richardhutnik said:
I am not talking about a case where someone takes their own money, buys a company out, and transforms it. What I am talking about is where is where a company comes in, borrows to the hilt to buy the assets of a company, and then saddles the company with the debt they used. The person didn't use their own money, but the money of others. The company ends up with a lot of debt it didn't have before, and is worse off. Only difference would end up being the management knowledge of the new ownership. Thing that happens is that the private equity firm puts together a deal, walks off with profits, and leaves the company with a lot of debt. THESE situations I am asking are why they are good: http://www.nytimes.com/2009/10/05/business/economy/05simmons.html?_r=1
Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money. For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year. But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.
And this is good how for the company in question? |
glad to see you can cherry pick one scenario in which it didn't work out for said company. What about the the companies that it did help? What about Domino's Pizza that bain leveraged in 1998? Did it close down or did it expand? Look, I can cherry pick too.
Look, a leveraged buyout is pretty much the same thing as a mortgage to a house. It has pretty much the exact same risks. Leveraged buyouts can help companies expand without having to have the capital on hand. This can lead to greater profit and even more jobs created. Companies targeted for leveraged buyouts often have obvious shortcomings that they are unwilling or unable to address and the buyout can often help them with that through restructuring.
On the flip side, companies aquired through a leveraged buyout are often faced with increased debt. If they can't expand and generate more profit then these companies go bankrupt. The extra incentive to increase profit can also lead to job losses in the short term.
When it comes to leveraged buyouts, the buisness has to put money into the aquistion as well. They aren't just securing the buyout and walking away, they have a stake in the business as well. As with any business venture there are pros and cons. If you want to focus on the cons and ignore the pros, that is stupid. Its like saying there is nothing good about having a mortgage on a house because it increases your debt and might lead to bankruptcy if you can't keep ahead of the debt. There are obviously pro's to having a mortgage to a house, just as there are pros to a leveraged buyout.
