Hacker News new | ask | show | jobs
by triceratops 49 days ago
Is it still "private equity" if a public company takes a loan to buy another public company?
2 comments

It's still an LBO, in effect borrowing against the target to get control of it.
Is that bad? No one is forcing the lenders to make that bet, and the lenders can lose money if the acquired company can't pay back the loan.
It may not be bad for the buyers, lenders, or the previous owners who all profit. But even then it could still be bad for regular people/society at large if it incentivizes anti-consumer practices by financial necessity when an otherwise healthy business suddenly has billions of dollars of debt it has to pay off ASAP. In which case it sort of looks like a simple transfer of wealth from existing customers to the organizers of the leveraged buyout with no broader societal value provided like new jobs created, R&D, etc.
You have a company "funded" with its own equity and now you turned it into a company exclusively made out of outside capital and an obligation to realize the terms of said outside capital.

Before, you could have had bad years in-between the good years, now you're only permitted to have good years and by good years I mean years that honor the financing terms.

When you understand this, you realize that functionally speaking, nothing has changed really, other than that the cost of financing has gone up significantly, since the company can't rely on its own equity anymore. Now the company can no longer earn what it currently earns, it needs to earn that plus some. Hence the deal was nothing but a burden to the acquired company.

The previous owners realized the value of their shares and don't have anything to complain about. The new owner acquired control over the company they wanted. So who is left to carry the burden? The employees and the customers.

Why did the previous owners sell?
In theory, the high share price driven by the LBO offer.
Seems reasonable for two consenting parties to mutually agree to a deal.
OP is just saying that PE uses the same playbook, not that this move is "private equity".