Hacker News Reader

Comment by lazide | Hacker News Reader

I’ve literally never seen that happen. what does always happen is cutting ‘non essentials’ that are essential until the company implodes.

View on HN

I suspect there’s a survival bias at work here. The PE purchased companies that continued to thrive are ones you probably never even knew got bought out.

cites?

Hilton Hotels, Dell, Burger King, Dunkin Donuts? Google works if you use it.

I guess not everything is a Sears, K-Mart, LastPass, HCR/Carlyle, etc, etc. [https://www.congress.gov/119/meeting/house/118337/documents/...].

Those are certainly some... examples. Not things I would hold up as a sign that PE is a good thing since all those businesses look like they are perpetually on the edge of collapse around my area. Dilapidated, mostly empty parking lots, poor service from understaffing. I think we would all be better off if those businesses died and left room for others to replace them.

Who’s preventing a competing coffee shop or burger restaurant from opening? If your area is such a prime business market, but these businesses aren’t capitalizing on it, one of your assumptions may be wrong.

It does happen, but often the companies end up poisoning the local markets on their debt binge fueled way down.

The fact that they are still there in business, even if it is low and crappy business, will still hold onto some customers. And long established business has advantages that a new business can't buy. If there isn't enough traffic for two burger joints, it can become a standoff of both bleeding money until one of them fails, and the new business likely doesn't have the same credit line.

That is one of the core strategies in the private equity playbook.

Why would it be profitable for the company they just paid a lot of money to acquire to implode?

They sell off everything of value before it implodes and cash out. THEN they let it implode with nothing but the debt remaining.

Why would banks lend to such an enterprise if they don't expect to get paid back?

They don't. They lend to the target company BEFORE the buyout.

So over time banks will learn to avoid lending to buyout targets?

banks generally lend using a set of relatively hard coded critera. it would take systemic change for them to ‘learn’.

they usually get the company to take out the debt to actually be acquired. it’s the key first step.

then they extract as much cash as possible while the debt ballons. so called ‘extracting brand value’.

the investors usually do quite well

Reply on news.ycombinator.com