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Toys ‘R’ Us Case Is Test of Private Equity in Age of Amazon
MARCH 15, 2018 | The New York Times | By MICHAEL CORKERY.

The reality is that Toys “R” Us, which announced on Thursday that it would shutter or sell all of its stores in the United States, never had much chance at a turnaround.

For over a decade, Toys “R” Us had been drowning in $5 billion of debt, which its private equity backers had saddled it with. With debt payments siphoning off cash every year, Toys “R” Us could not properly invest in its worn-out suburban stores or outdated website. Sales plummeted, as Amazon captured more children’s desires — and their parents’ wallets — for Star Wars Legos and Paw Patrol recycling trucks.

Toys “R” Us is the latest failure of financial engineering, albeit one that could portend a potentially more ominous outlook for private equity in the digital era.....Most buyouts tend to work the same way. A private equity firm takes over a troubled company with the goal of sprucing up the strategy, cutting costs and overhauling the business over three or five years. But they often load up a company with debt to pay for the deal, which can prove problematic if the profits do not perk up.

In the age of Amazon, that formula can be dangerous. Consumer demands are changing so quickly that heavily indebted companies have trouble reordering their business to adapt and compete with better-funded rivals...... the deterioration of Toys “R” Us from a potential turnaround strategy to the end of an iconic brand — in a matter of months — shows just how difficult it can be for private equity to compete in a rapidly evolving industry. In retailing, Amazon is reordering everything on the store shelf. And children’s changing interest in games and toys, which now encompasses high-end electronics, adds to the complexity.....Enter Amazon. In recent years, the company had started to aggressively expand its toy business, creating a comprehensive, online showroom with low prices at the click of a button. Pressed by Amazon, Walmart also pushed hard into toys, dropping its prices to capture more market share.

Walmart could absorb the price cuts on toys because it makes up the profit on other items. But for Toys “R” Us, a price war on toys and games, its only offerings, was devastating.
private_equity  bankruptcies  toys  digital_economy  Amazon  Wal-Mart  KKR  Bain_Capital  Toys_"R"_Us  financial_engineering  LBOs  buyouts  shifting_tastes  category_killers  price_wars 
march 2018 by jerryking
J.Crew’s Mickey Drexler Confesses: I Underestimated How Tech Would Upend Retail
By Khadeeja Safdar
Updated May 24, 2017

For decades, fashion was essentially a hit or miss business. Merchants like Mr. Drexler would make bets on what people would be wearing a year in advance, since that’s how long it took to design and produce items. Hits guaranteed handsome returns until the next season.

Now, competitors with high-tech, data-driven supply chains can copy styles faster and move them into stores in a matter of weeks. Online marketplaces drive down prices, and design details such as nicer buttons and richer colors are less apparent on the internet. Social media adds fuel to the style churn—consumers want a new outfit for every Instagram post. “The rules of the game have changed,” said Janet Kloppenburg, president of JJK Research, a retail-focused research firm. “It’s not just about product anymore. It’s also about speed and pricing.”

Mr. Drexler’s plan is to emphasize lower prices, pivot toward more digital marketing and adopt a more accessible image........Mr. Drexler didn’t appreciate how the quality of garments could easily get lost in a sea of options online, where prices drive decisions, or how social media would give rise to disposable fashion. Online, price has more impact than the sensory qualities of clothing. “You go into a store—I love this, I love this, I love this,” he said. “You go online and you just don’t get the same sense and feel of the goods because you’re looking at a picture.”.....Amazon.com and other algorithm-based websites can change prices by the hour based on demand, and the variety of options makes it easy to mix and match brands.

“The days of people wearing head-to-toe J.Crew are over,”......Today, with nearly two billion people using Facebook every month, he feels differently: “You cannot be successful without being obsessed with the product, obsessed with social media, and obsessed with digital,” he said. “Retail is now about all that.”

