Is Private Equity Intentionally Bankrupting The Companies It Buys?

Through a controversial tactic nicknamed “asset stripping”, private equity buys companies and pushes them to the brink of bankruptcy. But this strategy is much more nuanced than the bad rap that precedes it.

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[JosephDickson]

As a former newspaper employee, I can tell you asset stripping by private equity only benefits the investors who expect a regular short term positive financial return regardless of market conditions. if you start stripping the car for parts, eventually it can't be used as a taxi.

[athena]

"is it really poison, is it just about the dosage?", is a weird way of coping with people routinely putting polonium in your tea

[cmlxjcky]

They lost 11 million selling shrimp and paid 195 million in rent.

It was definitely the shrimp that caused them to go under

[jacob]

This is a weird take. Almost all of your examples saddle the company with unsustainable debts and sell off important parts to enrich the private equity firm through the sales for by just loading up on more debt and two out of three declare bankruptcy a third could still be in the cards. Not sure what part of this is supposed to convince us it was a potentially good

[whou]

Asset Stripping = Private Equity, which is all about taking company value and putting it into the pockets of a small group of people.

[theyruinedyoutubeagain]

TFW your boss's boss's boss's boss says that you should glaze PE or the entire business unit gets unalived.

[Rudster]

12:15 pretty much sums it up. It's only better for the private equity firm and it's clients not the company that was bought and stripped and all of its employees

[greenmenace]

I've only watched the Red Lobster part, and while asset stripping might not have been the reason, without private equity buying the company, it's hard to believe Red Lobster would've sold it's land and started paying rent. That wouldn't be good for it's profits.

[brandonhunter]

ProTip: If your company announces that it intends to “merge” with a PE company, do not walk, *RUN* to the nearest exit! Chances are you’ll be a casualty of downsizing if not outright sinking with the ship, so my rando internet guy advice is cut your losses.

[Sean_neaS]

Are the Business Insider Editors on vacation? How did this get through.? There's not a good side to leveraged buyouts. It just harmful Greed. People lose jobs, the product get's worse and more expensive, everyone else looses money for someone's greed. It's just as bad a MLMs.

[JeckNoTree]

The most simple thing to remember in business, buying things with debt is always a time bomb, if your quick enough to sell it to another person, it wont blow up in your own face.

[Oldwe_Trag]

Sorry to double post but you go “it’s a little of everything” and cite red lobsters plan to sell its land and then pay rent as if that was red lobsters idea and not PE. This is a clown show of a report and embarrassing to this channel

[NathanHarrison]

Is it poison or medicine? It depends on who’s holding the glass.

[scass]

Leveraged buyouts should never be allowed. Take out debt if you want to make a massive purchase but then the VC should stay responsible for the debt. Preaching to the choir here though

[BboyCustomz]

"Is it poison or medicine? Depends on who you ask" sounds weird after pointing out companies drinking it are 10x more likely to go bust...

[BrownieX]

Interested to hear a follow up about the health care sector that was mentioned. Including the veterinary health care system.

[scaredofcupcakes]

The information provided is useful and does discuss well how private equity can be harmful to businesses, but the framing of it as a two-sided coin seems jarring considering how one-sided the issue is presented. Clear examples of how asset stripping can negatively affect businesses but periodic prodding of "but it can be good! we'll let you decide" while providing little evidence for that fact. Centering the video thesis around letting the audience decide can work and is interesting (to me, at least) but any supporting evidence for how private equity can be good seems to be missing beyond Gustavo saying "Yes it can be good but it just tends to be done badly often." The examples of businesses doing well while under private equity didn't show evidence that the growth was due to any contribution from private equity, rather it seemed to be despite them. At the same time the video seems to be confused about the motivations for asset stripping. The example of the car at the start, where you are left with $25 but no car, clashes with Gustavo's claim that asset stripping can improve and help grow a business. Is it stripping a car for parts or reducing excess weight? You choose to let the audience decide but only provide clear evidence for the former.

This video very well produced however, the effort there is clear and impressive. Looking forward to further videos :)

[IlIlllIllIlIIIll]

"A few parent companies up"

We need the top level parent company be listed with the brand name every time the brand name is spoken or displayed.

[SparkSovereign]

Is sharecropping poison, or medicine? It depends on who you ask. 🙃

Maybe do some journalism in response to "these failures deserve outcry but aren't systemic" and not just tell us "PE thinks they're fine" and "other people think this sucks"? The only wider context number you gave, the 10x failure rate, does NOT make it sound like a "depends on who you ask" nuanced affair, but an extremely risky manuever that frequently results in catastrophe. But not always, therefore it's fine, apparently.

If you have any statistics that make this look not horrible, show em. Otherwise this sounds like propaganda, not even a fluff piece.

[Janezslovenski]

Getting the company bought to pay back the loan with which the company was bought is exactly what happened many times in Slovenia during privatisation and in the run up to the 2008 crisis. For most of these companies the result was either failure or long struggle as profits weren't being reinvested and the effects became apparent after 10 years. Also the new owners often weren't business savvy, just well politically connected and thus ran the company bad.