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Why private equity and not takeover?

Updated: 9/17/2023
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13y ago

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A takeover by a private equity group or groups is a type of takeover where the target company is in effect forced to buy itself at an inflated price. Private equity groups will delist the company from the stock exchange and load it up with a huge amount of debt and sell off key company assets. An example would be the UK company Debenhams where its shops were sold off and then rented back to Debenhams at high rents. Private equity groups will charge the company fees for the privilege of being taken over and will, in a short space of time, pay themselves a hefty dividend. Workers will be laid off and costs reduced to an absolute minimum. After as little as a year they will take the company public again and head for the exit having made a tidy profit and more than likely bankrupted the company. Quite why such criminal activity is legal is any body's guess. This type of takeover is completely different to one company in a sector taking over another. An example might be Ford's takeover of Hertz Rental. When Ford sold Hertz it was in a financially sound condition. After the private equity boys got their hands on Hertz the company was driven into the ground (Read the blogs of Hertz workers).

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Q: Why private equity and not takeover?
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