I keep stumbling on these news stories with a common theme: asset strippers hidden in the sheep’s clothing of private equity firms. The stories rhyme a lot with what’s been going on with the bank bail outs.
You probably first want to know, what exactly is an asset stripper? Pretty much what it sounds like – a buyer whose intent is to sell off assets for a profit. The buyer in this case is a private equity firm who relies on leverage buyouts in the hopes of selling the company for a profit. What’s missing is an incentive for the long term survival of the original company.
What the following articles show are private equity firms using the company assets as collateral against debt, effectively stripping any real value out of the company, while the private equity firms take the profit and hold none of the liability.
How many more of these stories are out there? And is it just me, or does this sound exactly like what’s happening to our tax dollars (The Treasury) shoring up and bailing out of Wall Street firms?
When private equity giant Wasserstein & Co. bought Harry & David in 2004, the future seemed as sweet as one of the Medford company’s baskets of juicy Rogue Valley pears. [...]
After Wasserstein took control, Harry & David’s long-term debt soared from zero to $245 million. [...]
Wasserstein led the $252.9 million purchase of Harry & David in June 2004. Bruce Wasserstein, a legendary investment banker with a long, storied history of success, joined the Harry & David board.
Typical of a private equity deal, Wasserstein and its investment partners moved quickly to eliminate any of their own risk. Eight months after the purchase was complete, Harry & David sold $245 million worth of corporate bonds.
The deal: Wasserstein and partners buy Harry & David in 2004 for $252.9 million.
The financing: Harry & David borrows most of the money.
The skin in the game: None. Harry & David in 2005 reimburses Wasserstein and private equity partners the $82 million they contributed to the purchase price.
The result: Harry & David’s long-term debt soars from zero to $245 million.
The reality: A planned IPO never happens. The company cuts more than 20 percent of its jobs, slashes remaining employees’ benefits. Ratings agency predicts Harry & David will default on debt payments.It sent $82 million of the proceeds to its private equity masters, repaying the money that Wasserstein and its partners originally contributed toward the purchase.
Simmons Mattress Co.
By Julie Creswell, New York Times, October 4, 2009
Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.
For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year.
But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.
By Geraldine Fabrikant, New York Times, October 9, 2009
Like other yacht makers, Hinckley lost substantial business when the economy turned sour. But Hinckley’s problems can also be traced to its sale to one, and then another, private equity firm over the last dozen years. With each sale, it took перекладываемая onerous when business slowed. And the culture also shifted from a family-owned business to one controlled by outsiders.
Bain Willard Companies, a Boston-based private equity firm, was the first buyer, 12 years ago. It paid about $20 million, equal to about one year in sales, putting down about 25 percent in cash and borrowing the rest, according to several people with knowledge of the negotiations.
And Bain Willard had the wind at its back. Hinckley had introduced the “picnic” boat not long before — a luxurious powerboat that combined the look of a New England lobster boat with a water jet propulsion system, instead of a propeller, that allowed the boat to maneuver in shallow water. It had been an instant hit.
Bain Willard expanded Hinckley, opening service centers in Florida, Maryland, Rhode Island and other places. In those boom times, the strategy paid off. In 2001, it sold about 51 percent of Hinckley to Monitor Clipper of Boston for an estimated $40 million in debt and equity.
