One of my biggest financial eye-openers was realizing the potential of private equity as both an investment and a management strategy. It's fascinating to think about how private equity firms acquire companies, improve their operations, and eventually sell them for significant profits.
I’ve been in touch with a financial analyst ever since I started exploring alternative investments. The challenge in private equity is knowing which opportunities are worth pursuing and how to manage risks effectively. On my portfolio, which has included private equity investments yielding remarkable returns, my advisor carefully evaluates each deal’s potential and outlines clear entry and exit strategies.
I’ve been in touch with a financial analyst ever since I started exploring alternative investments. The challenge in private equity is knowing which opportunities are worth pursuing and how to manage risks effectively. On my portfolio, which has included private equity investments yielding remarkable returns, my advisor carefully evaluates each deal’s potential and outlines clear entry and exit strategies.
Joseph Nick Cahill is a name that stands out. He’s a highly respected figure with extensive experience in private equity and other investment strategies. I’d suggest looking into his credentials; he’s a phenomenal resource for anyone aiming to understand and navigate the complexities of private equity.
I was the CFO of a company that got bought out by PE. 💯 of those things happened. And it’s not just debt. It’s super high interest debt which made my life a nightmare.
Will they sell the company? My old company was bought by a PE firm bc the owner cheated on his wife and his mother in law owned 51% of the business. He had to sell her portion of the company to her and then he was in a major bind. He screwed everyone on that deal.
@@vincentkingsdale8334 leverage increases your return. More leverage the higher adjusted returns. Unfortunately the same happens for losses. Sadly the cfo who took my place is now in jail awaiting his trial for embezzling millions of dollars. For the sake of the employees I hope they make it.
@@vincentkingsdale8334 people who have gotten rich have gotten Rich by longing assets and shorting cash(assets price inflation phenomenon). Taking up debt to buy companies or businesses is essentially that. Another thing is that the debt is loaded onto the balance sheets of the business being acquired rather than the private equity firm themselves. One more point to note is that the cost of capital of debt(interest rate on loan)is much lower than the cost of capital implied on equity investments(expected shareholder returns via dividend and/or valuation gain). And lastly as said by the speaker himself in the video, the businesses are made to increase their payables to liquidate their inventories and to reduce their receivables to generate cash on the spot. Now even if the company gets crippled by the debt servicing, the fund gets to liquidate the businesses existing assets and generate cash for themselves while the business itself burns down. If the business somehow starts making more money and growing, then obviously they would exit by strategic sell offs or public offerings. Also debt helps retain the voting power of the private equity investors which would've gotten diluted if they raised more equity for the investee company
100% accurate, but you cut to the chase and just say, they're gonna squeeze every penny out of your business and then crush it into bankruptcy. The end
They don’t keep the old owners around to ‘learn the business’. They keep them around to keep the customers happy until the customers are comfortable with the new owners. Then they broom the old owners under any pretext that might arise. But that works fine for both parties.
Direct and to the point. Also true. If you're a business owner and you're thinking about inviting PE in the door, then assume that you're going to lose control of your business and up gone. That may be what you want, but go in with your eyes open.
Also assume that the company is going to be tits up in ~2 years Every single PE sale i've seen around here has gone under in at most 4 years (the one that lasted 4 taking the post-PE owner down with it to the point he chose to... Do nothing in the literal sense)
Kind of reminds me of that scene in the sopranos where a businessman ran up a gambling debt with Tony and then they basically took over his business and slowly bled it to death running up credit and taking inventory from the store
Private equity firms are basically House flippers. They buy a company that is sometime in rough shape. they do some cheap renos. and then sale it to some sucker who will find out 6 months later that everything is completely rotten.
What makes the days fun or miserable for the organization of the acquired business is the competency of the board and/or advisors - pure roll of the dice.
To sum it all up...The movie "Wall St.": "why are you wrecking the company?" reply: " because it's 'wreckable'". Apollo took over my golf club. It must have been "wreckable" because they are wrecking it. From the lowest server to the top management, whenever a member has a question or complaint, their canned answer is, "We are a for profit business". In other words, "beat it kid, you bother me".
Yeah, I'm a route driver for a wheel refurbishment company. We repair damaged automotive wheels. In July of last year, my company was bought out by a PE firm. They kept the owner for about a month, then terminated him. They cancelled our pay raises (I was supposed to get one in October), they fired one repairman, then another route driver. Increased the workload on the rest of us. I'm no longer allowed to plan my route to various customers. They forced me to follow their route which is longer, and wastes more time. I can barely get enough time for lunch anymore! Our delivery vans need maintenance like brakes, new windshield wipers, etc. but the PE management won't let us get the maintenance. They didn't give us gift cards to the Honeybaked Ham Store for Thanksgiving like we got in the past. The company now has over $400K and counting in debt. After Christmas, one of our other repair techs left to take a job with a competitor. I'm sending out my resume`s to other companies.
Love this guy. Straight to it! I assume every Private Equity firm is not the same and they might be a little nicer but can't hate on him giving it to you straight!
Private equity I believe is the posh name for what we called in the 1960's asset strippers. They have only one interest how much cash can they make and how quickly the business may or may not survive but they are raiders not builders.
nope, PE firm has the goal to resell the company after 5-7 year at a huge profit. Sure some PE firms may be the type of asset strippers, but that is just overlapping, not being the same
@@basedpatriotLT What I see is PE firms getting rich quick and their prey gutted. Loading companies with debt and using clever financial engineering is not growing a business it is looting it. How many PE owners did Debenhams have and what a wonderful job they did.
