Inside the Private Equity Game (2009)
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- เผยแพร่เมื่อ 11 ก.ย. 2024
- NYT documentary about how Private Equity works and explores the Simmons Mattress deal. The documentary was released on the New York Times. The article was written by Julie Creswell. www.nytimes.com...
I remember playing Railroad Tycoon - a PC game back in the 1990s. Whenever a new competitor was formed my company bought majority stock, took all the money in the treasury and sold the stock. The competitor went bankrupt. I never laid any track, but still had enough cash in year 1 to top the high score table. I never knew I was doing private equity - it seemed more like theft to me🙂
Did you buy an island?
It was theft!
@@jameskiehm546 theft from who??
Can I ask how you acquired railroad tycoon? Always wanted that 1…
@@KingJCJ do you mean acquiring the software or do you mean acquiring the other railroad companies within the game?
The elephant in the room that this video did not deal with and I think purposely neglects is the contractual obligations of established companies which can then be ended by simply transferring ownership.
The new owners get the break labor contracts and other contracts. That's the superpower of the private equity company.
Private equity can be a destructive force if the fund managers, deal and decision makers are opportunistic short term exploiters, particularly if the private equity have foreign stakeholders without long term goals and zero attachment to domestic workforce.
Hi, what you said is really interesting.
Could you by any chance give me an example or two of what opportunistic short term exploitation looks like?
McDonald’s and the Oppenheimer deal of 07’ are two textbook examples
Imo 😊
Private equity in European Football clubs 🇬🇧
That’s over half of them
Yup
Great video. Several thoughts
1. Most banks are not stupid to give debt to companies that are overleveraged. During the underwriting phase there are very thorough analysis of debt to asset and of course financial statements proving you can repay your loan. This video made it seem that banks just give funding with no questions asked.
2. Most companies are not run very efficiently. Warren Buffett called board of directors at many companies as a good old boys club.
3. For the Sealy Corporation to have kept on getting acquired, the Private Equity firms most definitely increased the value of the company.
4. Heartbreaking to hear your severance is just $20 per year you worked and a free mattress. Depressing. To add insult to injury the company stopped giving out free mattress.
I was shocked and they loved it
$4 wow that's terrible.
Its quite funny hearing them at the end talk about how private equity could be done for or it could be a repeat of what was said in the 80s, and thats exactly what happend. Private equity remains at large....
If you can run the company with 1/3 of the employees, cutting jobs is not bad, in fact it enhances productivity in a company. A company isn't an NGO
Nik Esp precisely
Exactly, especially when you cut 1/3 of salaries in management and dividends for people who don't produce anything that would be very efficient. The workers work for just a mattress on retirement.
Name an actual successful case of this happening under the guise of PE. One or two years of the company being able to maintain its previous business before it goes down the tubes does not count.
But there are plenty of cases of PEs doing nothing more than gutting the companies for their own exorbitant profits.
They cut the jobs to take the quick cash, not improve the company.
That's why in my country customers are flocking to companies with better customer service: because certain banks and other companies are trying to reduce costs by cutting back on branches, and outsourcing or eliminating good customer service operations.
Companies who serve customers do themselves a huge disservice by cutting customer service.
It's so simple. Have a person who speaks English and comes from your country, answer the phones. It ensures familiarity, it ensures customers will return because it generates positive feelings when a customer has a positive customer service experience.
And when they don't, they'll go to a place that offers good customer service.
The types of cuts you're talking about are simple, provide short term benefits to shareholders, but in the medium to long term, are deleterious.
And in B2B firms, the service principle applies - perhaps even moreso
This is one perspective. One could just as readily make a documentary about various private companies not owned by Private Equity that are inefficient and which cause job losses. It's popular to lambast the financiers but what about companies where management has little skin in the game? Where family succession results in leaders not selected on the basis of merit? Where normal working class folks lose their jobs due to poor decisionmaking by such leaders?
