How does PE survive? If these companies become instruments and now forced into bankruptcy, the PE must write off the bankruptcy (some economic advantage must exist for this path). But then the PE has to move on and find another company to possess, right? I wish we had Instant’s financials, they did seem to be selling well, so their value was based on expected sales/profit in perpetuity…bankruptcy stops that because bankruptcy has a cap, right?
I need help understanding how PE continues to exist, beyond the assumption that they got money out of the deal and will move on to another one…
Pensions should be outlawed. If employees want retirement savings they should be given money for 401k plans, not outdated and inefficient defined benefit plans.
More importantly, company-ran pension plans should be outlawed because they are a morass of perverse incentives and opportunities for quasi-legal theft. To put it simply, it is often the incentive of the people who make decisions about the pensions to mismanage them.
I suppose pensions take advantage of the time value of money; funding someone's 401k means you can't use the money to expand your business, but if you just pay them what they would have made 30 years later, you already expanded and that money is easy to come by because you're making so much now. But, it's difficult to enforce. The expansion plans could be "yacht for the CEO plans", and when retirement time comes, "oh sorry we don't have any money :(" is the likely excuse. So it doesn't seem to work anymore in practice; being optimistic about doing better than average long-term is not a viable financial strategy.
What's inefficient about pensions? Pension funds can also participate in a wider variety of investments than individual 401k holders. Employer funded 401ks (at least in Canada) are also a free payday for fund managers since they can charge a premium over "normal" funds and the investor is a captive audience since they can't move their investments elsewhere until they change jobs.
I disagree. Pension is an insurance for accidental long life. Unless pension, everyone must hoard their property enough to live until about 90-100yo. It's a big waste for society.
PE already got theirs, through the magic of a "leveraged dividend". There's really no bigger scam going these days. From the S&P rating note a couple years ago:
"U.S.-based Instant Brands Holdings Inc. (formerly known as Corelle Brands Holdings Inc.) is issuing a new $450 million first-lien term loan. The company will use the proceeds, along with $100 million in cash, to refinance its existing $200 million term loan due 2024, $100 million seller notes, and fund a $245 million dividend to shareholders."
If you subtract out the refinanced debt the new owners walked away with $100M in company cash and another $150M in borrowed money.
PE is the Ticketmaster of finance. They charge a bunch of fees, take a bunch of money, take all of the heat, and quietly funnel the money back to the founder/early investors/etc. who sold out but don't want you to know.
>and quietly funnel the money back to the founder/early investors/etc. who sold out but don't want you to know.
I don't understand this attitude. If you're in the arts I can understand why you don't want to be a "sellout", but founders/investors? Isn't the point literally to sell out?
Some founders are legitimately in it for the long haul and treat working for the company they founded as their career. I don't know how common they are, but I was lucky to work for one for about a decade.
The fact that they own and operate a lot of sites that present themselves as part of the secondary market, and sell first-release tickets there, is not widely publicised; nor is the fact that many of the bullshit fees they attach to ticket sales are actually at the artist's request and paid to them.
PE continues to exist by gaming the system: As others on this thread have speculated, driving a company into bankruptcy can shed pension obligations and enable breaking other contracts, leases, etc. Hence the paradox of everyone having these seemingly very popular products while the company is "bankrupt." Bankruptcy is not a loss for PE, yet, anyway. Which is why there is a perverse incentive to "go bankrupt" in large measure due to LBO loans, while there is plenty of brand equity and other assets to propel future sales.
PE exists because the cases you hear about are the failures. It would be like looking at the products of Google that never made money and then wondering how Google runs, you're not looking at the full picture. For every failure story like this, there are numerous other firms where PE has come up, removed a bunch of inefficiencies, driven up profits, and then moved on. It is just a more involved form of VC investing, and in that world failures are even more common.
Sure, PE is bigger than this. But isn’t the issue people are having is that this “failure” isn’t a failure (PE gains something)…it’s part of doing business as a PE firm?
"Private Equity" is a bit too broad of a term to have a single explanation (i.e. there are a few different categories of PE strategy).
In its purest form resembling instance, PE is a decomposer. It takes a business that isn't particularly healthy (due to mismanagement, sector headwinds, etc.), and efficiently disintegrates it into raw material (various forms of capital, essentially) for eventual re-allocation elsewhere. It profits and reproduces as a side-effect of playing its role in the recycle of raw material.
It's sad because a company that played a meaningful role for people and other companies is dying and being sold for parts, but it's the cycle of life – not every company is meant to endure indefinitely.
I don’t know why you’re trying to naturalize private equity behaviour. It’s not some immutable law of nature, it’s a shitty consequence of our current set of laws and economic system. Our society could be better.
I mean, yeah, death is a shitty consequence of life.
The executives and boards who sell to these kinds of private equity companies know exactly what they’re signing up for. It’s a parasitic relationship, it isn’t dignified, but it’s less wasteful in some global market sense than self-immolation (i.e. ceasing operations).
>It's sad because a company that played a meaningful role for people and other companies is dying and being sold for parts, but it's the cycle of life – not every company is meant to endure indefinitely.
It's also worth noting that Instant Pot, Pyrex, etc. will almost certainly be back.
Freedom Group's well-deserved bankruptcy (its PE-induced enshittification began in the mid-2000s with Cerberus Capital Group) and subsequent sale of Remington, Marlin, Bushmaster, etc. to other manufacturers in no way suggests their products were not financially viable, which is why the companies that acquired them are still making said products.
Interestingly, just like Pyrex, these companies all face stiff competition from products they made more than a century ago that are still as capable as the day they were made. It's a tough go when you make products that last that long and where the market is already saturated with one's own products, and means that the industry isn't actually as large as their reputation would suggest (which is partially why we never see anything truly new from it- the other part is mostly just technological stagnation over those 100 years).
As far as other firms ruined by PE (for instance, Sears)... well, they won't be back mainly because the decline was slow enough, and competitors were present enough (Amazon, in Sears' case) to make the only valuable thing about the company the cultural cachet its name held 30+ years ago.
As a sibling comment noted, you're essentially talking about the products, not the companies. They're distinct entities that are temporally correlated, but you should reason about them separately.
It's possible to have a perfectly good and marketable product, and a terribly owned or operated company.
In this case, while the company has given up the ghost, the products are still valuable. Them most likely outcome is that some other company will acquire those products/brands and continue to extract value from them on the other side of a bankruptcy.
To do anything else would be to leave money on the table, which is not what PE owners do.
Yep. There's always the assumption that just because a business sells a product or service that it is in business to sell a product or service. This is not always true.
> explain to me why this happening isn't a bad thing
because there is now a good change everyone with one of these devices is likely no longer going to get support, warranty, or updates. apps will become outdated and fall off the app store parts to repair will no longer be available etc
devices/a brand people enjoyed using is now gone because PE did what PE does and destroyed the brand for a quick buck
