KKR’s CHI garage doors exit recently, where it gave employees equity as part of the initial purchase, enough that on average, employees each earned $175,000 on the deal, with some long tenured employees, truck drivers, taking home over $800,000.
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There’s plenty of bad players in PE, just like in many ownership structures. A shitty PE firm has absolutely wrecked Canadian newspapers. But to just say it’s bad across the board? I think no one talks about the clean plays, because they are boring.
The other question to ask, though, is what happened to these companies as companies? Did they remain viable, going concerns? Did they continue to make a decent product?
It’s nice that the employees got a payday but I’m also interested in in whether the company itself was looted in the process.
There are many models. I have an acquaintance who runs a mini PE firm, he buys relatively small businesses from people who are retiring, and tries to improve the companies operations. Because he pays a reasonable price based on earnings, he can look forward and run the business well.
An example: a laundromat makes 100,000/year after paying its operating costs. It’s worth something like 300-500k. You settle on 400k. You take 300k debt and 100k equity. You also put 50k into capital for the business, fix it up. The business pays back debt 80k/year for five years. You keep 20k.
Of course, and generally more as a percentage of purchase price than larger deals, as banks lend on the basis of earnings, he pays smaller earnings multiples.
Debt is how any small business changes hands. We need ways for companies to change hands, otherwise they just close.
Fine, but let them put something else at risk/collateral. The leveraged buy-out is a self-licking ice-cream cone of the heads-I-win-tails-you-lose variety.
Getting such a loan for a _distressed_ business is far worse - absurd on its face, essentially fraud.
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It’s nice that the employees got a payday but I’m also interested in in whether the company itself was looted in the process.
Running a business well is usually a much more efficient way to make a bunch of money.
Heres the story on CHI: https://www.buyoutsinsider.com/deal-of-the-year-kkrs-exit-of-chi-overhead-doors/
Debt is how any small business changes hands. We need ways for companies to change hands, otherwise they just close.
What we need to do is tax these earnings sensibly, eliminate carry, for example. Break up big players.
Getting such a loan for a _distressed_ business is far worse - absurd on its face, essentially fraud.
The whole incentive structure stinks