Asset stripping is worse because tht involves buying a company at a discount, ceasing operations and selling the assets. Thts a purchase made to get rid of the business. A PE firm acquisition aims to make an unprofitable business profitable and then selling it 3-7 years later. It's like any other investment. Nobody has been able to provide an example of PE firms running a business to the ground while making a profit either
@@zerog1037 Because they lose the names and sell off the assets. This is mostly done by smaller business but not always. Most of the big business that are not around anymore where done this way as well, Toys R US being the most notable I can think of. They were bought out in the early 2000’s by WHP Global Saddled with a ridiculous amount of debt, then bled dry til they had to file for bankruptcy. All the while they had to keep their name, to make it look like it was all on them. Because technically WHP had the rights to the name as well. You act like these corporations come up with genius strategies to have these companies become profitable. Which is 💩 So you either work for one trying to troll or you’re full of crap. Nearly always PE fires all of the staff then rehires workers to the point the staff left over is a skeleton crew. Becoming so overworked that burnout comes much faster leading to high turnover rates. They also often purchasing much cheaper and lower quality goods and ingredients to either make their products or resell to the public. All the while increasing prices to whatever level they can get away with. While at the same time >not< providing better service or products to their customer base, or sharing the wealth with few if any of the workforce of these businesses. Everything they do to these companies is for short term false balloon profits. The numbers look good on paper, as long as you don’t dive too deep into the specifics of it. So please, take your boot licking on somewhere else
To the point. For the employees this also means a lot of pressure, firing some to send a message and diminish the payroll, including key employees: you'd better have a plan B.
very clear, very honest. "they will do whatever they can to maximize their gains from the transaction of buying your company". Sure disagreements can happen, but if a leader can see it from the new owners perspective of max gains in short, medium or long term (depending on their wishes and prios), they can at least give reasons to why the new owners strategy may not actually give the wanted gains. I would be able to do the work for a while after a new owner with new strategies, but it would always be with a medium/longterm exit, unless the new partnership ends up working out quite well in the end. But how many have stayed out of all the people who have built a company, wishes to stay with it instead of making something new once it has new owner, new strategy and in most cases quite a few new people in key positions (always a exodus happening during ownership changes).
I own a service sector franchise and it was bought three years ago by Neighborly, a PE backed conglomerate. They’ve f-ed it up some bad that longtime franchisees aren’t renewing their contracts when they expire. Fired everyone at the corporate level that knew the most about the business, outsourced our scheduling center, are micromanaging the zees, and costing us more money in royalty’s and giving us less services and return in exchange.
This is all true. I've been through it. You left out one thing. The purchase price they pay will somehow become partly contingent on company performance in the first year. In other words, they will make the business fund its own buyout, or they get it at a very reduced price. The old owners will remain with the company only so long as its clear which way that'll go.
Yep, and if they know that the skilled employees who can leave, will leave (because those employees know what kind of hellscape the workplace is going to turn into), so company performance is going to go down.
how partly? Can you give the range? For example the price is 10 mil if the company performs the same. How much if company performs 2x better? How much if company performs 2x worse? To get the idea of how much it fluctuates based on performance. And why only first year performance?
@@basedpatriotLT I don't know the range. It depends on the company taking over and how greedy they are. Only partly because they always pay a fraction up-front, or the company would not be sold. The fraction has to be enough to be tempting to the owners. The rest is a sort of ransom to keep the key employees keeping the lights on for a period of time so that they don't lose customers. They can say to the clients that the same people are still here. From what I saw, there was a minimum target in earnings or profit for the former owners to be paid the rest of the purchase price at all. This is low-risk to the purchaser. Only first year performance because (or possibly 2 years) because the company was not actually bought for its earning capacity, but for its client base. If the company performs in the first year, everyone wins. If it doesn't win, the former owners lose, and the new buyers lose less. Basically, just think of anything that reduces monetary risk for the buyer and you'll get the idea.
Lol thts how it has always worked when it comes to unprofitable businesses. You want to sell it fast because it's not making money so are willing to accept a discounted price. Nothing wrong with a discounted sale
Relating to balance sheet, they'll also sweat the employees/manage by spreadsheet. Sort-by salary and start getting rid of the highest regardless of most impacts to the business.
Truth. Bet you been there too-- helped build a great business, took a lot of risk, making good money, were a big part of why the assholes wanted the business, then got fired.
@@zerog1037 Of course not, they keep the low pay ones to keep the lights on and pretend the boat is still making way. The leaders that were invested and gave a shit though, they're gone.
It's a big scam. The only way PE isn't a scam is if there's an asset like an old factory that basically is beyond repair. Then you sell the assets. When you start using this model for a sustainable business with real property paid for on site it will result in literal misery for everybody except those at the very top.
Understanding “The Sacred Cows” is key. Private Equity will slaughter them for hamburger. When the sacred cow is a private jet for the CEO and his do-nothing nephew, that’s great and one of the most efficient parts of PE. But blade that slaughters the cows is double-edged. Sometimes those cows are important not just to the business, but the community at large. For example, many emergency rooms and even whole hospitals have been purchased from hospitals by PE firms. The “Sacred Cows” in healthcare, especially an ER, are motivated and competent employees and lifesaving care. Malpractice aside, a poorly-skilled ER doc or nurse is not necessarily more profitable than a talented one, and may be more expensive. Making people healthier or avoiding unnecessary care isn’t necessarily good for short-term profit. On the other hand, a captive consumer base and a high degree of informal trust combined with low profitability makes places like ERs very juicy targets for PE.
Yeah they are frauds who are there to literally tear out the parts of the business that they can salvage and sell to the highest bidder. They have no business in running essential services they will just destroy them since they could care less about actual operations.
In short, private equity will destroy your company for short term profits. Which is perfectly OK if you're tired of your company and just want a big fat pay day yourself.
From what I'm seeing, small business owners and franchisees are NOT getting fat pay days, rather, they are being strong armed into laying off/cutting wages for employees and working themselves to the bone to try to keep their business afloat, for less than minimum wage, while being drained by unexpected and unexplained fees from the PE firm
the part that was not explained here is that the owner isn't paid outright. The 'deal' is contingent on future profits/loss. The PE will make massive profits with selling off assets, firing employees and management, borrowing on the business (meanwhile distributing said profits to the shareholders ) and then claiming that the debt outweighs the profits on a balance sheet and the seller gets nothing. Sounds like a scheme of some sort that has not managed to get public scrutiny yet.
PE owners are like people who invest in the stock market. Your company is just one of the many businesses they can buy. There are always multiple options in various industries which might give a comparable or better return in time. Therefore it is always better to be acquired by a competitor or a company looking to diversify themselves in the marketplace.
Very much an adjustment for an owner-operator, used to doing things a certain way, to get used to having a new owner to answer to who has very different ideas. Not mentioned was usually PE firms create an incentive for management to share a portion of the proceeds of a future sale, in order for everyone's interest to be aligned. If you adapt to the new realities of PE ownership, you can also enjoy a future liquidity event.
