Everybody says private equity firms are a legitimate part of capitalism?

[kentuck]

Why so?

With companies that are in trouble, do they really save them or do they pick their bones before they finally declare bankruptcy?

And with the companies that they promote as successes, such as Staples, were they really in trouble or were they fixable?

Personally, I have my doubts as to the benefit of private equity firms. Supposedly, they clean out the deadwood (fire employees) and borrow money to get the company back on its feet. However, it seems that many do not get back on their feet but only inherit a lot of debt created by the private equity firm and eventually must declare bankruptcy.

We do know that a lot of people make a lot of money with private equities. Where do they get that money? Does it come from the company they are trying to save?

In my opinion, private equities are on a par with hedge funds. They both may be legal but I have my doubts about their benefit to free markets?

===============

From Wikipedia:
http://en.wikipedia.org/wiki/Private_equity_firm

<snip>
A private equity firm is an investment manager that makes investments in the private equity of operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital. Often described as a financial sponsor, each firm will raise funds that will be invested in accordance with one or more specific investment strategies.

Typically, a private equity firm will raise pools of capital, or private equity funds that supply the equity contributions for these transactions. Private equity firms will receive a periodic management fee as well as a share in the profits earned (carried interest) from each private equity fund managed.

Private equity firms, with their investors, will acquire a controlling or substantial minority position in a company and then look to maximize the value of that investment. Private equity firms generally receive a return on their investments through one of the following avenues:
...more

[jp11]

1. I *think* staples was a small company that got investment and just grew it wasn't

in 'trouble' and needed to be 'saved' aka picked apart by Bain.

[The Magistrate]

2. They Are Mere Looters, Sir

They serve no useful purpose at all.

They buy companies with borrowed money, borrowed on the security of the company they intend to purchase. This loads the company with debt, pretty much making its profitability impossible. They direct the company to pay them inordinate fees for 'management services', sell off assets and pocket the proceeds, and then, once they have stripped the company and taken all they can for themselves, they declare the company bankrupt, so they do not even have to repay the loans they took out on security of the impending purchase. In its outline and effects, it is indistinguishable from what happens when a business owner gets behind with a loan-shark, with the exception that you have to make a move yourself to ask the loan-shark for his money in the first place....

[kentuck]

3. Sir, I think you are right.

I see no useful purpose for them.

[SoutherDem]

4. Leaches and vultures

They are the worst part of capitalism. They prey on the weak while stuffing their pockets.