6 ms·

>...this guy has no idea what he's talking about. This guy is Cory Doctorow. I wouldn't say he has no idea what he's talking about.

JamesBarney 6y ago
https://en.wikipedia.org/wiki/Cory_Doctorow https://en.wikipedia.org/wiki/Cory_Doctorow I hadn't never heard of him but going through his wikipedia I don't see any reason to believe his understanding of business, economics, or finance is any more advanced than the impression I get from his tweets. The people who loan money to private equity are very smart individuals who have backgrounds in finance business and economics. They tend to be very sophisticated entities. If you're going to make an argument they are being repeatedly screwed it needs to be more sophisticated than "look at this company owned by a PE that failed " or "look at this company owned by a PE that did a dickish thing to maximize profits".
- raverbashing 6y ago
  > The people who loan money to private equity are very smart individuals who have backgrounds in finance business and economics Oh you mean like the guys that ran Enron? Like the guys that "invested" with Bernie Madoff? The author's main argument is not in relation to lenders, but the bankrupting of viable business by offloading debt to them.
  - JamesBarney 6y ago
    But if you are a PE and you're constantly buying companies for a 100 million by borrowing 80 million then driving the company into bankruptcy. How are the lenders getting paid their 80 million and how are you getting back your 20 million? And if the lender is getting screwed out of 80 million dollars why do they keep lending to private equity? It's not his main argument but it's an assumption that has to be true for his main argument to be true.
  - valuearb 6y ago
    Whatabout all those physicists who doubted Einstein, isn't that proof that most physicists are idiots? The author doesn't understand the process of how private equity is able to use debt in their purchase process. Bankrupting a company you just bought by over leveraging often means you took a massive loss. In the cases where it doesn't, means the business was no longer viable to begin with and a necessary separation of viable assets from a dying business occurred.
    - raverbashing 6y ago
      > Bankrupting a company you just bought by over leveraging often means you took a massive loss No, the company took a loss. You took dividends. Then the company went bankrupt. Do you disagree that's what happened with Toys'r'Us? https://www.theatlantic.com/magazine/archive/2018/07/toys-r-us-bankruptcy-private-equity/561758/ https://www.theatlantic.com/magazine/archive/2018/07/toys-r-...
      - JamesBarney 6y ago
        That looks like a fairly straightforward case of private equity company buys struggling retail business, tries to turn it around, fails and company declares bankruptcy. They bought Toys R Us for a price of 6.6 billion and had 5 billion in debt after the sale. So PE borrowed 5 billion against Toys R Us and invested 1.6 billion in cash. There is no way an institutional investor let them pay themselves 1.6 billions in dividends while the company struggled. Here's an article that basically says all the PE companies lost all their money on the investment. https://www.forbes.com/sites/nathanvardi/2017/09/19/the-big-investment-firms-that-lost-1-3-billion-on-the-toys-r-us-bankruptcy/#db99357308fb https://www.forbes.com/sites/nathanvardi/2017/09/19/the-big-...
      - Lazare 6y ago
        The PE firms who bought Toys "R" Us put up $1.3b of their own money to do it. After they bought it, they did, yes, extract some handsome returns in fees and salaries; by the time Toys "R" US went under in 2018, it paid its PE masters several hundred million; Bloomberg has the number as $470m all up (https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-vornado-suffer-wipeout-in-toys-r-us-bankruptcy https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-...). Certainly a case can be made that those fees, given how poorly Toys "R" Us was doing, were ridiculous. However, if you buy something for $1.3b of your own money, extract a bit less than $500m in fees, and then drive it into bankruptcy, zeroing out your investment, you haven't come out ahead, and in fact have made a major loss. Even to the extent that PE and LBOs are about looting companies at the expense of other stakeholders (which is debatable). Toys "R" Us is a pretty clear example of PE firms selecting a target in a dying line of business and getting burned. (It's worth noting that large toy chains have been flaming out globally. In most countries the large chains have either gone under or are closing stores rapidly. If a bunch of large toy store chains are having issues, but only one was bought by PE, what's the common factor here?)
valuearb 6y ago
He's a writer with no specialized understanding of private equity, and it's clear by his writings on it.