Let's just take a step back for a moment. Did you make as much cash from the sale of your business that you need? Good. Everything from that point onwards is just entertainment.
if i sold my company to a private equity firm. the second the paperwork goes through and the cheque cashes, im out they own the company they wanna saddle it with debt and strip it for parts, then they can run the show... im happy to take their money tho
Note to self, never ever invest in this type of scheme due to having a conscience. Note to people that own a business, never EVER sell your business unless you plan to take the cash up front and walk away. These type of investments are purely profit driven and will never end well for the average worker or business owner wanting to 'stay' with the company. the sad thing is that this crap is taking over healthcare as well. the company I work for was 'bought' and now that it's been about a year or so, they just announced a big layoff of middle management. I am clinical, so I will probably be expected to do more with less. Which is a reason I quit a long term job 3 years ago!! Just to end up in another one. UGH.
They will include the debt into the business... make the remaining employees now work harder to service that debt, insist on balance sheet improvement, then make deep cuts and seek to flip it as soon as viable.... rinse and repeat. Existing husk of a business left in shambles (more often than not)
I call private equity firms professional enshittifiers. One of two things will happen, your business will either shrink to a much smaller size or service or go out of business.
Would someone please explain to me why one would sell their business to private equity with all these unbalanced conditions in place? Surely, you set up the sale to ensure you exit immediately bypassing all this nonsense?
So the good news is that you'll only have to tolerate this stuff for about a year - make sure you've stashed whatever they gave you for your company in safe places... ;)
Yeah my boss at a PE company was a hell of a nice guy; personable, dynamic, highly intelligent, driven...and while he never fucked me he sent me out multiple times to fuck people. Nice guy but NOTHING gets between them and the bottom line financials. You are deluded if you think the public face you see at a neighborhood BBQ is the same guy at work.
Do private equity firms make business owners, who don't want to leave, take our loans to pay back the PE firm? Also will the PE firm just buy a portion of a business? My understanding is one way or the other, the PE usually doesn't pay a fair price for the business. I have also read of cases where the loans to get the business going is in the business owner's name and is responsible for the loan. The PE firm arranges the loan, but the business owner is on the hook for it.
@monaconnell5650 Some PE firms will buy a minority interest in your firm, but they will change the governance to give themselves veto rights on major decisions. The decision to sell your business is yours, so only you can decide if the price is fair. Normally, the PE Groups need to be competitive with other buyers, or you wouldn't sell to them. As for the debt that might be put on the firm, we recommend that no owner sign a personal guarantee. If you don't have a personal guarantee, it is not your responsibility to repay the loans.
It’s not what happens to you, it’s what they do to your trusted proven employees. The very people you depended on will be replaced by “experts.” Trust me. They can’t help themselves. You will then hear what they are doing to your company through rumors for a few years. You will fell guilty you just screwed all the employees ,families and business you built. Happy times.
taking cash out allows them to begin to play with house money? Is "house money" the assets that the PE firm owns? It doesn't make sense if house = purchased firm ... bc you're not playing with cash thats not on balance sheets right?
It refers to recouping their equity investment as soon as possible. Once they recoup their equity investment it's referred to as playing with the house's money.
Because they leveraged the original purchase with debt, the lenders restrict the PE from taking cash out. Usually, the cash flow goes to paying off the loan. However, if the leverage ratio decreases, they can always do another debt deal (same lender or re-finance) and use the proceeds for a distribution to owners. Basically, the company increases debt and decreases equity. PE views this simply as an advance on the future sale of the company and a return against their original investment. Usually occurs when the company has good cash flow that has resulted in reducing debt and can continue to support future debt service.
It's simple. Say that you own an apartment building free and clear - no mortgage. You sell it to Joe who pays you $1 million. Joe raised $200,000 from five investors and paid you your $1 million and now needs to pay back his investors. Joe tells a lender "this business (the apartment building) earns $D and I want a loan for 75% of the value." The loan pays off most of the original investor money. Joe then sells off the adjacent lot because you sold it as part of the apartment deal. He cut up your asset and paid back his investors with 1) the loan money 2) the proceeds from selling a chunk of the asset 3) and he's still collecting rent money The rent money is recurring income. He uses a portion to make loan payments. The rent money left over is 'house money'. It's 'house money' because a) he paid off his investors b) he has enough to make debt payments c) he has cash left over every month after debt payments It's like free money for Joe. He holds the 'house money' generator for 5 years and sells it at a profit. Orchard Supply Hardware was a nice chain of hardware stores in California, Orlando, Fl and was put out of business by Eddie Lampert. He bought the chain, put a huge debt burden by taking out loans on it, and it went under. He made his money. .
@@Greg_Chase Eddie Lampert got involved with Sears by saving it from bankruptcy, most people wouldn't touch it. Granted it still ended up in failure, but he spun Orchard Supply off into it's own public company. His involvement in Sears was considered one of his only failures in his career, so I doubt he made much money from it. It's not a good example of a pure private equity transaction.
What happens when a Private Equity Fund purchases a small public company That ALREADY has outstanding debt.??? All the common stock gets purchased, but the PEF allows the company's existing debt to remain outstanding.! What happens generally, then? ((Is the PEF responsible for paying it, or can the PEF simply allow the new 'subsidiary' to default on it.??
The obligation to pay the debt doesn't change. Sometimes the PEG will assume the debt if the terms are acceptable or pay off the existing debt and replace it with cheaper debt. The company is responsible to pay the debt.
@CEOProject when you say "the company" is responsible to pay... do you mean the new P.E. firm that is now the parent/owner. Or, do you mean "the company" that was the smaller company - and that had issued the debt but is now a Subsidiary & owned by a P.E. firm now.?? The reason I ask for clarification is this: what's to prevent the P.E. firm from allowing one of its Subsidiary businesses from defaulting on that Subsidiary's previously issued debt, and then the P.E. firm/parent simply saying, gee too bad, and not having any $ liability for the Subsidiary's debt. Said another way maybe. When a Parent company buys another company and makes it a subsidiary.... Can the Parent company allow that Subsidiary to default on its debt.? ((Or does the new Parent company have to absorb the obligations of its Subsidiary.?))
