Isn't it bananas how private equity firms borrow people's money and use someone else's company as collateral?
I think that's bananas.
Isn't it bananas how private equity firms borrow people's money and use someone else's company as collateral?
Isn't it bananas how private equity firms borrow people's money and use someone else's company as collateral?
I think that's bananas.
They have the right to do that.
What does her breath smell like?
>What does her breath smell like?
BWC
We should take that right away. It's probably not even a declared right, just a loophole.
Peach candy.
>isn't it crazy how people borrow the banks money to buy a house and use the house they are buying as collateral
what's your point dingdong?
My point is that these firms are buying out companies and unloading their debt onto them and if shit doesn't go accordingly the company is taking all the brunt of collections while the firm just walks away with nothing more than bad PR.
It's like they borrowed money from a bank to buy someone else's home to try and flip it on their behalf and then failing to do so and leaving the actual owner of it to pay the debt.
PE anon here, this is not accurate. A PE is putting some fraction of the purchase price down, like you would with a house (though not as much, they have good credit). Their capital comes from their investors, who have bought in to the firm.
They take out loans from investment banks to finance the rest of the Company. Now they own most or all the (private) stock. So as managers of the Company, they run the Company like anyone else, they might take on more debt to invest in operations to grow market share, or cut costs (often labor) where they see redundancy because they know how to streamline operations (PE's are good at running profitable companies, surprise).
Obviously the burden of this debt falls on the Company. Why would you expect otherwise? The principal owners of a Company do not personally fund operations unless it is a small time LLC. The Company owns this debt and pays it back with revenues. If shit goes bad, the owner (the PE) liquidates or sells everything, again, like any other owner would.
Not really seeing the point here. The only difference between a PE and a Corporate buyer is:
A) where the original capital comes from(ie PE investors or a Corporation's cash stockpile). Corporate buyers (eg. Microsoft or MasterCard) take on financing for their acquisitions too.
B) How the company structures operations. A PE owns a large portfolio of businesses, so they keep them separate (unless its a merger) in order to mitigate the liability of one huge failure (like WeWork) so it is not contagious to the rest of their portfolio.
They can't negligently "dump debt" on a Company, they own that company, it would just hurt themselves.
sup PE anon, I got a question for you.
Let's say I build up a company to like 10M revenue and say 2.5-3M EBITDA without giving up any equity and just using my own brains and debt.
>Do PE companies start to approach me?
>Would they try and buy 100% of the shares or try and leave me some equity?
>Would they they keep me on board or tell me to fuckoff and put in new people?
>What's size business do you get diminishing returns on multiple valuation?
>Do PE companies start to approach me?
maybe, not sure how to answer this
>Would they try and buy 100% of the shares or try and leave me some equity?
sometimes yes, sometimes no, it depends on the firm. its something you'd just bring up early on before signing an LOI
>Would they they keep me on board or tell me to fuckoff and put in new people?
in most cases an agreement with leadership is retained to stay around for some period of time, usually a year. if leadership sucks, then maybe not, but at 10M revenue you'll probably be retained in some function through an agreement for vested interest or large bonuses
>What's size business do you get diminishing returns on multiple valuation?
valuation is just determined by EBITDA with some wiggle room based on growth rate and depends on industry in my experience
not sure what you mean, a PE firm only consists of two things
>capital from investors
>portfolio companies
all the capital comes from investors. even if its a family office, the "owners" are still the investors.
also re: fraction of purchase price, honestly its not that different from a mortgage, i guess i overstated it. When Blackstone bought Hilton, they put down $5.6B of their own capital on a $26B overall purchase price.
Can't you take investor B's money to pay the down payment that investor A wants you to make on the deal? And just include investor B in the deal? But I guess they would want a down payment as well.
>investor A and B
i have no idea what you're asking anon. Assuming you're talking about other people who hold equity - they get bought out too. The exact terms on who keeps stock after the buyout are negotiated but everyone's shares are worth the same.
Nevermind.
What about first time deals? How do they put up a down payment if they don't have an money to start with and rely completely on the investors? Fund raise it?
>What about first time deals? How do they put up a down payment if they don't have an money to start with and rely completely on the investors? Fund raise it?
you're unclear about what an "investor" is, let me clear it up for you.
