What are the success stories of private equity firms taking over a corporation? (Where success is the products are still made, quality and staffing is maintained at previous levels)
Think about it - you're having beers with a friend and he goes "so the company got bought out and then nothing changed". blank stares as everyone waits for the point / rest of story
You hear only of the dramatic ones. Bit like news is nearly entirely bad - bad news sells.
People forget that PE firms are buying equity. If the company prospers they get the upside. Contrary to popular hn belief destroying the thing you just paid a lot of money for is not standard game plan.
>Where success is the products are still made, quality and staffing is maintained
The world you describe is not the world we live in. Shareholder objectives - PE or otherwise - is to maximize value. It's not an artisanal hobby where highest possible quality product is the end goal.
None. Private equity's entire business model is to suck the quality and staffing out of the product and make money off the gap between the product getting cheaper and people moving to a viable alternative.
PE is basically a parasitic business, designed to suck money out of the purchased company until it collapses. You do this by borrowing a ton of money to purchase the company. Then for the privilege the company pays the buyer a special bonus that conveniently covers its costs (and often more) out of the cash it had on hand when bought. Then the buyer continues to get various payment streams, like guaranteed dividends or all sorts of other obligations, until the company collapses.
Sad to say I'm not exaggerating.
I say "basically" because there are a couple of exceptions. Dell was purchased in a special deal with the founder so that the company actually operates but the founder was enriched in the process.
VC is a branch of private equity (an almost invisible pimple on the PE business TBH) where they don't buy the whole company and hope to make money on the IPO. But it's a small business: there are numerous companies out there with an asset base larger than the entire VC industry.
That's been my experience twice now personally, and having read numerous other accounts. They'll always tell you after purchase that's not the case, how they see long term value, want to grow it, etc etc.
It's never true - if PE buys your company, run for the hills.
Basically you get rid of the quarterly reporting grind and it lets you focus on the business even if certain initiatives are going to depress shorter term results, but pay off over the long term.
Dell is a special case because it was the original founder who delisted the stock. Not some Bain Capital type firm that was just buying it to suck the marrow out of the bones before tossing it in the trash.
Safeway might be OK for shoppers, but it's terrible for the workers. My Grandma worked there from 1965 to 1985, and watched the decline in the 80s. It was a really good paying job with a good union and good benefits when she started. My brother and cousin worked there a decade ago. Today, the union is a joke, and the hours and pay are the same as any other minimum wage job.
Berkshire Hathaway is a public company and IIRC Buffet only owns about 15% of it. So it really that different from a large corporation with many subsidiaries which also runs an actively managed investment fund at the same time?
There are many such companies (otherwise PE as a concept would eventually die out as the supply of fools becomes exhausted). But just one example: Gibson.
To be fair, SUSE before Novell was in a worse state. If I’m not mistaken they were close to missing payroll and has tried to shop themselves to Sun before Novell agreed to buy them.
Evil IBM(TM) threw in $50m to help the deal along and preserve SuSE for its hardware.
Also, it didn’t help that SUSE folks and Ximian folks were like oil and water. Novell tried a combo that made sense on paper but there was culture clash.
Steinway is my go-to example, but it was done on a very specific (hyper-long-term) investment thesis, not a standard "corporate raider" investment. I'm guessing that SUSE is not in the same position.
lol. This does not happen, at least not intentionally. PE takeovers are solely about turning companies with a relatively stable revenue stream into a packageable financial product. Huge cuts will be made to staff, support, and R&D to get expenses to a specific level, and large amounts of debt will be taken on under the company's name, to deliver a specific ROI to the PE investors over a relatively short term window of four to five years, all under the assumption that the company will be able to coast for that time on its previous success, after which point it can be sold for IP, trademarks, and any physical plant, or just allowed to go bankrupt under the unsustainable debt load and lack of investment.
That's the purpose of PE firms. They accept pre-investment in this sort of scheme, and do this with several companies at once over a 5-7 year total period, taking a slice of the revenue with no capital risk of their own, and the investors get a good 5-7 years of 12-18% ROI. The companies are trash at the end of the cycle but hey, that's capitalism.
Source: I was "lucky" enough to work for a tech startup through its IPO period after which it was acquired by PE, and exactly the above happened. We had the opportunity to "buy in" to the investment cycle with our own money, and so they had a pretty detailed presentation about exactly how this all works. I was somewhat surprised by how honest they were willing to be with the employees (although it did take a little bit of reading between the lines).
