How the private equity buyout industry works

[creativeengineer]

Private equity companies are run by very greedy people, responsible for loading good companies up with massive amounts of debt and in most cases ruining them. Their only god is money. Nothing else matters. They treat the employees with contempt, never disclosing the company's financials, including their massive hidden fees. And they never have the courtesy of meeting with the employees... they see employees as a cost and a means to an end. Their social conscience is zero.

[jxsilicon9]

As someone that works with private equity firms. This guy doesn't know anything. PE keep experienced management on buyout firms so the business stays at optimal performance.If you buyouts have a high failure rate. Your firm wouldn't last long.PE make money by investing in firms and building them.

[vdo9999]

haha ! look at this guy trying to sell his "book" by accusing PE!! he is a bloody fake who is seeking to appeal to "working class" while selling his "book". Just remember, PE is not a scape goat and if you are trying to accuse it of what you have just described you are pretty much doing the same thing that priests from The Holy Inquisition did ..

[evenbetter098987]

This guy does not have a clue... 

[frenzychipmunk]

this guy has no idea what he is talking about. private equity is a business which involves high-level of both qualitative and quantitative analysis. PE firms/investors are not just a bunch of greedy pricks.

I am awed by this guy's ability to tie PE with taxpayer's money too. How are the two correlated in anyway?

[DEEZNUTZCORE]

Do you really think a PE Firm just haphazardly throws tens to hundreds of millions of dollars at LBO targets they have not scutinized under a 10x magnifying glass???

THIS MAN IS CLEARLY IGNORANT.

GREED is not the problem. FINANCIAL IGNORANCE is the problem.

[hausse37]

It's sad to see a man of his age make such bold statements about something he know nothing about. "Many of the firms they invest in, the know nothing about." Wow, that's some serious inside into how the industry works. It's like saying a person that buys a house knows nothing about the house he's buying because he gets a mortgage. The difference being that the amount of due diligence work and research done by the PE-firms far exceeds what any person does before buying a house.

[jbush3]

I'm with richardagee20. The taxpayer does not subsidize private equity hence the former part of the sector, private. If the sector and business was truly harmful to the economy why would it exist? And before someone says for the Henry Kravis' of the world to get rich, think again. There are PE firms as little as 2 people...its a vast and varied sector.

[richardagee46]

You totall lost me, how does the taxpayer subsidize this? I think this is silly.

[AyshaAther20]

well I guess there can be two perspectives to look at this: 1.) The view of Eve: That PE firms actually do get rid of employees and bring in new management. I.E Maybe a way to get rid of unproductive ones and bring in those who create value. Or 2. The guy in the video: If PE firms would invest in companies only to strip them off their value, they would actually engage in unethical business practice. The long run potential to create absolute value for the industry and the country are hindered.

[Fasizan]

I agree with Eve. There are a lot of papers written both economic and legal that demonstrate the efficiencies of buyout transactions.

[EveMilani]

C'mon people! Do your homework and READ about the industry before putting up online anything like this! The number of employees at the portfolio companies sometimes shrinks immediately following the buyout, but actually GROWS within the next few years because PE firms bring in new management expertise which makes portfolio companies MORE efficient.

[EveMilani]

C'mon people! Do your homework and READ about the industry before putting up online anything like this! The number of employees at the portfolio companies sometimes shrinks immediately following the buyout, but actually GROWS within the next few years because PE firms bring in new management expertise which makes portfolio companies MORE efficient.

[mcphea02]

Are you a moron?

[WGL89]

Lead the sheep and they will follow. How is it any better to manipulate the ignorant by misinforming them about private equity? And if PE firms really destroy firm value, why would anyone want to buy their businesses? PE firms create value; they don't destroy it.

[Estevinyo]

this makes no sense at all

[cedric200]

This is misguided and uninformed. Private equity is nothing more than an alternative to traditional financing. Managing fees are generally quite modest, and it is in the PE firm's interest to add value to the firm because the entire deal hinges on an exit event like an IPO or buyout. This can't happen if the company isn't attractive to other buyers/ investors. in short, this dude's retarded.

[fdelnero]

I agree with most of what you say, except for the fact that managing fees are modest. Managing fees have accounted as probably the most important source of profit for GPs, especially in periods like this when deals are down.

I am totally in favor of the PE investing model, although I believe profits should be based exclusively on carried interest.

[mack387]

lmao this guy doesn't know what he's talking about.

[phadnisabhi]

If the PE firms manage to sell the business after "taking all value out of the firm", then why does the seller even buy it from the PE firm? Clearly the buyer who buys it from the PE firm at much higher value then at what they bought it see the value that the PE firm added.

First, shareholders get paid at a 20-25% premium for their shares. And then the inefficiencies are removed out of the companies. Why is management fees even an issue if shareholders and the investors of PE fund get returns?