Private Equity can at least focus people's attention, clarify priorities, and drive efficiency-- and save more jobs in the long run. This sort of story is less sensational, to be sure. But these other stories happen all the time, not covered by the New York Times.
Fuck private equity
Agree with this. I have ran into plenty of companies that had terrible leadership and were sinking into the ground due to nepotism, poor structure, or just general incompetence. I think setting up strong incentive structures can lead to PE improving outcomes for everyone involved.
The other side of the coin!
Good perspective you added. The second last question of family succession and not merit brings a good point of how approaches like family succession harm the company's efficiency. But what's especially interesting to me is that even a merit based ones has so many flaws. Without going much into it, "Myth of Meritocracy" by Michael Sandel explores this topic well. So overall it's the nuances approaches that promote better operations at all levels that make a real difference
Couple different definitions here. Private equity just means private businesses (venture capital is generally also private equity). So, business that are not on the stock market. The video, however, focuses on some of the cut-through practices of private equity firms.
It’s the best business in the world. Borrow, buy, shape up, sell.
Agreed...
The problem Leverage Buyouts is the crushing leverage. Guitar Center, Toys R Us, KB Toys, Worldwide Grinding Systems, Gymboree, Payless, Dade Behring, Details, IHeartRadio to name just a few. The private equity firms make their millions upfront in the debt they borrow. They don't need the companies to work. They've already made their money.
Can I kindly ask if you have time - Private Equity firm A leverages up against every asset the company has and takes the money. They then sell up at an attractive price to ‘Firm B’. Does the bank not look to recover any of the debt lent to ‘Firm A’? Is it simply written off or does the bank forward the debt onto the new owner? And how then after does the bank allow Firm B to re-leverage against those same assets when no additional value has been created? Thanks
@@Rolothe1st Most lending documents have a “change of control” provision that requires the original debt to be repaid when ownership changes hands. New debt would be raised by the new owners. Could be same amount as original debt.
Simmons was in an industry where there are lots of innovation competitors. The original owners got out at the right time, future private equity owners had no idea except on cashing in and moving on.
PS - Bankers were asleep at the switch.
what an insightful video!
thanks for uploading this.
Private Equity is legalized Burglary.
You can literally see Andrew Sorkin hitting puberty in this video. He sounds like a teenager at the beginning and suddenly becomes an adult towards the end.
Good video overall too. However, it failed to show much of bank bailout money, fed easing money, and lost income tax, inside deals taking away small shareholders shares for pennies on the dollar, and your bank deposits (lost through inflation with zero interest rates) is basically how private equity gets paid. Yes, they do some good union busting.
And another populist..
Very interesting. I didn't know how this worked.
All businesses that aren’t public are private equity.
Why is no one mad at the CEO’s who chose to sell?
It's not just buy, fix, sell though
It's usually just buy, raise prices
That 2nd kind usually isn't adding any value at all, unless the thing really is a valuable scarce resource that was somehow artificially cheap leading to overconsumption (v rare)
It is sad that this isn't public knowledge, and these practices aren't more regulated.
Also this got worse after 2009.
I would be extremely valuable to a Private Equity firm in terms of finding profit opportunities for the purposes of the"fix and flip".
If you could be, you already would be. Dream on...
Let's completely ignore the role of artificially low credit rates from the central banks and deficit spending that forces investors to increase risk and everyone to increase leverage.
it’s the consolidation of money in a few hands who then lobby lawmakers
This a hit piece. Take it with a large grain of salt.
Literally every single person in this video is a reporter. How are these people credible sources, especially when they likely majored in journalism? I can almost guarantee they wouldn't even be able to run the simplest of DCF's or LBO valuations. Why not have other financiers/bankers give their opinion on the PE industry? The selection bias and echo chamber are real in this video. Dislike.
I Kiski I once I saw the CNBC guy, I knew it was gonna be bunk. CNBC, NBC, CNN, MSNBC. They're all rubbish.
