bonfarr said:
FlyRod said:
Private equity is buying up companies left and right and then sinking them. Asset stripping is taking off and it has nothing to do with "woke," but rather opportunities presented.
What assets would a company like Party City have? My guess is 100% of their retail outlets are leased. They don't have a proprietary product that can be monetized.
You're right, probably don't have anything proprietary they could exploit, but PE isn't buying something like Patty City for nothing. They buy it at a deep discount, cut out major admin costs by running all of that through their already existing avenues. Slash payrolls, if they have 100 forklifts they own, they sell 50. A fleet of 100 18 wheelers, they sell 50. All those execs and admins that are no longer needed, sell the computers and office furniture and artwork from the lobby. Get the executive country club memberships and C suite bunch of Mercedes and Range Rovers off the balance sheet. Try and renegotiate the leases they can, close the stores they can't. Try to negotiate debt that they can. Operate a store that would employ 300 people with 100, anything they can to shave off little bits of margin.
All of the things a business that was trying to survive wouldn't do. If you wanted to keep it alive, you might invest in better people, invest in better facilities, invest in training, all to try and improve the customer experience and grow revenue. PE is just looking to cut whatever costs they can, all while that business is still generating revenue. The customer experience goes in the ****ter, inventories and supply chain gets bad, not enough staff to help customers. Business continues to go down. They sell more stuff, they cut more staff, all until it finally hits the bottom, the PE has made a 6% ROI on the investment. Not a huge return % wise, but at the kind of amounts for something like a Party City, that 6% or maybe even less could be tens if not hundreds of millions (I have no idea the values or revenues of something like Party City, just speculating). It will be stripped of everything before it's all said and done. Equipment in warehouses and distribution centers will be sold, whatever they can get some value from.
My family is in the store fixture manufacturing business, so all the shelving the product sits on on the sales floor of stores like Party City and Kroger and Walmart. There is hundreds of thousands of dollars worth of that stuff in a typical big box retail store. Most normal stores will turn that over and replace it every couple of years after it's been scratched and dented and messed up. Something like a PE owned Party City won't be turning it over. Then once the close a store, they sell the fixtures. Big box stores buy it new from the manufacturer, small entities like gas stations and what not buy used fixtures from auction or liquidation specialists.
To your point, there may not be much by way of value in something like a Party City. But there is something. If the PE can buy it cheap enough, cut enough cost, and sell enough assets, they will do it. Like I said, a PE firm doesn't buy something like that out of the goodness of their heart.
