THREAD: The retail apocalypse in full swing: Gymboree closes 800 stores, Shopko 105, Payless 2300, Charlotte Russe 400. What’s behind it? Some blame Amazon or changing taste, but the real culprit is private equity. We’ll explain how PE makes money as these businesses fail. 1/12
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Private Equity Pillage details the business model that allows private equity firms to bankrupt chains, throw workers out of jobs, stiff vendors and still make a profit, in the context of grocery stores. 2/12 https://cepr.shorthandstories.com/private-equity-pillage/index.html …pic.twitter.com/HJRQeXiCLX
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Here’s an overview of the business model. Private equity firms have rigged the process so they can extract profits not only from their investors (often public pension funds) but also from the companies that it “invests” in. Here's how: 3/12pic.twitter.com/FtJYCrGsff
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Investors, using money from public employees' pensions for example, put their $$$ in a particular private equity fund. Right off the bat, the private equity firm makes a profit because they collect management fees for just accepting the money. 4/12pic.twitter.com/bOcY5AGOAI
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The traditional story is that private equity firms invest in already distressed companies. Yet more and more they are healthy, proven companies that the PE firm then forces to take on debt (which the company now pays interest on). This erodes its ability to stay competitive. 5/12pic.twitter.com/RWwCYxXTz4
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This is a great thread. I have a question regarding the debt: if the PE firm is just an investor then how does it force management to take on debt?
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