Not only your underproducing cousin, but will also chase off the expensive high performers who actually know the products and the customers--you know, talent? the single, working mother,; the guy with a new kid who just bought a house--and will bring in the know-it-all pals from "the industry" to wield the axe, and find somebody in the world to try to fill the roles. You, CEO, skulk away with your pockets lined, and those staff you had long prized for their loyalty now absolutely despise you. That's the 7th thing private equity will do.
In short: they are blood sucking vampires that will destroy everything you built and destroy your legacy/reputation/relationships. But at least you can buy your 5th beach house and sip your nice drink 🤦♂
with rising interest rates, and a lot of zombie companies are going to get bought up by PE firms or just disappear all together. Possibly both for some of them
Saw it into pieces, sell it for what they can get, burden what's left with ridiculous management fees, bankrupt what's left, take their money in deferred even as the business is failing and dying, and then and go off and do it again. Is that what you mean?
Love the way he just glosses over the bit where the PE just strip mines the firm. Reducing services to customers, reducing quality and laying off long tenured employees who built the firm in the first place. Toys R Us, Red Lobster, Fairway Markets etc.. etc..
Funny that the entire PE business model relies on their privileged access to lending. Without being able to get sweetheart deals from their banking buddies, the entire model collapses. The dangerous future for people in PE is that AI will soon be able to analyze documents, communications, and data at a scale that will discover ALL financial shenanigans. My advice to anyone with a shady past is to simply be ready for the chickens to come home to roost very fast! You reap what you sew.
@@n8works Be interesting to see I guess, not sure what sentiment and meaning have to do with any shenanigans in a legal sense. Or where the assumption that anything illegal is automatically going on and just hidden that require any new form of analysis or what’s going to be reaped. If all these things are happening and you’re aware of them how is it AI is going to expose it? How did you figure it out?
@@davidgill3356 The current limitation is the human capacity for analysts. It would take billions of man hours to analyze. When the analysis is automated and can happen at a digital scale, that limitation goes away. I would think that with the examples you can find in the real world - Enron, FTX, etc etc etc. You wouldn't have to question the existence of financial chicanery.
@@n8works Lol, I think I see the problem here. I didn’t question financial chicanery, I asked how you know about the existence of kinds of it that would take AI to analyze. I can’t help but wonder how there could be paper trails that would take BILLIONS! of man hours to analyze and yet PE firms are able to create them and utilize them while remaining profitable and accountable to their shareholders. Get back on your meds dude, this is just sad….on par with the most retarded conspiracy theories and all to track down something as sinister as people who know each other giving preferential loans, come on.
ITS LIKE SELLING A PIG TO A SLAUGHTERHOUSE. They will buy it from you, but unlike you, who busted your rear and burned the midnight oil to build the business, private equity only wants to kill it for a quick meal. GAME OVER!
And there’s no violence of fraud involved…and voluntary and totally avoidable. So as much the same as everything else that is totally unrelated except involving a business.
They buy a failing business or cheap business. Chop it up , lay offs and sell parts off. Make it seem more profitable then is and sell it for 5x return . Jack off at cocktail bar as they boast to Goldman Sachs guys how much better their jobs are
If you leave on a Friday signing 30-day payables, and come back on Monday only signing 90-days, congratulations, you just got an interest-free loan of 60 days worth of cost, courtesy of your suppliers.
This is why you thumb the scales as a seller. Lie bout inventories. Take orders at low margins to build sales and receivables, etc Game gets played both ways
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One of my biggest financial eye-openers was realizing the potential of private equity as both an investment and a management strategy. It's fascinating to think about how private equity firms acquire companies, improve their operations, and eventually sell them for significant profits.
I’ve been in touch with a financial analyst ever since I started exploring alternative investments. The challenge in private equity is knowing which opportunities are worth pursuing and how to manage risks effectively. On my portfolio, which has included private equity investments yielding remarkable returns, my advisor carefully evaluates each deal’s potential and outlines clear entry and exit strategies.
I’ve been in touch with a financial analyst ever since I started exploring alternative investments. The challenge in private equity is knowing which opportunities are worth pursuing and how to manage risks effectively. On my portfolio, which has included private equity investments yielding remarkable returns, my advisor carefully evaluates each deal’s potential and outlines clear entry and exit strategies.
Sounds interesting, right? Please share the name of your investment advisor-I could use some guidance in this space!
Joseph Nick Cahill is a name that stands out. He’s a highly respected figure with extensive experience in private equity and other investment strategies. I’d suggest looking into his credentials; he’s a phenomenal resource for anyone aiming to understand and navigate the complexities of private equity.
Just ran an online search on his name and came across his websiite; pretty well educated. thank you for sharing.
I like his blunt talk. Condenses a 20 minute discussion to a few minutes.
What 20 minute discussion are you referring to?
Totally agree. I wish more RUclips Vids were like this. Awesome job CEO Project!
You’re a fucking moron. It’s idiot talk
I was the CFO of a company that got bought out by PE. 💯 of those things happened. And it’s not just debt. It’s super high interest debt which made my life a nightmare.
Will they sell the company? My old company was bought by a PE firm bc the owner cheated on his wife and his mother in law owned 51% of the business. He had to sell her portion of the company to her and then he was in a major bind. He screwed everyone on that deal.
@ PE almost always eventually sell at some point. By now it’s been 9 years and I think they still own it.
@Johnsmith46392 thanks for the reply. Why would a PE run up debt if their goal is to make money? I am obviously not a finance guy, lol
@@vincentkingsdale8334 leverage increases your return. More leverage the higher adjusted returns. Unfortunately the same happens for losses.
Sadly the cfo who took my place is now in jail awaiting his trial for embezzling millions of dollars. For the sake of the employees I hope they make it.
@@vincentkingsdale8334 people who have gotten rich have gotten Rich by longing assets and shorting cash(assets price inflation phenomenon). Taking up debt to buy companies or businesses is essentially that. Another thing is that the debt is loaded onto the balance sheets of the business being acquired rather than the private equity firm themselves. One more point to note is that the cost of capital of debt(interest rate on loan)is much lower than the cost of capital implied on equity investments(expected shareholder returns via dividend and/or valuation gain). And lastly as said by the speaker himself in the video, the businesses are made to increase their payables to liquidate their inventories and to reduce their receivables to generate cash on the spot. Now even if the company gets crippled by the debt servicing, the fund gets to liquidate the businesses existing assets and generate cash for themselves while the business itself burns down. If the business somehow starts making more money and growing, then obviously they would exit by strategic sell offs or public offerings. Also debt helps retain the voting power of the private equity investors which would've gotten diluted if they raised more equity for the investee company
100% accurate, but you cut to the chase and just say, they're gonna squeeze every penny out of your business and then crush it into bankruptcy. The end
They don’t keep the old owners around to ‘learn the business’. They keep them around to keep the customers happy until the customers are comfortable with the new owners. Then they broom the old owners under any pretext that might arise. But that works fine for both parties.
