Quote:
Originally Posted by Sly
Out of curiosity. When buying something, if you aren't buying "what isn't yours," what exactly are you buying? Are you buying something from yourself?
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Easy. A leveraged buyout.
From Rolling Stone:
Romney and Bain avoided the hostile approach, preferring to secure the cooperation of their takeover targets by buying off a company's management with lucrative bonuses. Once management is on board, the rest is just math. So if the target company is worth $500 million, Bain might put down $20 million of its own cash, then borrow $350 million from an investment bank to take over a controlling stake.
But here's the catch. When Bain borrows all of that money from the bank, it's the target company that ends up on the hook for all of the debt.
Now your troubled firm ? let's say you make tricycles in Alabama ? has been taken over by a bunch of slick Wall Street dudes who kicked in as little as five percent as a down payment. So in addition to whatever problems you had before, Tricycle Inc. now owes Goldman or Citigroup $350 million. With all that new debt service to pay, the company's bottom line is suddenly untenable: You almost have to start firing people immediately just to get your costs down to a manageable level.
"That interest," says Lynn Turner, former chief accountant of the Securities and Exchange Commission, "just sucks the profit out of the company."
Fortunately, the geniuses at Bain who now run the place are there to help tell you whom to fire. And for the service it performs cutting your company's costs to help you pay off the massive debt that it, Bain, saddled your company with in the first place, Bain naturally charges a management fee, typically millions of dollars a year. So Tricycle Inc. now has two gigantic new burdens it never had before Bain Capital stepped into the picture: tens of millions in annual debt service, and millions more in "management fees." Since the initial acquisition of Tricycle Inc. was probably greased by promising the company's upper management lucrative bonuses, all that pain inevitably comes out of just one place: the benefits and payroll of the hourly workforce.
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In short, they buy a company with borrowed money, run it into the ground, sell off what they can at a profit, charge huge consulting fees to do it, and then the rest goes into bankruptcy.
It's beautiful. You buy something with someone else's money, sell off what you can for a huge profit, charge everyone a tens of millions in consulting fees, and then leave everyone else holding the bill.