0:36 Andrew Ross Sorkin is now one of the anchors at CNBC
Its pretty simple really,... is it good for any company ? HELL NO. For a privet equity firm it almost impossible to loose money, and a blind squirrel in a snow storm can make a fortune
In 3/14, just saw a report that many pension funds and endowments have invested heavily in Private Equity firms and are overvaluing the PE firms on their financials. Don't know if the overvaluing is true but do believe the shift from bonds and stocks and into PE is true. Makes sense when a PE can get cheap money. What happens when the money isn't cheap-interest rates go up? Too big to fail, again?(Video was made post 2008 election.)
They have already failed and the much of the bank bailout money and the fed printing ends up in private equity firms. Also the reduction in corporate income tax since debt is tax deductible ends up in private equity.
Thank you.
pirucreek you have no idea what you are talking about. No PE fund received any bail out money you idiot. Banks are actually being forced to sell their illiquid asset portfolios due to basil III
They are not "overvaluing" the assets. These assets are valued using public market comps. I agree that the PE world is getting overpriced, but it is on a step by step basis with the public markets. Most PE firms actually use very little debt. Most PE firms go after growth equity and use very little debt 20-40% debt to equity. When you compare this to buying a home it is an extremely small amount.
What a hack job. People love to hate private equity, but the reality is they do a great job cutting unnecessary jobs and waste
Except in reality they don't. Show me a company that did better under the thumb of a private equity firm (if you could find even 1), and I'll show you a 1000 that are worse off now than before they were bought by a private equity firm. This video was a fairly accurate description of the vast majority of private equity firms.
Motorola, Xerox, A couple of american rail companies.
Aristarchus of Samos Huh? As far as I know Motorola wasn't bought by private equity, neither was Xerox. I also don't know of any railroads that were taken private by any private equity firm.
Icahn Enterprises, was the firm. Research Plz
Aristarchus of Samos LMAO. First of all Icahn never took them private, he's an activist investor and was simply a shareholder that agitated for changes. Furthermore, Icahn lost money on his Motorola investment (See www.forbes.com/sites/joanlappin/2011/08/16/carl-icahn-lost-money-on-motorola-how-brilliant-is-that/#52fb7579161b). You're 0-3, perhaps you should quit while you're behind.
They used to buy companies gut the pension funds and sell it.
so many inacuraccies in this single perspective video. There are lots of non PE owned companies with high debt / leverage that have gone belly up. It's naive to label PE ownership in the way this video does. PE brings so many benefits too companies and consumers
Name any. They just push money around as written above. They do insider deals to take the company away from the small shareholders, then the basteys load it up with debt taking money away from the fed government (debt is tax deductible) and the bank depositors who are forced to pay the QE, bailouts, and low interest rates. Country would be better off if they were made illegal.
pirucreek All . PE like any asset class can have volatility in returns, but, it's has been very sucessful over the years and hence why many pension funds and endowment have a large allocation to PE in their portfolios.
The benefits of PE are extensive, including: helping ailing companies, provision of capital to companies where traditional capital market financing is thin on the ground, business expertise and innovation and job creation through growth of companies.
PE has nothing to do with the the cause of the credit crisis, QE or another other notion of financial stress you refer to your comment above. Also, leverage is an important part of any business regardless of PE ownership. It helps companies grow and prosper. Managed in the right way it is very effective.
I feal that your comment about pushing paper around may be more akin to hedge funds as PE managers get heaviliy involved in the businesses they buy and partner the management to achive the targets of the company.
As for your statement that if made illegal the country would be a better place; this is a scary comment. An economy without private investment would not be worth considering.
+Huntsmin Official Lol. I don't know why you even bothered with the guy. Lots of people don't understand finance, or concepts of leverage and liquidity as well as the role they play in business, entrepreneurship and employment. The reason why these high risk, high result financial instruments often come about, is due to already existing regulations restricting the easy movement of capital.
