> If this was true, this PE strategy would eventually stop working as business buyers realize PE businesses aren't good to buy, so the PE firm can't sell them, and it becomes unprofitable to run the whole playbook.
That's the thing, the PE strategy for business gutting generally involves the PE firm selling assets to themselves.
For example, Sears and Kmart. Profitable brands got spun off into their own companies (Cabelas I believe), the realestate was sold for a song to leasing companies also owned by the owners of sears. Rent was maxed out to suck out every penny from the likes of Sears and Kmart, and when the two eventually collapsed under the weight of their debt they declared bankruptcy and walked away having looted everything of value while leaving all the debt.
They created a giant game of hot potato with banks, shareholders not in the know, and the federal government (tax payers) ultimately paying the price.
This strategy has been so successful that multiple companies are trying it outside of PE. If they get into legal hotwater they'll create a new business who owns all the liabilities, spin it off, and then let bankruptcy absolve them of their liabilities. [1]
[1] https://www.cnbc.com/2021/11/12/jj-shares-jump-after-ceo-say...
That's the thing, the PE strategy for business gutting generally involves the PE firm selling assets to themselves.
For example, Sears and Kmart. Profitable brands got spun off into their own companies (Cabelas I believe), the realestate was sold for a song to leasing companies also owned by the owners of sears. Rent was maxed out to suck out every penny from the likes of Sears and Kmart, and when the two eventually collapsed under the weight of their debt they declared bankruptcy and walked away having looted everything of value while leaving all the debt.
They created a giant game of hot potato with banks, shareholders not in the know, and the federal government (tax payers) ultimately paying the price.
This strategy has been so successful that multiple companies are trying it outside of PE. If they get into legal hotwater they'll create a new business who owns all the liabilities, spin it off, and then let bankruptcy absolve them of their liabilities. [1]
[1] https://www.cnbc.com/2021/11/12/jj-shares-jump-after-ceo-say...