I've been hearing a lot about private equity lately (particularly from folks who used to pursue VC money in the past). Can you expand a bit on the negatives of PE?
Not op, but as i understand it: they swoop in, load up the company with debt, fire lots of people, then go "oh, fiddlesticks.. whelp, what can ya do??" and throw up their hands as the company inevitably crumbles.
Citation: Read up on how Toys'R'Us was put through that wringer.
Edit: actually, here's a good write-up:
"Less attention was paid to the albatross that Bain, KKR, and Vornado had placed around the company’s neck. Toys “R” Us had a debt load of $1.86 billion before it was bought out. Immediately after the deal, it shouldered more than $5 billion in debt. And though sales had slumped before the deal, they held relatively steady after it, even when the Great Recession hit. The company generated $11.2 billion in sales in the 12 months before the deal; in the 12 months before November 2017, it generated $11.1 billion."
That article discusses PE rebuilding Dollar General successfully. A lot of it depends in what condition the companies are in when they get bought. It isn't all corporate raiders.
My recollection of Toys 'R' Us was actually that the owners deliberately tanked it. They may have originally wanted to save the company, but they spent years deliberately buying and selling pieces so that Toys 'R' Us would hold all the debt while the profitable pieces went elsewhere. That wasn't an accident.
"Private equity can stack the deck in other ways, too. Firms can direct businesses they own to buy other companies and then act as broker on the deals, reaping transaction fees. After its buyout, Toys “R” Us acquired a number of companies, including FAO Schwarz, eToys.com, and assets from KB Toys (itself a failed reclamation project of Bain’s). Consolidating brick-and-mortar and online toy businesses may have been a good-faith strategy. What’s certain is that the deals helped generate $128 million in transaction fees for the owners."
What the article misses is that FAO and KB were sold off before the bankruptcy, with Toys R Us keeping all the bad parts, specifically their debt.
Private equity is incompatible with "optimism" and "hope".
Even worse when it is the same company that got them listed in the first place, implying that going public was a mistake.