Private equity firms use borrowed money to buy undervalued companies, suck the cash out of the companies in the form of special dividends and other fees, and then rake in more fees when they unload the damaged and desperate company to another private equity firm, which squeezes more value out of it, repeating the cycle until the company is bankrupt.
In the short video accompanying a New York Times article about the 133-year-old Simmons Bedding Company's fatal entanglement with the private equity industry, Charles Duhigg, a financial projects reporter, remarked, "When I was in business school, there was nothing sexier in this entire world than private equity. It's exactly where you went if you wanted to one day own an island -- and one of my classmates just bought an island."
These private investors were able to buy companies like Simmons with borrowed money and put down relatively little of their own cash. Then, not long after, they often borrowed even more money, using the company’s assets as collateral – just like home buyers who took out home equity loans on top of their first mortgages. For the financiers, the rewards were enormous.
At Simmons, Bought, Drained and Sold, Then Sent to Bankruptcy
Twice after buying Simmons, THL [Thomas H. Lee Partners of Boston] borrowed more. It used $375 million of that money to pay itself a dividend, thus recouping all of the cash it put down, and then some.
A result: THL was guaranteed a profit regardless of how Simmons performed. It did not matter that the company was left owing far more than it was worth, just as many people profited from the mortgage business while many homeowners found themselves underwater.
Wells Fargo got caught ripping off millions of customers by setting up fake accounts in their names, then billing them for “services” related to those accounts, sometimes tanking their credit-ratings, costing them jobs, even their houses — but the company says you’re not allowed to sue them because their employees fraudulently signed your name to […]
Yesterday, Congress voted to bar the FCC from ever making a rule that limits how your ISP can spy on you and sell your data, without your permission.
You might think that when companies impose crappy, abusive terms of service on their customers that the market could sort it out, by creating competition to see who could offer the best terms and thus win the business of people fed up with bad actors.
Thread count isn’t like one of those deceiving metrics like camera megapixels or Facebook friends—more threads are always better if you can afford them. If price was no object, we would all be snoozing soundly bundled up in 1.8 kilo-thread sheets every single night. Guess what? Price doesn’t have to be an object with this […]
Maybe it’s entirely because of podcast ads, but drag-and-drop tools like Squarespace have gotten immensely popular in recent years. While it’s definitely a great tool for any non-coders who want to get a small website up and running quickly, managing content with a primarily visual interface can become a pain once you have more than […]
When you can’t wait for the world’s longest meeting to end, the mindless leg bouncing makes your boredom obvious and just annoys everybody else. Everyone knows the TPS reports need the damn cover sheet, but some sadistic colleague keeps forgetting, probably on purpose just to eat into your lunch hour. Enough is enough!While serving a […]