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10 months ago

Private equity firms aren’t the devil- they’re more like the devil’s minions, with phenomenal public relations firms. Guess who gets left holding the bag when they fail

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Taylor Swift performing at the 2019 American Music Awards. Prior to the show, she fought with a private equity-backed record company to be allowed to perform much of her own music at the show. Emma McIntyre/AMA2019/Getty Images for dc

In July 2010, Doug Lowenstein, CEO of lobbying group the Private Equity Council, wrote a letter to PBS NewsHour after a segment it had aired on the private equity industry. He noted some “concerns” the group had with the show’s piece, including that it had ignored “hundreds of examples of PE success stories.” His chosen example: Toys R Us, which had been bought out by a trio of firms in 2005.

“[Y]ou don’t report that Toys ‘R Us was saved from likely bankruptcy by PE owners, that it has more employees working for it than it did before it was acquired, and that it is on the verge of returning to the public equity market,” he wrote.

Toys R Us never went public; it went bankrupt seven years later, in 2017. And all those employees? They lost their jobs.

The Private Equity Council, now rebranded as the American Investment Council, kept trucking along. So did the three firms that bought up Toys R Us — and, eventually, saw it go under.

You want to buy a business. The cost in $100 million.

You only have $10 million. So you borrow the $90 million on a short term arrangement.

As soon as you have purchased the business, you use it to pay back your $90 million short term arrangement. You do this by taking on debt directly in the company.

Essentially you buy a company with it’s own money.

11 months ago

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