>Anon is a seasoned investor, probably a management partner at some huge firm, and wants to start his own PE fund
>goes to other rich anons he knows for money
>they all buy in for $10M each
>he now has a fund with $50M in capital
>Anon is the Managing Partner
>hires a bunch of managers and associates to work under him to manage the day-to-day of acquisitions and running his portfolio companies
>gets to work identifying good candidates for buyouts, networking through his friends in the industry
>he buys 5 Companies at $25M each, putting 20% down on each one(5M apiece, the other 20M in debt is assigned to the Company)
>has $25M in the bank for future investment as well as operating costs (ie his employees)
>now owns 5 Companies
>employees get to work streamlining costs, consolidating redundancy, and looking for new ways to create value with the new Companies
>Companies increase market share and improve EBITDA for the next 3-5 years (typical holding period)
>sell them when a buyer comes along for big profit
>Anon as the MP takes a 20% cut of profits (called "interest" as it is the interest the investors are entitled to)
>uses these rest for future investment or paying out to investors
>this fag brought me a flower instead of a car
Where is anon getting $25M from? If he has $50M from the rich guys and is using that for the down payments, does he get the $25M from a pension fund or bank? Or does he get it from other investors?
Anon
>goes to other rich anons he knows for money
>they all buy in for $10M each
>he now has a fund with $50M in capital
ALL the money in a PE comes from investors. Even if its "your" money, you are still the "investors". A PE does not just have its own money. Its just a fund or family of funds.
The $25M he spent (5M each on 5 companies) came from the fund. He has $25M left over for overhead, other acquisitions, or other costs.
You raise capital BEFORE you buy companies, in this example Anon raised 50M then went shopping for little companies to buy.
>Do you see people transitioning from entrepreneur to PE? (after exiting a biz or while running one)
>Do you need some different kind of experience?
>Are MBA's useless?
I love this shit tbh, I could see myself wanting to move into something like this if my shitty biz turns into something worthwhile and I want to cashout in 10years
>Do you see people transitioning from entrepreneur to PE? (after exiting a biz or while running one)
Yes but the Partner's are typically from the M&A industry. I doubt you'd want to make PE your day job if you had enough money sitting around to start a fund. You'd probably be better off either investing in an existing firm or looking around for an MP and starting your own office (if you had a fuckton of money).
>Do you need some different kind of experience?
To get a job at a PE firm? Yeah, M&A experience. Also, usually, a great pedigree(stanford, yale, etc). You're going to work like a slave like you would in any other kind of consulting gig.
>Are MBA's useless?
Probably useful if you're 22, imo its useless after some years in the workforce, your work should speak for itself. But YMMV, hiring managers have their own opinions.
If I was good enough at business to bootstrap and exit a firm for high 8, low 9 figures, I would just look to bootstrap or acquire another industry firm and take my knowledge and do it again. PE is just a numbers game at the end of the day. Of course if you're acquiring a bunch of firms in the same industry, you're basically doing the same thing at a smaller scale I suppose.
thanks train anon. Good insights overall compared to the steaming garbage that gets posted on a daily here
yeah i wish there was like a "business general" or something for discussion beyond shitcoins
also i should mention that if you want to sell out, call an investment bank, they will find you a buyer (for a fraction of the proceeds of course).
>A PE is putting some fraction of the purchase price down
That makes sense, but I couldn't imagine a lot of it is down. And wouldn't this also just be investors money?
This would be applicable if you could use the mortgage to pay off all of your preexisting debt and also take out a bunch of money for yourself, then rent it out to people who burn it down, and then declare "house bankruptcy" (that doesn't effect your other assets) and walk away from the mortgage.
But you can't. Because it would be a scam.
I work in a private equity owned company and it is retarded. They bolt on another acquisition every six months just to farm the 8% transaction fee.
I got a question regrading who's responsible for the debt. Besides the obvious buyout thing I'm talking about, what about just an ordinary loan from the firm to the company with the investors money? The firm lends the borrowed money to the company and uses the company itself or all of its assets as collateral for themselves on behalf of the actual owners of the company. If the company defaulted, do the investors go after the firm or the company for the debt not being paid? Since the firm doesn't own technically own the company, just the assets of it. I would think the firm since it was originally their debt in the first place but the whole purpose of the loan was for the company to use it and it would be deemed as their fault.
Retardedly convoluted question I know, but I want to know how something like that would work.
it's ok because they said so in the fine print and they have to type up a 100-page essay every so often for the government
LBO’s are super interesting yeah. Definitely wish I knew more about them.
Can you not be antisemitic for 5 seconds?
This. Non israeli banks wouldn't do this because
because uh