As with all things, when times are good, people proclaim the genius of all these instruments and praise them for the economic benefits, when things go south, all of a sudden all those who benefited in the past are judge to be wolves and vipers. It's the same old game over and over again.
Huntsmin Official There still would be private investment in private corporations and public stocks. Private equity is just a tax scheme. Look at Romney for example, using B shares to pump his IRA. Corporate Raiding was renamed private equity, they come in when the stock price is the weakest, then offer a ridicules price and 50% fall for it, and they then take the shares of the 49% that want to remain public. Sometimes I wonder it the shares are borrowed before the vote.
The video was a fairly accurate portrait of what the majority of private equity firms do. Sorry if you don't like what you see in the mirror.
It's not a complicated scam.
Find a target company, buy it out with mostly cheap money from the big banks, cut costs to generate cash flow to take on more debt (mainly cutting actual workers & often redundant middle level management), leverage it out even more, pay out dividends to the PE, then sell it or BK it.
The details in the numbers of the deal can get cumbersome as well as maintaining the relationships with the banks. But the core scam is pretty basic. PEs are mostly large level financial parasites.
You are a toad
The footage makes it seem like it is from the 80s or 90s.. What's up with that.
2023 is the same. M&A down 90% but fortunately for some companies, they borrowed money at very low interest rates so they aren't doomed.
This is a very helpful post. Thanks.
If you are running a biz and need cash be willing to operate with frugality. Not greed.
There really is no free 💰💰 in this universe.
People need to educate themselves!
Who is "the company itself?" People start companies to make money too.
I am a noob to the private equity realm. As a 28 year old male, this intro provides an unbiased perspective on LBO. In a nutshell....
😂😂
how's life in early thirties? how are things? anything you miss from 4 years ago?
Do you run a buyout shop yet?
@@HankTheTank23 Essentially, yes. I help finance M&A deals.
@@tsb8570 So you’re an investment banker? Me too.
To eliminate light as an issue this should have done this with cans. I would enjoy a second look.
does anyone know about the building at 9:00? like how the fuck does that work? I found it on google maps and its crazier than the video captures it. I want an engineer breaking that down for me
And if they understood how much debt the company has on it's books, what is expected of the common worker?
Pretty good video !
Honestly folks. This is a question to company owners or business owners, are having unions in the workplace really that bad for business? I mean this Simmons company just had too much debt; would it not have that much debt if the workers did not have a union? Are companies just trying to cheat the workers yet again? After the closure of the plant, they sent workers to non-unionized plants. I mean are companies really trying to get as much out of the workers as possible?
Some of the so called greedy people at the top couldn’t just pay themselves out of debt though since they do have a fiduciary duty to the company, so to speak.
I am on from the other side. I work as an analyst in the private equity, there are many types of funds I worked in Venture Capital so we are investing in to startups, and the good LBO I saw exist too though that involved firing and hiring people as well as they are actually not effective. And also we are not always getting bloody rich into making deals. At least I don't.
Which pill do you want, the blue or the red one?
If I answer the red one then what will happen to me 😅
With over a decade of cheap money, this has been one of the legs of another "housing bubble" type of problem that has been inflating non-stop and will soon be another movie.
Interesting, I am surprised that production jobs were not relocated to China. I wonder if the transportation costs were too high.
Simmons is still in business 9 years after this story was run. What's the problem?
lol this comment didn't age well
Simmons filed for bankruptcy on Jan 23rd 2023
@@teamtoken let's see ... 2009 - 2023 = 14. 14 years Simmons was carried along rather than failing in 2009. the LBO guys were able to kick the Simmons can down the road for 14 more years and keep people employed. what's wrong with that? if those employees were smart they would have realized that their management were not so bright and started looking for a new job. and probably plenty of them did. who knows, maybe the same thing will happen this time around as well. the brand will probably be bought by some other group, be it private equity partners or some other conglomerate. it's the nature of business. private equity groups are just one aspect of buying and selling companies. some times they win and some times they lose. the jealousy that losers have for winners is really funny to me. the scammers are the money printers and "lenders." where is the NYT documentary on those freeloading scam artists?