Direct and to the point. Also true. If you're a business owner and you're thinking about inviting PE in the door, then assume that you're going to lose control of your business and up gone. That may be what you want, but go in with your eyes open.
Also assume that the company is going to be tits up in ~2 years
Every single PE sale i've seen around here has gone under in at most 4 years (the one that lasted 4 taking the post-PE owner down with it to the point he chose to... Do nothing in the literal sense)
Kind of reminds me of that scene in the sopranos where a businessman ran up a gambling debt with Tony and then they basically took over his business and slowly bled it to death running up credit and taking inventory from the store
Private equity firms are basically House flippers. They buy a company that is sometime in rough shape. they do some cheap renos. and then sale it to some sucker who will find out 6 months later that everything is completely rotten.
🙌
You need to read a book. That is absolutely not how PE works
@@KingRo550 no it is
Pe sucks ass. What Vincent described has happened with every company I’ve worked at.
@@KingRo550 you need to get some real world experience. That is absolutely how it works.
Short and concise, love this
Thank you! I worked at a public company and, yep, what happened is pretty much what you describe. IME there is one more: be prepared to move.
What makes the days fun or miserable for the organization of the acquired business is the competency of the board and/or advisors - pure roll of the dice.
To sum it all up...The movie "Wall St.": "why are you wrecking the company?" reply: " because it's 'wreckable'". Apollo took over my golf club. It must have been "wreckable" because they are wrecking it. From the lowest server to the top management, whenever a member has a question or complaint, their canned answer is, "We are a for profit business". In other words, "beat it kid, you bother me".
A company I worked for was bought by a Private Equity company. Morale fell off a cliff, good people left, and all focus was on money, nothing else. 🤮
Yeah, I'm a route driver for a wheel refurbishment company. We repair damaged automotive wheels.
In July of last year, my company was bought out by a PE firm.
They kept the owner for about a month, then terminated him.
They cancelled our pay raises (I was supposed to get one in October), they fired one repairman, then another route driver. Increased the workload on the rest of us. I'm no longer allowed to plan my route to various customers. They forced me to follow their route which is longer, and wastes more time.
I can barely get enough time for lunch anymore!
Our delivery vans need maintenance like brakes, new windshield wipers, etc. but the PE management won't let us get the maintenance.
They didn't give us gift cards to the Honeybaked Ham Store for Thanksgiving like we got in the past.
The company now has over $400K and counting in debt.
After Christmas, one of our other repair techs left to take a job with a competitor.
I'm sending out my resume`s to other companies.
I hate everything about what this man represents, but I appreciate him explaining his evil so succinctly.
Love this guy. Straight to it! I assume every Private Equity firm is not the same and they might be a little nicer but can't hate on him giving it to you straight!
Private equity I believe is the posh name for what we called in the 1960's asset strippers. They have only one interest how much cash can they make and how quickly the business may or may not survive but they are raiders not builders.
Then after they strip your company of all value, they'll duct tape you and toss you out in the street like a s3x-crime victim
nope, PE firm has the goal to resell the company after 5-7 year at a huge profit.
Sure some PE firms may be the type of asset strippers, but that is just overlapping, not being the same
@@basedpatriotLT What I see is PE firms getting rich quick and their prey gutted. Loading companies with debt and using clever financial engineering is not growing a business it is looting it. How many PE owners did Debenhams have and what a wonderful job they did.
Asset stripping is worse because tht involves buying a company at a discount, ceasing operations and selling the assets. Thts a purchase made to get rid of the business.
A PE firm acquisition aims to make an unprofitable business profitable and then selling it 3-7 years later. It's like any other investment.
Nobody has been able to provide an example of PE firms running a business to the ground while making a profit either
@@zerog1037
Because they lose the names and sell off the assets.
This is mostly done by smaller business but not always. Most of the big business that are not around anymore where done this way as well, Toys R US being the most notable I can think of.
They were bought out in the early 2000’s by WHP Global
Saddled with a ridiculous amount of debt, then bled dry til they had to file for bankruptcy. All the while they had to keep their name, to make it look like it was all on them. Because technically WHP had the rights to the name as well.
You act like these corporations come up with genius strategies to have these companies become profitable. Which is 💩
So you either work for one trying to troll or you’re full of crap.
Nearly always PE fires all of the staff then rehires workers to the point the staff left over is a skeleton crew.
Becoming so overworked that burnout comes much faster leading to high turnover rates.
They also often purchasing much cheaper and lower quality goods and ingredients to either make their products or resell to the public. All the while increasing prices to whatever level they can get away with. While at the same time >not< providing better service or products to their customer base, or sharing the wealth with few if any of the workforce of these businesses.
Everything they do to these companies is for short term false balloon profits. The numbers look good on paper, as long as you don’t dive too deep into the specifics of it.
So please, take your boot licking on somewhere else
To the point.
For the employees this also means a lot of pressure, firing some to send a message and diminish the payroll, including key employees: you'd better have a plan B.
very clear, very honest.
"they will do whatever they can to maximize their gains from the transaction of buying your company".
Sure disagreements can happen, but if a leader can see it from the new owners perspective of max gains in short, medium or long term (depending on their wishes and prios), they can at least give reasons to why the new owners strategy may not actually give the wanted gains.
I would be able to do the work for a while after a new owner with new strategies, but it would always be with a medium/longterm exit, unless the new partnership ends up working out quite well in the end.
But how many have stayed out of all the people who have built a company, wishes to stay with it instead of making something new once it has new owner, new strategy and in most cases quite a few new people in key positions (always a exodus happening during ownership changes).
I own a service sector franchise and it was bought three years ago by Neighborly, a PE backed conglomerate. They’ve f-ed it up some bad that longtime franchisees aren’t renewing their contracts when they expire. Fired everyone at the corporate level that knew the most about the business, outsourced our scheduling center, are micromanaging the zees, and costing us more money in royalty’s and giving us less services and return in exchange.