[Will6719]

it is not in the best interest of any country to have companies with fat, bloated payrolls that aren't efficient- they won't be able to compete if they create the same product at a higher cost than our competitors. in the long term, PE shops are an essential cog in the capitalism model, and one of the reasons that it works. the owners of any business always have an economic incentive to fire non-essential employees. those employees are also then free to go create new industries/good/services.

[JohnRhysMusician]

Private Equity helps the economy by preventing the companies from failing. Democrats and Union organizers are like the dumbest people on earth.

[zahavgoldstein]

I couldn't agree more with eliphino 12. PE firms aren't evil or even all that unconventional. For America to be competitive in the business world investment innovation and experimentation with new younger alternative business models, like the PE LBO, should be embraced-not rejected because they aren't familiar to fear-mongering union leaders disguised as business people that film themselves talking trash about big business on YouTube.

[TheEquityPirate]

Private Equity. Capitalism at it's finest

[chino1127]

PE firms make companies more efficient - those laid off workers can be used more efficiently in another well managed company, instead of sitting around doing 1/3 the workload at the same company while taking home a nice paycheck - the increase in unemployment makes the entry costs cheaper and talent easier to find, for aspiring entrepreneurs looking to create more business opportunities, competition, and ultimately increasing the product choices for end consumers.

[phokulpoynt]

While I cant condemn PE firms I personally watched as TPG and the Apollo Group,both PE firms,torched the gaming environment in A.C.N.J.all while making nice profits during an ugly recession.Their gaming revenue is documented on the states CCC site.I saw the faces of those fired employees who dedicated years of their life and were offered embarrassing packages knowing the CEO Gary Loveman pocketed a sweet 92 million,but what the heck, as long as the spreadsheet looks good,somebody's making money.

[11111187]

Hey uncomonsense, two things. First off what you described does not sound like Private Equity to me. It sounds like Venture Capital. They are two different things. Also, learn how to spell. Your name "uncomonsense" is correctly spelled uncommonsense (if you want it to be one word). I know your comments were posted months ago, but I had to call you out on it. You sir, are a newb.

[proconsulaugustus]

Listen fucknut. If you're not going to contribute something worthwhile on the subject, stay out. You're just as stupid as this twit uncommonsense by wasting our time with spelling corrections. In the future, please shut your face.

[54spiritedwill54]

Sounds like an unethical business.

[afurrypanda]

business is unethical

[DrMBA28]

check out the "bankingorbust" website for more info

[ImJtodd]

What a load of crap!

[eliphino12]

Old guy in a suit does not =knowledgeable. PE funds charge THEIR investors fees, not the companies. PE not new (1980's). They do incredibly thorough research on co's they invest in. They normally do replace some management, execs that started the company but have no experience running a large corporation. On the other end, their investors are large state and federal pernsion funds. That means that PE funds are building teachers, firefighters, policemen, nurses, etc retirements. Not all bad.

[emforty2]

this is exaclty what Cerebrus is doing with Chrysler they are slowy buying out workers as they will outsource car making to China

[phathaus]

"They take them all on tax payers money"

What blatant lies!! These companies get their money fair and square from banks and other sources.

Private Equity firms are stimulating business by trimming off any excess fat, that includes management and lower workers. Why should blue collar workers be exempt from cutbacks if they're costing too much? Management shouldn't be the only people fired. PE firms are fair about their cutbacks.

[7r6iu7gd]

I was employed by a company that was engaged in these negative actions. It has recently been taken over by a private equity group of which the major players in the company are still a part of. They are a bunch of greedy bastards that are running this country into a financial crisis of monumental proportions while they line their pockets and laugh all the way to the bank. Hedge funds and private equity groups will cause the ultimate financial crisis for the US.

[uncomonsense]

This guy doesn't know what he is talking about. Either he doesn't understand what private equity firms do, or he is telling lies. If you want to criticize private equity, then first understand it. Also, ask yourself who is profiting the most from private equity. Is it the fund manager or someone else? Find out...Then criticize...

[markkenworthy]

why dont you explain what they do then, if your a expert on the subject, im sure the other posters would like to know too...

[uncomonsense]

Most private equity fund managers raise money and invest it in new or growing businesses. Let's say you have a business idea that is solid, but you don't have enough money. Then you can go to a PE firm, and if they like your idea they will invest in return for a share of your company. Running in or investing in a PE fund can be very profitable, but you also risk loosing a lot of money if you bet on the wrong entrepreneurs.

[moneymagnetelizabeth]

Private equity is crooked business, thieves, pirates. No wonder for years I have worked from company to company as a temp. Lock them all up!!!!!!!!!!!!!!!!!! along with Congress!

