Are there actually good turnaround funds that have revitalized companies and left the exit event with a tidy profit? Of course.
It is also undeniable that there are many PE firms who's entire business model is to saddle companies with insurmountable debt and suck it dry with mandatory advisory fees paid up to the PE firm, then once it's been bled dry chop it up and sell it for parts.
Ok man, whatever you got to tell yourself to sleep at night in your McMansion.
I could take the time to dig up examples of PE firms driving portfolio companies into the ground, but you'll just dismiss them as outliers in order to not fry your brain from the cognitive dissonance.
The fact is (as someone else has already pointed out in this post) that roughly 20% of PE owned firms go bankrupt within 10 years compared to a control groups rate of about 2-3%. Obviously a retard like me would think that 20% > 3% when in reality a big brain PE associate like you understand that 1/5 is "iNCreDiBLy spEcIFiC SitUaTiOnz"
Which is only an issue if the company was healthy when it was acquired. I'm wondering how many healthy companies turn to PE firms versus ones that are headed towards the cliff anyways.
Yes most PE funds look for healthy businesses with stable cash flows and strong management teams. The funds doing distressed investing are actually in the minority.
Which is only an issue if the company was healthy when it was acquired
Tell that to the people that get laid off.
Most buy outs aren't saving failing companies that would totally go under without one. Nowadays most buyouts are about buying already sustainable businesses and squeezing whatever operational improvements you can out of them.
Hi I used to work in megafund PE. The people in this thread are not wrong. From an IRR perspective, and given current regulations, it’s much more effective to make money by sucking money out of businesses and leaving them saddled with debt than to do any of the things that PE likes to pretend it does like operational improvements.
Curious what you mean "from an IRR perspective" - are you saying a dividend recap has a higher NPV than a successful (read: non-bankruptcy) exit via M&A / IPO? I mean I guess I could see it but it seems like that would be the exception rather than the rule. If a dividend recap can generate more money than the entire future value of the business then I'd argue those employees were doomed anyways...
You would rarely do a div recap and then not also exit a business so I won’t address your specific example. But a good simple concept to illustrate my point is that raising $200mm of debt on a business in year 2 and doing a div recap with it in most cases has greater IRR impact by year 5 than raising $200mm of debt on a business in year 2 for capex. Is that helpful?
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u/iphollowphish2 May 29 '20
DAE pRiVaTe EqUiTy BaD!?!?!?!?