This is all true. I've been through it. You left out one thing. The purchase price they pay will somehow become partly contingent on company performance in the first year. In other words, they will make the business fund its own buyout, or they get it at a very reduced price. The old owners will remain with the company only so long as its clear which way that'll go.
Yep, and if they know that the skilled employees who can leave, will leave (because those employees know what kind of hellscape the workplace is going to turn into), so company performance is going to go down.
how partly? Can you give the range? For example the price is 10 mil if the company performs the same. How much if company performs 2x better? How much if company performs 2x worse? To get the idea of how much it fluctuates based on performance.
And why only first year performance?
@@basedpatriotLT I don't know the range. It depends on the company taking over and how greedy they are.
Only partly because they always pay a fraction up-front, or the company would not be sold. The fraction has to be enough to be tempting to the owners.
The rest is a sort of ransom to keep the key employees keeping the lights on for a period of time so that they don't lose customers. They can say to the clients that the same people are still here.
From what I saw, there was a minimum target in earnings or profit for the former owners to be paid the rest of the purchase price at all. This is low-risk to the purchaser.
Only first year performance because (or possibly 2 years) because the company was not actually bought for its earning capacity, but for its client base. If the company performs in the first year, everyone wins. If it doesn't win, the former owners lose, and the new buyers lose less.
Basically, just think of anything that reduces monetary risk for the buyer and you'll get the idea.
Lol thts how it has always worked when it comes to unprofitable businesses. You want to sell it fast because it's not making money so are willing to accept a discounted price.
Nothing wrong with a discounted sale
That’s awesome. I love a succinct explanation that doesn’t beat around the bush.
Relating to balance sheet, they'll also sweat the employees/manage by spreadsheet. Sort-by salary and start getting rid of the highest regardless of most impacts to the business.
Truth. Bet you been there too-- helped build a great business, took a lot of risk, making good money, were a big part of why the assholes wanted the business, then got fired.
definitely not true.
Thts not true at all lmao
Cost cutting doesn't mean getting rid of all the employees haha.
@@zerog1037 Of course not, they keep the low pay ones to keep the lights on and pretend the boat is still making way. The leaders that were invested and gave a shit though, they're gone.
Damn this accurate. Been through 3 buyouts and it happens like clockwork
Talk about this and talk about that, but the bottom line over the mid term is that the employees are going to get screwed.
It's a big scam. The only way PE isn't a scam is if there's an asset like an old factory that basically is beyond repair. Then you sell the assets. When you start using this model for a sustainable business with real property paid for on site it will result in literal misery for everybody except those at the very top.
That was wonderfully condensed truth. Thank you.
Quite a concise and accurate description.... Thanks and regards from France
Probably point 7 is that by "sweating the assets" (I like that expression) & pimping it up, they'll then look at selling it off for a profit.
This was exactly what I was looking for, thank you!
Understanding “The Sacred Cows” is key. Private Equity will slaughter them for hamburger. When the sacred cow is a private jet for the CEO and his do-nothing nephew, that’s great and one of the most efficient parts of PE. But blade that slaughters the cows is double-edged. Sometimes those cows are important not just to the business, but the community at large.
For example, many emergency rooms and even whole hospitals have been purchased from hospitals by PE firms. The “Sacred Cows” in healthcare, especially an ER, are motivated and competent employees and lifesaving care. Malpractice aside, a poorly-skilled ER doc or nurse is not necessarily more profitable than a talented one, and may be more expensive. Making people healthier or avoiding unnecessary care isn’t necessarily good for short-term profit. On the other hand, a captive consumer base and a high degree of informal trust combined with low profitability makes places like ERs very juicy targets for PE.
what the fuck are you on about
Yeah they are frauds who are there to literally tear out the parts of the business that they can salvage and sell to the highest bidder. They have no business in running essential services they will just destroy them since they could care less about actual operations.
In short, private equity will destroy your company for short term profits. Which is perfectly OK if you're tired of your company and just want a big fat pay day yourself.
From what I'm seeing, small business owners and franchisees are NOT getting fat pay days, rather, they are being strong armed into laying off/cutting wages for employees and working themselves to the bone to try to keep their business afloat, for less than minimum wage, while being drained by unexpected and unexplained fees from the PE firm
the part that was not explained here is that the owner isn't paid outright. The 'deal' is contingent on future profits/loss. The PE will make massive profits with selling off assets, firing employees and management, borrowing on the business (meanwhile distributing said profits to the shareholders ) and then claiming that the debt outweighs the profits on a balance sheet and the seller gets nothing. Sounds like a scheme of some sort that has not managed to get public scrutiny yet.
This confirms my impressions and experiences succintly.
PE owners are like people who invest in the stock market. Your company is just one of the many businesses they can buy. There are always multiple options in various industries which might give a comparable or better return in time. Therefore it is always better to be acquired by a competitor or a company looking to diversify themselves in the marketplace.
awesome, 2mins, nailed it. subscribed.
Very much an adjustment for an owner-operator, used to doing things a certain way, to get used to having a new owner to answer to who has very different ideas. Not mentioned was usually PE firms create an incentive for management to share a portion of the proceeds of a future sale, in order for everyone's interest to be aligned. If you adapt to the new realities of PE ownership, you can also enjoy a future liquidity event.
yeap and the second sale can often be as large as the first for the seller that retains a minority stake.
Ours claim they can only provide equity after an IPO and nobody could give a fuck anymore. Chinese state fronting as PE is always a disaster.
Yes I totally agree that's what happened. I believe they are 1 of the worst things this country allows.
You would prefer to live in a country where the government decides who can buy your business?
3 steps: overleverage to get quick cash, fire everyone, liquidate what remains.
They get the sprinkles and the cherry. But you get the ice cream, hot fudge, banana, and the nuts; you get the sundae Vinnie.
Very good explanation of this very evil practice.
Is that why $2 stocks issue $1 dividends?
Was he talking about Goodfellas?
I don't understand number three. If they are buying my company, why should I have any debt?
Similar things happen if your business floats on the stock exchange.
Let's just take a step back for a moment. Did you make as much cash from the sale of your business that you need? Good. Everything from that point onwards is just entertainment.
