A lot of people still seem to be confused about how private equity companies, like Bain Capital, make their money. Herewith a primer, in case you want to start your own.
First of all find a company in trouble, not necessarily financial trouble, businesses get into difficulties for all sorts of reasons. Buy it. It will be relatively cheap because it is in trouble. Pack the Board with your partners. Appoint your own CEO and especially CFO.
Now cut expenses mercilessly. Fire the workers. Load up with debt. Turn every iota of credit the business possesses into cash money. Sell all the assets it has that can be off-loaded for cash. Don't worry whether the assets are worth more than you are getting for them. Just get the money.
Here's the good part. Drain the accumulated cash. How you take it out doesn't matter much. Exorbitant management fees, huge dividends, incredible bonuses for your management people all work. You might even parlay it into buying another bigger ailing business.
Finally, abandon the withered corpse. A few will survive the inevitable bankruptcy, and emerge in a stronger albeit greatly diminished state. Most will simply disappear, and the jobs they represented gone with them.
Is any of this illegal? No. Does it serve any useful purpose? Yes it does. It serves the same purpose in the economy that vultures, jackals and hyenas serve in the world of nature.
Scavengers sanitize the ecological environment. Private equity cleans up the economic playing field by disposing of dead businesses. Is it moral? That depends on your standards. Is it profitable? You bet. You tolerate scavengers, but you don't necessarily have to like them.
Most of them are ugly and have a bad smell. Does a career in private equity prepare you to be president of the United States? You decide.
Robert L. Egolf
Somerset
First of all find a company in trouble, not necessarily financial trouble, businesses get into difficulties for all sorts of reasons. Buy it. It will be relatively cheap because it is in trouble. Pack the Board with your partners. Appoint your own CEO and especially CFO.
Now cut expenses mercilessly. Fire the workers. Load up with debt. Turn every iota of credit the business possesses into cash money. Sell all the assets it has that can be off-loaded for cash. Don't worry whether the assets are worth more than you are getting for them. Just get the money.
Here's the good part. Drain the accumulated cash. How you take it out doesn't matter much. Exorbitant management fees, huge dividends, incredible bonuses for your management people all work. You might even parlay it into buying another bigger ailing business.
Finally, abandon the withered corpse. A few will survive the inevitable bankruptcy, and emerge in a stronger albeit greatly diminished state. Most will simply disappear, and the jobs they represented gone with them.
Is any of this illegal? No. Does it serve any useful purpose? Yes it does. It serves the same purpose in the economy that vultures, jackals and hyenas serve in the world of nature.
Scavengers sanitize the ecological environment. Private equity cleans up the economic playing field by disposing of dead businesses. Is it moral? That depends on your standards. Is it profitable? You bet. You tolerate scavengers, but you don't necessarily have to like them.
Most of them are ugly and have a bad smell. Does a career in private equity prepare you to be president of the United States? You decide.
Robert L. Egolf
Somerset
