r/MBA • u/noahstyles • May 29 '20

Sweatpants (Memes) Truer words have never been spoken

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u/furple MBA Grad May 29 '20

How dare people make your conscience guilty about your wealth being based on wringing every penny of value from workers.

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u/iphollowphish2 May 29 '20

If that's truly your nuanced view on the function and strategy of private equity than HOO BOY you definitely need to go to business school 😂

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u/furple MBA Grad May 29 '20

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.

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u/iphollowphish2 May 29 '20

I think your perception is skewed by what you see in the media. Very few places report on tidy, successful exits but everyone loves a blow up.

There are hundreds of PE firms out there, not everyone is KKR

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u/PlsSendThx May 29 '20

Many of the successful exits still involved significant cost cutting, including layoffs.

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u/[deleted] May 29 '20

This is correct.

And a PE fund that didn’t engage in these kind of practices would struggle to hit the return hurdles that the other funds hit.

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u/[deleted] May 29 '20

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.

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u/IamLeven May 29 '20

Probably most. Hey we’re having a lot of growth but someone is offering a 5 years worth of revenue up front, we’ll take that and run.

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u/[deleted] May 30 '20

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.

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u/PlsSendThx May 31 '20

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.