A recent article in The Economist about the private equity (PE) industry brought to light the one unique outfit in this dismally uncreative field: Clayton, Dubilier & Rice.
The PE industry playbook calls for leveraged buy-outs, piling debt on companies’ balance sheets and ruthlessly cutting costs to ensure the piled-on debt is serviced first and foremost. Operations, the debt-paying machine, come next; then, just milk every cent of remaining value. It’s not a going concern; it’s a paying concern, and once the payments are done the concern should be sold off, hopefully at a profit. The problem is that quite often milking the companies for quick payback results in their operations falling apart. As The Economist says, “Operational improvements in a portfolio company [of a private equity firm] has often meant little more than promising colossal bonuses to sitting chief executives if they meet ambitious growth targets.” The carcasses of companies brought to their knees by PE decay all over the globe. …Read More →