[malletj1]

LOL. KKR bought out RJRT in the 80's. The company fell to No2 behind PM and continues to fall in sales due to the debt and poor management KKR put in place.

[pfedorov]

Private equity companies:

a) reduce unnecessary expenses

b) bring in high quality management to grow the business and run it more efficiently

c) private equity professionals have deep knowledge of the sector they invest in

d) fired workers retrain and gain the skills that the economy really needs

All of these make the economy of the country healthier, stimulates economic growth and productivity.

Our pensions are managed by pension funds which invest in private equity funds!

[jackdeath]

a) Increase unnecessary expenses and outsource processes that would be cheaper to do in-house.

b) Bring in high quality management who specializes in stripping down the business for capital gains tax incentives.

c) Private equity professionals have deep knowledge of the investors, bankers, lobbyist, politicians, and the law that they need to beg, borrow, bribe and scam.

d) Fired workers are left to fend for themselves, can not meet mortgage payments, and are often forced into bankruptcy.

[pfedorov]

Private equity companies:

a) reduce unnecessary expenses

b) bring in high quality management to grow the business and run it more efficiently

c) private equity professionals have deep knowledge of the sector they invest in

d) fired workers retrain and gain the skills that the economy really needs

All of these make the economy of the country healthier, stimulates economic growth and productivity.

Our pensions are managed by pension funds which invest in private equity funds!

[jackdeath]

All of these make the economy of our country weaker, destroying economic growth and productivity.

You would be lucky to ever see a dime in your retirement if your pension manager ever invested in private equity funds!

[checkerflagbubba]

By the way "MuslimGhost"...I just hope you live somewhere where hate speech is penalized under law.

[checkerflagbubba]

While Mr. Faux's presentation is somewhat unfair to the greater number of private equity firms that do provide needed capital and management expertise, he does accurately describe the low road activities of the very largest private equity firms, who continue to major in buying cash cows and not updating their assets. They treat a profitable company like it were a car to be driven without an oil change ever. Having stripped the assets they then dump it on the public markets. It happens.

[emp756]

If a companies going to the wall anyway, what's the point in maintaining it without change just for the sake of it. Slimming it down, selling underperforming assets and laying off some of the workforce may be necessary to save it. When the company goes bust, don'll all the workforce get laid off anyway?

[demenour]

This is the most ignorant and biased thing I've ever heard. For one, the whole concept of the private equity is shown wrong...he has no idea what he is talking about.

Check any data about the private equity industry and you will see that the companies that were invested in by private equity firms have grown more than other companies...meaning to say that they hired more people in the long run.

[MuslimGhost]

"The genius of the Jew is to live off people, not off land, nor off the production of commodities from raw materials, but off people. Let other people till the soil; the Jew, if he can, will live off the tiller. Let other people toil at trades and manufacture; the Jew will exploit the fruits of their work. That is his particular genius." Henry Ford

[thatjlyn]

This is a generalized opinion that is not representative of the private equity community, in America or globally.

Ignorance at its best.

[Whoo69]

Only in America :/

[WadeBlazingame34]

GO AFTER CREDIT CARD COMPANIES!! I'll help... E-mail me bravenewfilms...

[PatMcGroinU]

Well maybe You should vote for Ron Paul.

[ChristianSocialist]

It is not fair that some people live in luxury, and some starve to death. Fuck the wealth for not sharing there wealth!

[Elin48]

ChristianSocialist, by your language you seem to have deep resentment about the wealth of the wealthy, and yet are envious too. Who is wealthy in your eyes? So, perhaps you should start with yourself, and begin by sharing what you have first. Just think, you could lead by example, just as Christ did.

[33115566]

Working for a company in a buyout situation is like a constant demotion. They destroy the business internally and have zero concern for the workers. Probably best to quit as soon as new buyer is announced.

[asumazilla]

How is it subsidized by the government?

[JuciShockwave]

It's sad how seniority is spit at. No wonder we spend billions trying to stay young forever or trying to be something we're not. It's not sad... it's pathetic. Say fuck off to these corporate pricks by not buying the lies. >:(

[nameofthepen]

If you wanna know how to really get rich, ask a reptile, I guess. They're the ones that made the rules. :-D

[Ackdacka]

this is exactly how donald trump made his billion

[proteanview]

America is being looted by globalists who have no sense of nationalism. They've borrowed their idea about nations and their sovereignty from world Jewry. They are not loyal to their host countries, but only to themselves.

[gnoseologist]

Internal destruction... intentionally? Apparently so...DEMAND A PAPER BALLOT! WATCH THE VOTE!

[skinnychef]

seriously!!!!

check out

blackboxvoting (dot) org

[jonathanwindham]

Sounds like an unethical business.

[ELGROOVER]

Bad business : (