@@teamtoken and still in business after it's restructuring.
Pretty simple. you borrow money from your parents and buy a cab, the cab driver was doing $3000 a month in sales, he was being paid $2000 per, and fuel insurance maintenance was $500 per. leaving a profit of $500 a month, you get 250, your parents get 250. But now since there is no lien on the cab, you borrow money against the cab and that cost another $500 per month for the cab company to pay back. You and your parents still are going to get your 250 each first, the new dept of 500 comes out of the cab driver salary and cab maintenance If the new cut backs work out you will continue to receive your 250 , and if it does not, you still have the money you borrowed on the cab in your pocket,,,, fuck you can give your self a nice bonus, How the system allows that to happen ? Why wouldn't the bank loan you money ? they have collateral for the loan, that's why.
U good bro?
I understand none of that
That is actually how large Taxicab medallion owners built up their fleets out of a single license, and upwards hundreds of licenses.
It also helps them to shield themselves against liabilities, each medallion or set of medallions it is actually a whole separate company tied to debts.
Try sue a taxi fleet, and see where it takes you. Nowhere other than a pile of companies leveraged in debt.
@@showcaseSampa Can you explain further or let me know where I can read about this?
@@fiachrasayshi nowhere. it's a known fact.
Large fleet operators ( Boston, NY, Chicago ) are self insured and use this expediency to shield themselves from lawsuits.
The interviewer hasn't aged in the 14 years since their aired
It should be illegal why the government doesn't monitor these activities. Loss of jobs and broken business.
A nice introduction to private equity
Introduction?
What do you recommend to gain deeper knowledge about this industry?
@@imt3206 u really think a 19 min video is all u need to learn PE? 🤣
@@de5913 Sir, what books, authorities or anything else do you recommend to gain deeper knowledge about the private equity industry?
@@de5913 sir?
0:43 seems like The office scene
Whenever sn MBA guy appears in the scene 🏂🏂🏂🏂🏂
what is their definition of private equity
I thought the dude in the thumbnail was Tim Dillon
$20 a year for as many years as you were at Simmons? lol, That's shit, ram your $20.
The investors, ss s group, have better areas to invest in.
The reason? All the fees plus wrong incentives.
Is automating factory jobs, and downsizing the workforce of one’s factory by 95-98%, a morally bad decision to undertake?
Not if all the jobs including managers, janitors ect will be lost if the company is uncompetitive
Creating market efficiency is generally not immoral as an inefficient market would leave everyone worse off.
Thanks for the video
Some of this is great and other parts are just goofy and wrong. A company doesn’t have “goals” like to “survive” that are at odds with those of its shareholders. The goal is to deliver value TO the shareholders.
They were talking at the point of a small family business. Which is certainly the case some times in inherited family businesses.
The goal is to deliver value to customers, stakeholders AND shareholders. Any company that pursues shareholder value above anything else is doomed in the long run.
Sounds similar to SPACs.
Very interesting
Nothing more than a typical Wall St bullshit asset class. If you invested in P/E at the start of 2008 you've been awarded with an annual rate of return of 1.65% p.a since then compared to 9.18% in the S&P500 - and you got zero correlation benefit. In 2008 P/E was down -65% vs -37% SPX and it again fell -47% vs -33% during the Covid Crash. I'm using the largest investable ETF (PSP) to benchmark.
This is mostly BS. Whilst there is no doubt speculation and risk, the great majority of PE firms create considerable value for society. Those who don't can't survive.
what value do they create and what evidence do you have that the ones that don't die
In what way does adding debt to a company and distributing the proceeds to the “Daisy chain” of PE insiders help the company?
Hey thanks for the education on this subject, good video.
I
4sm
Itryg
Was your friends name Jeffrey E?
Thank you for posting!
This video is so extremely biased. PE is incredibly important to the economy. The majority of the funds do very well for the employees and the economy
LOL... your being sarcastic, right ?