JamesBarney 6y ago

https://en.wikipedia.org/wiki/Cory_Doctorow https://en.wikipedia.org/wiki/Cory_Doctorow I hadn't never heard of him but going through his wikipedia I don't see any reason to believe his understanding of business, economics, or finance is any more advanced than the impression I get from his tweets. The people who loan money to private equity are very smart individuals who have backgrounds in finance business and economics. They tend to be very sophisticated entities. If you're going to make an argument they are being repeatedly screwed it needs to be more sophisticated than "look at this company owned by a PE that failed " or "look at this company owned by a PE that did a dickish thing to maximize profits".

raverbashing 6y ago
> The people who loan money to private equity are very smart individuals who have backgrounds in finance business and economics Oh you mean like the guys that ran Enron? Like the guys that "invested" with Bernie Madoff? The author's main argument is not in relation to lenders, but the bankrupting of viable business by offloading debt to them.
- JamesBarney 6y ago
  But if you are a PE and you're constantly buying companies for a 100 million by borrowing 80 million then driving the company into bankruptcy. How are the lenders getting paid their 80 million and how are you getting back your 20 million? And if the lender is getting screwed out of 80 million dollars why do they keep lending to private equity? It's not his main argument but it's an assumption that has to be true for his main argument to be true.
- valuearb 6y ago
  Whatabout all those physicists who doubted Einstein, isn't that proof that most physicists are idiots? The author doesn't understand the process of how private equity is able to use debt in their purchase process. Bankrupting a company you just bought by over leveraging often means you took a massive loss. In the cases where it doesn't, means the business was no longer viable to begin with and a necessary separation of viable assets from a dying business occurred.
  - raverbashing 6y ago
    > Bankrupting a company you just bought by over leveraging often means you took a massive loss No, the company took a loss. You took dividends. Then the company went bankrupt. Do you disagree that's what happened with Toys'r'Us? https://www.theatlantic.com/magazine/archive/2018/07/toys-r-us-bankruptcy-private-equity/561758/ https://www.theatlantic.com/magazine/archive/2018/07/toys-r-...
    - JamesBarney 6y ago
      That looks like a fairly straightforward case of private equity company buys struggling retail business, tries to turn it around, fails and company declares bankruptcy. They bought Toys R Us for a price of 6.6 billion and had 5 billion in debt after the sale. So PE borrowed 5 billion against Toys R Us and invested 1.6 billion in cash. There is no way an institutional investor let them pay themselves 1.6 billions in dividends while the company struggled. Here's an article that basically says all the PE companies lost all their money on the investment. https://www.forbes.com/sites/nathanvardi/2017/09/19/the-big-investment-firms-that-lost-1-3-billion-on-the-toys-r-us-bankruptcy/#db99357308fb https://www.forbes.com/sites/nathanvardi/2017/09/19/the-big-...
    - Lazare 6y ago
      The PE firms who bought Toys "R" Us put up $1.3b of their own money to do it. After they bought it, they did, yes, extract some handsome returns in fees and salaries; by the time Toys "R" US went under in 2018, it paid its PE masters several hundred million; Bloomberg has the number as $470m all up (https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-vornado-suffer-wipeout-in-toys-r-us-bankruptcy https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-...). Certainly a case can be made that those fees, given how poorly Toys "R" Us was doing, were ridiculous. However, if you buy something for $1.3b of your own money, extract a bit less than $500m in fees, and then drive it into bankruptcy, zeroing out your investment, you haven't come out ahead, and in fact have made a major loss. Even to the extent that PE and LBOs are about looting companies at the expense of other stakeholders (which is debatable). Toys "R" Us is a pretty clear example of PE firms selecting a target in a dying line of business and getting burned. (It's worth noting that large toy chains have been flaming out globally. In most countries the large chains have either gone under or are closing stores rapidly. If a bunch of large toy store chains are having issues, but only one was bought by PE, what's the common factor here?)

valuearb 6y ago

He's a writer with no specialized understanding of private equity, and it's clear by his writings on it.