Wishing people were
AO Gold Member
Join Date: Mar 2008
Location: The Beautiful UK
So this whole Pizza Express thing (tip of the ice berg) really winds me up on the extremes of crooked capitalism. It used to just be football clubs like Leeds and Man United who got shagged over by it - and that was ok because nobody likes Leeds or Man United. But now it's hitting good businesses like Pizza Express and there will be more.
These ridiculous outfits who label themselves as "Private Equity" or "Leveraged Finance" firms, or more murkily "Family Investment Vehicles" - are such shiesters it's unbelievable.
Basically in the environment where the world has more capital than it knows what to with (pension funds, sovereign funds, corporate revenues that boards are too scared to re-invest due to Trump/Brexit etc) and no interest returns of any note from the normal places you'd place it - we see these nonsense sharks swimming around using this capital for their personal enrichment and sod the consequences.
It works like this.
Some wannabe Warren Buffets - who (relatively) don't have a pot to p155 in - spot a business that generates tons of cash flow/income from a loyal customer base somewhere in the world.
They then go to the holders of capital (either directly to Banks or to other capital hoarders) and say - we have 10 million ourselves (already borrowed from some other shark) but we need 490 million more to buy this 0.5 billion company.
We realise that a 2% deposit isn't a great plan - but actually you can see from these cash flows that we can afford the repayments from the money that this target company generates so it's no risk to you, and you can charge 5% interest to us rather than the 0.1% you are currently getting - so are we good? We link the loan to the company so you are well covered if it all goes bang.
And it happens. The money is lent against the performance of the company that is being purchased and suddenly these sharp suited monkeys are the proud owners of a 0.5 billion pound business.
Part 2 of the scam is then to start shaving a few quid off the bottom line, or adding a few quid to the top line (so either shrink the portions if a restaurant or hike the ST prices if its a footy club) and showing a bit more cash flow and a nice bit of growth and then suddenly you are the target of another bunch of "leveraged" financiers who offer you 600 million for the company on exactly the same house of cards - and you say "Hell Yes" and get out with a 100 million profit minus a bit of interest paid on the leveraged loan.
And so it goes round and round - except ultimately the victim is the business because it goes from having a 500 million "debt" on it's books against it's cash flows to a 600 million debt, then 700 million until one day it's got 1 billion of debt, and there's no more you can charge the customers without losing them and there's no more you can shave off the portions or the decor - and then lo and behold it's a "High Street Failure".
It's a right old game of nonsense. Thieving bastids.
It's been happening since Moses was a lad of course - but the extremes of this business seen in the last 20 years has been ruinous. None of these craven cowards ever buy a business now to build it up - they leverage it against it's own wallet and then sell up and move on til it's dead from the debt burden.
Find me a spectacular bankruptcy in the last 15 years and there'll be a leveraged buyout/private equity scam in there somewhere.