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.
Unified Patents raises money from companies that are the target of patent-trolling and then uses it to challenge the most widely used patents in each of its members’ sectors: now it’s going for the gold.
In Are CEOs paid for performance? Evaluating the Effectiveness of Equity Incentives, a new study from MSCI, researchers compared the salaries of 800 US CEOs of large and medium-sized companies to the returns to their shareholders during their tenure.
Verizon yesterday bought Yahoo, which had earlier bought Flickr, a photo-sharing site, and Tumblr, a blogging platform. Both of these places have three key qualities that raise important questions about their survival: 1) they’re both oldschool platforms locked in time because they were bought by Yahoo, 2) both still have vast, dedicated userbases, 3) both […]
It’s one thing to enjoy dinner at home and a nice glass of Cabernet Sauvignon with your best friend, Netflix, but it’s another thing entirely to make that meal from scratch and get that wine delivered right to your doorstep.But what if we told you there’s a way to make this possible? To keep your social life, […]
Having to pack and drag your stuff through security can put quite the damper on your vacation plans. Thankfully, we’ve got your back with one way to make traveling more painless: the Jumper Overnighter Travel Bag.This compact bag is so lightweight that you can effortlessly carry it, and fit it into any overhead compartment. But just […]
Learning is a 24/7/365 proposition, and it never ends. And if you’re truly serious about leveling up your skill sets and career prospects, get a subscription to Stone River Academy’s massive course collection. This offer normally is worth over $1,400, but is now available for just $89 in the Boing Boing Store.A respected name in information technology […]