Mr. Drexler said he hasn’t given up on quality. Instead, he is now lowering prices on about 300 items and creating an analytics team dedicated to optimizing prices for each garment......TPG co-founder David Bonderman recently acknowledged J.Crew and its peers are struggling with declining mall traffic and the shift to online shopping. “The internet has proven much more resilient and much more important than most of us thought a decade ago,” he said at a conference earlier this month.
retailers  e-commerce  Mickey_Drexler  J.Crew  fashion  apparel  LBOs  private_equity  hits  copycats  social_media  Instagram  data_driven  supply_chains  Clayton_Christensen  disruption  brands  Old_Navy  Banana_Republic  Madewell  digital_influencers  TPG  fast-fashion  disposability 
may 2017 by jerryking
Dell’s $24.4-billion bet on going private
Feb. 05 2013 | The Globe and Mail | OMAR EL AKKAD - TECHNOLOGY REPORTER
Omar_el_Akkad  Dell  LBOs  private_equity  delisting 
february 2013 by jerryking
Dell to Sell Itself for $24.4 Billion - WSJ.com
Feb 5, 2013 | WJ | By⿿BEN WORTHEN, IAN SHERR and⿿SHIRA OVIDE
Michael_Dell  Dell  LBOs 
february 2013 by jerryking
Momentum Seems to Build for Gargantuan Buyout of Dell - NYTimes.com
January 15, 2013, 1:38 pm 28 Comments
Momentum Seems to Build for Gargantuan Buyout of Dell
By MICHAEL J. DE LA MERCED
Dell  Silver_Lake  private_equity  LBOs 
january 2013 by jerryking
The Leveraged Buyout Manual: How to Buy Any Company with Other PeopIe‘s Money
Aug 1981 | Journal of Accountancy (pre-1986). New York: Vol. 152. lss. 000002; pg. 78, 1 pgs | by Barbara D Merino.
LBOs  buying_a_business 
january 2013 by jerryking
With a Strategy Called Leveraged Buyouts, You Can Get a Company for 10% Down
July 1983 |Canadian Business | by Donald Hunter.

Increasingly, employees are executing leveraged buyouts of their companies. Such was the case when the managers of Doran's Northern Ontario Breweries Ltd. bought their company 6 years ago from Carling O'Keefe Ltd. to run it themselves. They raised C$1.5 million in share capital and borrowed CS3 million from banks. In a leveraged buyout. the buyers put up only a small part of the selling price; the rest is ñnanced with loans secured by company assets. Leveraged buyouts are also popular among professionals and entrepreneurs looking for investment opportunities that require a minimum of cash. Candidate companies favored by banks for leveraged buyouts have valuable assets. good management, steady earnings` and little or no debt. Before engaging in a leveraged buyout. as many costs as possible and seek outside help in structuring the deal. The benefits of leveraged buyouts are a chance for good returns and the satisfaction of running one's own business.
LBOs  employee-owned  employees  employee_ownership  leverage  buyouts 
january 2013 by jerryking
How to Use a Lawyer in Buying or Selling a Company
December 1982 | The Journal of Buyouts & Acquisitions | By Betram K. Massing.

The lawyer for the buyer or seller in a private buyout or corporate acquisition is an important participant in the transaction. The lawyer's functions include: 1, counseling the client about the transaction. 2. advocating the client‘s position with the opposite party or in ancillary proceedings such as with government agencies. and 3. documenting and implementing the closing of the transaction. In counseling, the lawyer should call attention to potential risks and problems and suggest means of dealing with them. Tax implications, disposition of assets or shares, lenders' requirements, and the risk of latent liabilities are among the issues that arise early in an acquisitionA It is the cIient‘s responsibility to make decisions after being advised by the lawyer and to decide which points to compromise and which should be insisted upon. Clear communications between clients and lawyers and between buyers and sellers will make for a smoother transaction.
buying_a_business  selling_a_business  lawyers  howto  LBOs  mergers_&_acquisitions  M&A 
january 2013 by jerryking
Trends in Private Equity
Winter 2004 | Journal of Wealth Management | by Mark Anson
trends  private_equity  auctions  secondary_markets  LBOs  hedge_funds 
september 2012 by jerryking
`The Hottest Hand' In Dealmaking -
January 24, 1993 | Businessweek | Mark Maremont
deal-making  dealmakers  LBOs 
august 2012 by jerryking
Trends in private equity
Winter 2004 | Journal of Wealth Management | Mark Anson
trends  private_equity  LBOs  restructurings 
august 2012 by jerryking
How buyout auctions work
Mar 1, 2004 | European Venture Capital Private Equity Journal | by Lisa Bushrod.