That is illegal. The funds should and do well for the investor and that it.
Lmfao private equity is the legal equivalent to the mafia
"They borrowed to pay themselves a dividend..." Err, what the heck?
They left a bankrupt LLC having made a profit... eh? This show is clearly riding roughshod over a few 'details' here.
there's no loosing investors in the daisy chain... this is nonsense
Is that Tim Dillon in the thumbnail?
PE is part of capitalism. Hard to encourage the right long term incentives, but there's probably a way. One thing I never understand is why the hell do they skimp on cheap employee severance? It always gives them a terrible reputation, and would cost SO little to help those people transition. Like c'mon these people are making like $30k, can't give them a month severance and a mattress from stale inventory?
Most people working in PE are malignant psychopaths or sociopaths. I assure you that helping other people when it doesn't align with their short term interest is not something they even consider to be possible.
0:45 and that friend… Jeffrey Epstein.
The idea of Capitalism is best in its creative form. However, it can be self destructive, if the recognition of valuae is not properly recognized. In simple works, it can turn turtle and be termed crony capitalism.
Was that Scotty Kilmer
Hey, look at that, Simmons filing for bankruptcy again.
Buy, borrow, outsource to China, increase prices, ipo or sell.
I was wondering what happened to Burger King. There burgers used to be way better!!
Tucker noooo!
wrong, infinite ways
wow wow wow 11:00 i want to be "that" evil private equity guy
Wow
So the question really is....why would the original business owners sell to a PE firm if they were doing so well in the first place????? If the target company was such a good one why would they sell themselves???? The NYT is as bad as or worse than PBS when it comes to these types of stories. They leave MUCH of the variables out and they are disingenuous at best.
Hi. Hope you doing well. Came across your comment to answer the question. It is because the business owners are getting paid on the day they are bought. Your business can be doing good and might make you the money in couple of years. What Private Equity does is shows up with the money. So owners usually think well why should I work 5 more years to earn the same buck when I can get paid today.
Because they wanna retire and live
Often they are sold because the PE firm sees the company is run poorly and is not competitive, thus they are sold cheaply or often the new firm thinks they can clean out the fat and create a more profitable company. Overall this helps the economy as it becomes more efficient.
Some major omitted variables in this "analysis." It's China and automation, not PE that fucked these companies' employees. I feel for the employees that got laid off. Ive been laid off twice and it totslly sucks. But the government should make it suck slightly less and stigma from being laid off should be nonexisten5lt. Its not your fault, but it takes time to move on sometimes and we should be there for eachother when it happens. Blaming tha bankers or whoever is a distraction from our lack of social programs and education.
Andrea Diprè prima di conoscere la bamba...
Andrew Ross Sorkin, billions creator 😁
Soe is worst when it was less known that the same sex marriage. Expensive as opposed
This is scary, and there should be laws preventing such gross misuse of funds. There has got to be a better way of doing business.
Asßz.
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$20 a year?! They didnt even give them a mattress? Welcome to being black in america. Yea I went there
And the moral of the story. Socialism is still more destructive.
177th Admendment's iiv.//17th chapter //nd.D
I know why Simmons went under. From looking at the people in this doc.
Loveiseverything lol
Work for the company or start a company. Stop whining.
At 7:30 you can see the guy almost puts two and two together. “Well you see our plant is unionized so they have to pay more then other places”. And that is exactly why you are being closed down. Maybe if you didn’t mess with the market by creating artificially inflated wages with your employee cartel known as a union you would still have your little Piss ant job making mattresses.
basically what the mafia use to do small mom and pop shops in NY
How do I sign up?
It's a hustle 🖕
AreiL'a/NZ/nation'Y //nd.D
ConsineiTive'Y/admendmends'A/LiibrarT'y UI //nd.D
Did ISymboL A - think Both I TSymBoL-thinKBotH/SymbOL tHinK/ they are captiviations-sd.w //nd.D