986) by Kohlberg Kravis Roberts, Restructured, sold underperforming stores, returned to profitability

HCA Healthcare (2006) by KKR & Bain Capital, Strong cash flow supported debt; remained stable and profitable

Dell Technologies (2013), Silver Lake Partners, Went private, streamlined operations, and rebounded strongly

RJR Nabisco (1989) by Kohlberg Kravis Roberts Iconic LBO; despite controversy, generated $53M profit

[stogot]

So 50/50 odds on completely destroying the company (and jobs) or generating some minor wealth for a handful of investors?

[Invictus0]

Try to think clearly for a second. Why would there be a trillion dollar PE ecosystem if this always completely destroyed the company?

[outside2344]

The PE firms strip the assets, aka have them take on huge amounts of debt, sell assets, and then pay them dividends etc. before they collapse.

[NickM]

Why would banks keep giving PE firms loans for these kinds of deals if the companies inevitably collapse and default on those loans?

Not trying to defend PE here, but this narrative doesn't make sense to me.

[rchaud]

First of all, investment banks are awash in capital thanks to 14 years of ZIRP and massive profitability. They don't like keeping cash on hand, so that means they dole it out into investments, some of which will flop.

Second, banks are the primary creditor in these deals, meaning they get paid first. They don't do these deals without ensuring that the company has enough saleable assets to ensure they get their pound of flesh. Lots of companies have billions in pension-earmarked reserves they don't have to pay out on if they declare bankruptcy. Guess who gets first dibs on that cash.

Third, they can shift the risk by selling their interest in these companies to another party. They are not stuck with it forever.

[lesuorac]

Image you have a goose that lays golden eggs. You could just keep selling the eggs every year but somebody comes up to you and offers you 2 billion dollars now and the public market values your golden egg business at 1.5 billion dollars so it seems fair.

It turns out that if you kill the goose there's a cache of 3 billion dollars worth of eggs within it.

The goose is gone and everybody made money off of it's demise.

---

PE (not always) is effective at finding under-valued companies and ensuring that they record the value on the PE's books.

[stogot]

Because it sometimes works. But it also sometimes destroys the companies.

But the “works” here is to just make PE richer in the short term, not to actually improve the company in the long term. That short term thinking leads to many impractical decisions that have caused bankruptcies

[mlinhares]

Because the goal is short term profit, not long term business success. It makes absolutely no difference if the company survives the process or not, what matters is that the PE firms extract their money from the process.

[Invictus0]

I think if you actually reflect on the matter you would realize that PE firms need to be able to sell the business in order to make money, and that they do in fact sell the business for a profit in the majority of cases. The extremely rare cases of yore where you could buy a business for less than the value of its assets and simply sell off the assets and leave the carcass for bankruptcy are long gone.

[consumer451]

What pressures are there on PE firms do things with more long term "good for the USA" type of thinking?

[stogot]

Since when is 50/50 an odds of “completely”? Think clearly for a second

[nashashmi]

Imagine if PE took over Circuit City