The classic buyout auction works as a three-stage auction. In stage one the business is prepared for disposal and buyers are identified among trade and private equity firms. Then buyers are asked to come forward with a firmer bid and final offers are made. The final selection then takes place and in the third stage the final bidder works for a period of exclusivity, when the legal and financial due diligence takes place.
LBOs  auctions  howto 
august 2012 by jerryking
Reginald Lewis
August 31, 1987 | Business Week | Robert Bork Jr and Cynthia Kyle
Reginald_Lewis  deal-making  Wall_Street  LBOs  TLC  African-Americans  entrepreneur  Beatrice  role_models  inspiration  dealmakers 
august 2012 by jerryking
The operators at Clayton, Dubilier & Rice
December 1994 | Institutional Investor | by Hilary Rosenberg.
Clayton_Dubilier_Rice  LBOs  private_equity  execution 
july 2012 by jerryking
At The Food Chains, It's All Gulp And Swallow -
May 07, 1995 | Businessweek | By Eric Schine in Los Angeles, with Leah Nathans Spiro in New York
deal-making  supermarkets  KKR  roll_ups  grocery  LBOs 
july 2012 by jerryking
Buy `Em Out, Then Build `Em Up -
May 07, 1995 | Businessweek |By Phillip L. Zweig in New York
LBOs  roll_ups  fragmentation 
july 2012 by jerryking
Leveraged Buyouts
July 1983 | Canadian Business | by Donald Hunter
buyouts  leverage  financing  mergers_&_acquisitions  LBOs 
june 2012 by jerryking
Goldman Builds Ambitious Role In Buyout Realm - WSJ.com
October 31, 2006 | WSJ | By HENNY SENDER

Goldman Builds Ambitious Role In Buyout Realm
Loans to Private-Equity Firms Edge Out Commercial Bankers; Wearing Hat as Investors, Too

Investment banks are building their financing capabilities as they build their own buyout, or private-equity, businesses....Goldman's footprint has been especially deep on complicated deals like Texas Genco. The power company was bought by the four buyout firms -- Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. and Texas Pacific Group. When those private-equity firms won Texas Genco in a hotly contested auction, they counted on Goldman for several aspects of their offer.

In addition to arranging the loans, Goldman arranged derivatives transactions that protected the new owners against the possibility of a plunge in energy prices. This hedge gave comfort to other lenders, making the financing less costly than it would otherwise have been.

Similarly, in 2005, when Cerberus Capital Management LP bought paper and timber operations from MeadWestvaco for $2.3 billion, Goldman led the financing and arranged hedges for the new owners against fluctuations in the prices of pulp, natural gas and currencies.

"If a deal requires creativity, Goldman will figure out how to make it work," says Scott Sperling of private-equity firm Thomas H. Lee Partners LP in Boston.
buyouts  private_equity  Goldman_Sachs  funding  LBOs  Cerberus  investment_banking  creativity  derivatives  hedging  owners 
april 2012 by jerryking
Getting Into Venture Capital
This note is a response to this blog post, (http://www.sethlevine.com/wp/2005/05/how-to-become-a-venture-capitalist). It essentially outlines the various routes into the field at a later stage.

too many people have very narrow views of what venture capital consists of. Basically. they only see the large, open to external investors. early-stage/middle~stage venture capital funds who gamer most of the headlines. But, the private equity and private debt world is huge, including such slices as:
. distressed debt
. buyout/private equity funds with it's own vast number of permutations
. corporate M&A
. family offices (some of which do lots of private deals and do them well, others of which don't)
. technology transfer operations (some of which are close to being VC, others of which are very distant)
. secondary purchasers of venture portfolios
. workout groups at commercial banks
8. private placement debt investment managers (which include a whole host of insurance companies)
9. SBlCs
10. PIPE managers
11. private debt managers of all sorts of permutations
12. what are essentially merchant banking groups at various hedge funds
13. venture investing groups at vanous hedge funds
venture_capital  vc  career_paths  LBOs  private_equity  family_office  early-stage 
march 2012 by jerryking
Growth through acquisitions: A fresh look
MAY 1996 | McKinsey Quarterly | PATRICIA L. ANSLINGER AND THOMAS E. COPELAND

LBOs outbid corporate buyers and then produce extraordinary returns. How do they do it? A study of over 800 acquisitions shatters some myths about the value of timing and leverage. Don’t do the deal if you can’t find the leader.

Making acquisitions work

But making this type of acquisition work is not easy. Our research found that successful corporate and financial buyers adopt seven key operating principles. These principles affect almost every stage of the acquisition process, from the identification of candidates to postmerger management. They are:

* Insist on innovative operating strategies.(The lesson: Don't look for growth only in high-growth industries.)
* Don't do the deal if you can't find the leader.
* Offer big incentives to top-level executives.
* Link compensation to changes in cash-flow.
* Push the pace of change.
* Foster dynamic relationships among owners, managers, and the board.
Hire the best acquirers.

MAY 1996 • PATRICIA L. ANSLINGER AND THOMAS E. COPELAND
financial_buyers  incentives  LBOs  McKinsey  mergers_&_acquisitions  M&A  private_equity  value_creation 
november 2011 by jerryking

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