Private Equity Firms Sued Over Retailer Bankruptcies
[tm_heading tag=”h5″ custom_google_font=”” font_weight=”600″ text=”Private equity firms are seldom sued for their practice of levering companies for fun and profit and not caring much if they leave smoldering wreckage in their wake.” line_height=”1.4″][tm_spacer size=”lg:25″][tm_heading tag=”div” custom_google_font=”” text=”One big reason has been that it takes a lot of time and effort to prove fraudulent conveyance, which is layperson terms means continuing to bleed cash out of a company into your own pocket when you know it is a goner. And to discourage these suits, private equity general partners go into the legal version of scorched earth mode to deter other bankruptcy victims from getting bright ideas.”][tm_spacer size=”lg:63″][tm_spacer size=”xs:30;lg:52″][tm_heading tag=”div” custom_google_font=”” text=”Mind you, the reason these chains had owned their own stores in the first place was that retail is a cyclical business. Owning a lot of the property you used was a way to reduce overheads and increase odds of survival.”][tm_spacer size=”xs:30;lg:68″]
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[tm_heading tag=”h5″ custom_google_font=”” font_weight=”600″ text=”Use psychological pricing methods.” line_height=”1.4″][tm_spacer size=”lg:23″][tm_heading tag=”div” custom_google_font=”” text=”Today, the Wall Street Journal reports on the outburst of litigation over bankruptcy restructuring plans for private-equity-damaged retailers like Payless Cashways. We’ve discussed how private equity set many retailers up for failure by selling off their real estate at rich, asin inflated prices, giving themselves a nice big payout, and saddling the operator with high lease payments.”][tm_spacer size=”xs:30;lg:35″][tm_heading tag=”div” custom_google_font=”” text=”But in the cases the Journal highlighted, the private equity owners resorted to a strategy that had been discredited, that of the so-called dividend recap. The poster child was when Clayton & Dublier acquired Hertz in 2006, loaded it with debt, and made a big dividend payment with the proceeds.”]
[tm_heading tag=”h5″ custom_google_font=”” font_weight=”600″ text=”Demonstrate the differences” line_height=”1.4″][tm_spacer size=”lg:23″][tm_heading tag=”div” custom_google_font=”” text=”Payless ShoeSource Inc., Gymboree Corp., rue21 Inc. and True Religion Apparel Inc. were all acquired by private-equity firms during the past decade. Now, lawyers for creditors have questioned whether private-equity firms share blame for the retailers’ financial collapse, in some cases by loading debt on the companies.”][tm_spacer size=”sm:30;lg:68″][tm_heading tag=”h5″ custom_google_font=”” font_weight=”600″ text=”Offer a money-back guarantee” line_height=”1.4″][tm_spacer size=”lg:23″][tm_heading tag=”div” custom_google_font=”” text=”In the case of Payless, investors Golden Gate Capital and Blum Capital, after a leveraged buyout in 2012, over the next two years paid themselves $350 million in dividends—in total putting more than $700 million in debt on the company. In 2016, Payless said in court papers, it had about $2.3 billion in global net sales, and nearly $840 million in debt…”][tm_spacer size=”sm:30;lg:68″][tm_heading tag=”h5″ custom_google_font=”” font_weight=”600″ text=”Test your offer and price, and be creative.” line_height=”1.4″][tm_spacer size=”lg:23″][tm_heading tag=”div” custom_google_font=”” text=”Gymboree’s June bankruptcy filing occurred days after it couldn’t make a semiannual interest payment on debt dating back to Bain Capital’s $1.8 billion 2010 buyout. Public filings show Bain also received fees from Gymboree in the years after the buyout.”]
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