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View Diary: Cory Booker for President? (103 comments)

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  •  KSLV - that's not an accurate discription of the (0+ / 0-)

    classic private equity model, or how even Bain Capital manged the overwhelming majority of its portfolio companies.

    The standard private equity model is to buy companies with 80% debt and grow the cash flow over time. The lenders don't allow the owners (the private equity investors) to strip the assets because that is their collateral. There is no doubt that having so much debt adds very significant risk, but the big payoff for private equity is to build a company with more value and higher EBITDA. The analysts who work for Wall St firms, who take companies public, can certainly see when a company is stripped of its assets. It's all there in the financial statements.

    "let's talk about that"

    by VClib on Sun Apr 20, 2014 at 06:19:30 PM PDT

    [ Parent ]

    •  That "classic model" isn't practised much anymore (2+ / 0-)
      Recommended by:
      blueoasis, unfangus

      Thirty years ago that was the common model. Not today.

      "What could BPossibly go wrong??" -RLMiller "God is just pretend." - eru

      by nosleep4u on Sun Apr 20, 2014 at 07:23:40 PM PDT

      [ Parent ]

      •  nosleep4u - the classic model still represents (0+ / 0-)

        the overwhelming majority of private equity. If anything more private equity investments are focused on growth with less debt and more technology risk. Very little of private equity is asset stripping because you can't leverage it as much.

        "let's talk about that"

        by VClib on Sun Apr 20, 2014 at 09:20:22 PM PDT

        [ Parent ]

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