Can confirm, well said
Maximum possible layoff without hampering revenue to expand the bottom
Private Equity should be illegal, along with everthing else that gives capital too much levverage over labor.
interesting. thanks for sharing
if i sold my company to a private equity firm. the second the paperwork goes through and the cheque cashes, im out they own the company they wanna saddle it with debt and strip it for parts, then they can run the show... im happy to take their money tho
Note to self, never ever invest in this type of scheme due to having a conscience. Note to people that own a business, never EVER sell your business unless you plan to take the cash up front and walk away. These type of investments are purely profit driven and will never end well for the average worker or business owner wanting to 'stay' with the company.
the sad thing is that this crap is taking over healthcare as well. the company I work for was 'bought' and now that it's been about a year or so, they just announced a big layoff of middle management. I am clinical, so I will probably be expected to do more with less. Which is a reason I quit a long term job 3 years ago!! Just to end up in another one. UGH.
They will include the debt into the business... make the remaining employees now work harder to service that debt, insist on balance sheet improvement, then make deep cuts and seek to flip it as soon as viable.... rinse and repeat. Existing husk of a business left in shambles (more often than not)
I call private equity firms professional enshittifiers. One of two things will happen, your business will either shrink to a much smaller size or service or go out of business.
They put debt on the company so that they can take the money and run in those special dispersions.
But if they fire you, does that usually come with a severance package?
Sometimes. Not always.
He forgot to mention Rule 1: They are going to loot the pension fund!
I sold my company and they lost 80% of my clients in the first year.
Would someone please explain to me why one would sell their business to private equity with all these unbalanced conditions in place? Surely, you set up the sale to ensure you exit immediately bypassing all this nonsense?
Why would the PE firm want to accumulate debt? How is that making them money?
ruclips.net/video/iTJSeN93Pcg/видео.htmlsi=GWwq6S_taXrgvr9r
My question is after doing all this shit by the book does it helps get the projected profit?
Unfortunately, it does. But it can be hard on the business if you don't operate that way.
@@CEOProject I heard it works on one out 10 or more company. But it is worth the hardwork. Is it true?
So the good news is that you'll only have to tolerate this stuff for about a year - make sure you've stashed whatever they gave you for your company in safe places... ;)
Really good assessment that.
How does including debt maximize their return on investment? Thanks.
I do another video on just that topic.
I sold to a company backed by pe
None of this is happening? It’s been 2 years
"Put debt on" = suck the equity-cash-value out.
My neighbor is a PE CEO… has more money than he can spend, even after a divorce. But is actually a nice guy
Until a deal is made then people are getting stabbed in their rear by a killer of a nice guy
Yeah my boss at a PE company was a hell of a nice guy; personable, dynamic, highly intelligent, driven...and while he never fucked me he sent me out multiple times to fuck people. Nice guy but NOTHING gets between them and the bottom line financials. You are deluded if you think the public face you see at a neighborhood BBQ is the same guy at work.
How do you know what he has? Do neighbors discuss finances and show each other records?
@@davidgill3356 well, he has 2 3$m houses, country club memberships, and jet sets around the world…
Satan parades around looking like an upstanding guy
Do private equity firms make business owners, who don't want to leave, take our loans to pay back the PE firm? Also will the PE firm just buy a portion of a business? My understanding is one way or the other, the PE usually doesn't pay a fair price for the business. I have also read of cases where the loans to get the business going is in the business owner's name and is responsible for the loan. The PE firm arranges the loan, but the business owner is on the hook for it.
@monaconnell5650 Some PE firms will buy a minority interest in your firm, but they will change the governance to give themselves veto rights on major decisions. The decision to sell your business is yours, so only you can decide if the price is fair. Normally, the PE Groups need to be competitive with other buyers, or you wouldn't sell to them. As for the debt that might be put on the firm, we recommend that no owner sign a personal guarantee. If you don't have a personal guarantee, it is not your responsibility to repay the loans.
@@CEOProject Thank you so much for the explanation. I am hoping to learn more.
It’s not what happens to you, it’s what they do to your trusted proven employees. The very people you depended on will be replaced by “experts.” Trust me. They can’t help themselves. You will then hear what they are doing to your company through rumors for a few years. You will fell guilty you just screwed all the employees ,families and business you built. Happy times.
taking cash out allows them to begin to play with house money?
Is "house money" the assets that the PE firm owns?
It doesn't make sense if house = purchased firm ... bc you're not playing with cash thats not on balance sheets right?
It refers to recouping their equity investment as soon as possible. Once they recoup their equity investment it's referred to as playing with the house's money.
@@JoeS97756 brilliant. That makes perfect sense!
Because they leveraged the original purchase with debt, the lenders restrict the PE from taking cash out. Usually, the cash flow goes to paying off the loan. However, if the leverage ratio decreases, they can always do another debt deal (same lender or re-finance) and use the proceeds for a distribution to owners. Basically, the company increases debt and decreases equity. PE views this simply as an advance on the future sale of the company and a return against their original investment. Usually occurs when the company has good cash flow that has resulted in reducing debt and can continue to support future debt service.
It's simple. Say that you own an apartment building free and clear - no mortgage. You sell it to Joe who pays you $1 million. Joe raised $200,000 from five investors and paid you your $1 million and now needs to pay back his investors.
Joe tells a lender "this business (the apartment building) earns $D and I want a loan for 75% of the value." The loan pays off most of the original investor money.
Joe then sells off the adjacent lot because you sold it as part of the apartment deal. He cut up your asset and paid back his investors with
1) the loan money
2) the proceeds from selling a chunk of the asset
3) and he's still collecting rent money
The rent money is recurring income. He uses a portion to make loan payments. The rent money left over is 'house money'.
It's 'house money' because
a) he paid off his investors
b) he has enough to make debt payments
c) he has cash left over every month after debt payments
It's like free money for Joe. He holds the 'house money' generator for 5 years and sells it at a profit.
Orchard Supply Hardware was a nice chain of hardware stores in California, Orlando, Fl and was put out of business by Eddie Lampert. He bought the chain, put a huge debt burden by taking out loans on it, and it went under. He made his money.
.
@@Greg_Chase Eddie Lampert got involved with Sears by saving it from bankruptcy, most people wouldn't touch it. Granted it still ended up in failure, but he spun Orchard Supply off into it's own public company. His involvement in Sears was considered one of his only failures in his career, so I doubt he made much money from it. It's not a good example of a pure private equity transaction.
