eli5, how does private equity manage to sell a company after adding a large amount of debt (to use as dividends for its holders) at a profit?



I watched this video about the private equity industry, but i still don’t understand this part. is this still ongoing or was this more of a 2000s playbook?

In: 2

Definitely still ongoing. Lost my job just pre-pandemic to tactics like this. Specifically in our case, aging owner sought to sell the company and distribute the profits to his children, who were executives of different branches of the company. There was a three year period in the contract where they could not change executive management or toss clients or vendors, with the intent of having the new management learn the company.

The original owner was fairly careful about expansion, only bought property he could pay for within short return or in cash. Hedge fund guys immediately started expanding into a new market under the guise of driving up profits. To “afford this” they mortgaged all of the company’s properties and pocketed the money. They paid the minimum needed to keep the doors open and the moment three years was up they bailed, quoting an “unsuccessful business model.” The company had been around since 1945 and was valued at 700 million when it was bought. It was far from a failure before them.

Basically it seems to be the modern MO, buy the company and then let it fail after draining it of funds. The literal only winners in the whole scenario are the hedge funders that bought it and the children of the owner. (Who, btw, could easily revive the company since they got 140m each) Everyone else just lost their jobs, and three states lost a popular chain store. They get away with it because it’s obviously easier to fail in business than to succeed, so no one bats an eye.