What happens when a Private Equity Fund purchases a small public company That ALREADY has outstanding debt.??? All the common stock gets purchased, but the PEF allows the company's existing debt to remain outstanding.! What happens generally, then? ((Is the PEF responsible for paying it, or can the PEF simply allow the new 'subsidiary' to default on it.??
The obligation to pay the debt doesn't change. Sometimes the PEG will assume the debt if the terms are acceptable or pay off the existing debt and replace it with cheaper debt. The company is responsible to pay the debt.
@CEOProject when you say "the company" is responsible to pay... do you mean the new P.E. firm that is now the parent/owner. Or, do you mean "the company" that was the smaller company - and that had issued the debt but is now a Subsidiary & owned by a P.E. firm now.?? The reason I ask for clarification is this: what's to prevent the P.E. firm from allowing one of its Subsidiary businesses from defaulting on that Subsidiary's previously issued debt, and then the P.E. firm/parent simply saying, gee too bad, and not having any $ liability for the Subsidiary's debt.
Said another way maybe. When a Parent company buys another company and makes it a subsidiary.... Can the Parent company allow that Subsidiary to default on its debt.? ((Or does the new Parent company have to absorb the obligations of its Subsidiary.?))
Not only your underproducing cousin, but will also chase off the expensive high performers who actually know the products and the customers--you know, talent? the single, working mother,; the guy with a new kid who just bought a house--and will bring in the know-it-all pals from "the industry" to wield the axe, and find somebody in the world to try to fill the roles. You, CEO, skulk away with your pockets lined, and those staff you had long prized for their loyalty now absolutely despise you. That's the 7th thing private equity will do.
...so to sum it up, It's the golden rule and those with gold make the rules Capiche?
In short: they are blood sucking vampires that will destroy everything you built and destroy your legacy/reputation/relationships. But at least you can buy your 5th beach house and sip your nice drink 🤦♂
"I miss the mob."
with rising interest rates, and a lot of zombie companies are going to get bought up by PE firms or just disappear all together. Possibly both for some of them
Saw it into pieces, sell it for what they can get, burden what's left with ridiculous management fees, bankrupt what's left, take their money in deferred even as the business is failing and dying, and then and go off and do it again. Is that what you mean?
Should read deferred interest
Remember - their loyalty is to the money - not the business
Much like banks rather short sighted and stupid
PEs ruin everything they touch.
What about you investing in pe firms
Love the way he just glosses over the bit where the PE just strip mines the firm. Reducing services to customers, reducing quality and laying off long tenured employees who built the firm in the first place. Toys R Us, Red Lobster, Fairway Markets etc.. etc..
None of those points are surprising or unreasonable. Wow, investors want to maximize their returns. Who would have guessed?
So do thieves.
@@trobinson14kc Are you a communist?
So basically just do these things to your business and get rich.
As opposed to owing a business for….what exactly?
Dont forget take on extraordinary levels on debt and bleed that out of the company until it goes bust
Funny that the entire PE business model relies on their privileged access to lending.
Without being able to get sweetheart deals from their banking buddies, the entire model collapses.
The dangerous future for people in PE is that AI will soon be able to analyze documents, communications, and data at a scale that will discover ALL financial shenanigans.
My advice to anyone with a shady past is to simply be ready for the chickens to come home to roost very fast!
You reap what you sew.
A good accountant cant do that? They aren’t mapping a genome or something. There’s only so many transections to follow.
@@davidgill3356 the difference is that AI can understand sentiment and meaning at scale programmatically. That's the game changer.
@@n8works Be interesting to see I guess, not sure what sentiment and meaning have to do with any shenanigans in a legal sense. Or where the assumption that anything illegal is automatically going on and just hidden that require any new form of analysis or what’s going to be reaped. If all these things are happening and you’re aware of them how is it AI is going to expose it? How did you figure it out?
@@davidgill3356 The current limitation is the human capacity for analysts. It would take billions of man hours to analyze. When the analysis is automated and can happen at a digital scale, that limitation goes away.
I would think that with the examples you can find in the real world - Enron, FTX, etc etc etc. You wouldn't have to question the existence of financial chicanery.
@@n8works Lol, I think I see the problem here. I didn’t question financial chicanery, I asked how you know about the existence of kinds of it that would take AI to analyze. I can’t help but wonder how there could be paper trails that would take BILLIONS! of man hours to analyze and yet PE firms are able to create them and utilize them while remaining profitable and accountable to their shareholders. Get back on your meds dude, this is just sad….on par with the most retarded conspiracy theories and all to track down something as sinister as people who know each other giving preferential loans, come on.
ITS LIKE SELLING A PIG TO A SLAUGHTERHOUSE. They will buy it from you, but unlike you, who busted your rear and burned the midnight oil to build the business, private equity only wants to kill it for a quick meal.
GAME OVER!
It's gonna be a bust-out operation. As seen in the Sopranos, Goodfellas, etc. But it's legal.
Because the shareholders got paid… so it actually isn’t like that at all.
And there’s no violence of fraud involved…and voluntary and totally avoidable. So as much the same as everything else that is totally unrelated except involving a business.
Basically these trolls suck the life out of everything they touch.
They will destroy your company.
They buy a failing business or cheap business. Chop it up , lay offs and sell parts off. Make it seem more profitable then is and sell it for 5x return . Jack off at cocktail bar as they boast to Goldman Sachs guys how much better their jobs are
what about forcing woke ESG policies?
Private equity is the down fall of this country
Carpetbaggers
Increase receivables and reduce payables I think he meant to say. Not the other way around
Nope -- to minimize the cash in the business reduce what people owe you (AR) and increase what you owe (AP) - use other people's money.
If you leave on a Friday signing 30-day payables, and come back on Monday only signing 90-days, congratulations, you just got an interest-free loan of 60 days worth of cost, courtesy of your suppliers.
This is why you thumb the scales as a seller. Lie bout inventories. Take orders at low margins to build sales and receivables, etc
Game gets played both ways
Asset stripping...
Private equity should be banned
I call this TABS. Typical American Bull Shit.
Why are you obsessed with the word 'why'? WHY????????????
This guy doesn't know a thing about business.
Besides destroying it?
Private Equity are the devil.