How vulture capitalists ate Toys 'R' Us • Hacker News Board

Re: How vulture capitalists ate Toys 'R' Us

#111

Post by JumpCrisscross » Mon, Apr 23, 2018, 7:32 PM UTC

bhouston wrote: post #101

dbatten wrote: post #91

The author seems to be bending over backwards to make the buyers look like evil masterminds that profited from running Toys R Us into the ground... For example, he notes that they'll have to write off their investment in Toys R Us, but makes it sound like they're making out like bandits because they got $200 million in management/consulting fees out of the deal. So, they lost a $6.6 billion investment, and made $200…

EDIT: This comment is wrong. > So, they lost a $6.6 billion investment, and made $200 million in management fees? Doesn't sound like a very successful evil plot to me. They only had to put up 20% of the 6.6B, thus $1.32B. The rest was put up by bond investors I believe. TRU was also paying upwards of $425M per year on the debt it had. Assuming that 20% of that was to the holders of the $1.32B debt, you get $90M of in…

> Given that the LBO happened in 2004, there have been 13 years of interest payments, which totals now $1.1B roughly

The actual total was $470 million [1]. KKR et al lost close to a billion dollars. They will see zero recovery on their equity and close to zero recovery on their junior claims.

[1] https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-...

Re: How vulture capitalists ate Toys 'R' Us

#112

Post by JumpCrisscross » Mon, Apr 23, 2018, 7:34 PM UTC

poof131 wrote: post #96

listenallyall wrote: post #43

TOY shares had fallen from $40 to the low teens by 2004. By announcing a sale of the toy business, the stock rebounded and ultimately the sale to private equity closed at $26.75 per share. That Board knew they had a declining asset on their hands and sold out, at a large premium, rather than watching their equity slowly decline over the next decade. Anyone who despises private equity should be celebrating this story,…

Why do I doubt they are the real losers here? Bloomberg states that they pocketed over $470M in fees.[1] And I imagine they were able to write off losses against wins elsewhere. So the real losers still seem to be the employees and the American people. A few years back I was talking to an east coast banker turned VC and he was pooping on the leveraged buyout industry. He said that all the debt payments are tax deduct…

> Bloomberg states that they pocketed over $470M in fees

They invested $1.3 billion. The interest payments were deductible to Toys 'R' Us, which would have been useful if it survived long enough to pay dividends to its equity holders. KKR et al lost money on this.

Re: How vulture capitalists ate Toys 'R' Us

#113

Post by harryh » Mon, Apr 23, 2018, 7:35 PM UTC

metabagel wrote: post #88

harryh wrote: post #11

Earlier quoted context omitted.

limited downsides It's worth noting that the PE firms involved in the deal lost over a billion dollars on their investment in this case.

We don't actually know how it worked out for them, because reportedly they spent twelve years siphoning off cash from Toys 'R' Us.

We do know actually:

https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-...

Re: How vulture capitalists ate Toys 'R' Us

#114

Post by JumpCrisscross » Mon, Apr 23, 2018, 7:35 PM UTC

justherefortart wrote: post #98

metabagel wrote: post #87

Earlier quoted context omitted.

They also charged exorbitant management fees. It seems at least possible that they didn't actually lose money on the deal. Being a private company, it might be hard to find out how much cash they extracted from Toys 'R' Us.

Exactly, where'd that 5 billion in loans go? Poof!

> where'd that 5 billion in loans go?

As in where did the proceeds go? To the previous investors. From whom KKR et al bought Toys 'R' Us. There's a "B" in LBO.

Re: How vulture capitalists ate Toys 'R' Us

#115

Post by JumpCrisscross » Mon, Apr 23, 2018, 7:37 PM UTC

bhouston wrote: post #104

harryh wrote: post #11

Earlier quoted context omitted.

limited downsides It's worth noting that the PE firms involved in the deal lost over a billion dollars on their investment in this case.

According to my calculations in this comment they are at least close to net zero: https://news.ycombinator.com/item?id=16906549 Which is pretty good outcome for them given TRU has failed completely.

You overestimate interest and fees, paid by Toys 'R' Us to the PE firms, by over 100%. We know the actual numbers from SEC and bankruptcy filings [1].

[1] https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-...

Re: How vulture capitalists ate Toys 'R' Us

#116

Post by jimmaswell » Mon, Apr 23, 2018, 7:40 PM UTC

ISV_Damocles wrote: post #78

jimmaswell wrote: post #72

Earlier quoted context omitted.

A problem is that in a retail store, you might walk by something new and want to try it. On Amazon et al you're largely going to stick with what you know, and the site's recommendations are probably not going to stray much. Additionally, walking out of a store with something is a nice experience, maybe reading the manual on the way home, instead of waiting a week to get something unless you have prime or pay for fast…

What you've described doesn't sound like a value-add at all to me. In stores they can manipulate your senses to get you to make emotion-based purchases whether or not it makes economic sense or if you're going to actually get your money's worth out of the product. You only think it's better reading the manual on the way home and not waiting a few days because you're still riding that emotional high. I much prefer the…

I wasn't actually enjoying that experience, I just thought I was?

I don't see the big deal with a few impulse purchases as long as it's not hurting the family budget.

Re: How vulture capitalists ate Toys 'R' Us

#117

Post by metabagel » Mon, Apr 23, 2018, 7:42 PM UTC

JumpCrisscross wrote: post #109

metabagel wrote: post #106

Earlier quoted context omitted.

Sorry, advisory fees. We don't know how much they siphoned out of Toys 'R' Us over the last twelve years, and without that information it's premature to say that they lost money on the deal.

> We don't know how much they siphoned out of Toys 'R' Us over the last twelve years Yes, we do. It's disclosed in SEC and bankruptcy filings; they lost money [1]. [1] https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-...

Thanks for that. OK, so Bain and KKR made back $470 million in fees.

Marketplace says that Bain and KKR made money off of the deal.

https://www.marketplace.org/2018/03/06/business/toys-r-us-an...

"The private equity firms’ investors haven’t made money off this deal. But the firms themselves have. It’s unclear where Vornado ended up. But after collecting fees from Toys R Us, Bain and KKR each took home at least $15 million."

Re: How vulture capitalists ate Toys 'R' Us

#118

Post by metabagel » Mon, Apr 23, 2018, 7:44 PM UTC

harryh wrote: post #113

metabagel wrote: post #88

Earlier quoted context omitted.

We don't actually know how it worked out for them, because reportedly they spent twelve years siphoning off cash from Toys 'R' Us.

We do know actually: https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-...

Marketplace says that Bain and KKR still made money off of the deal.

https://www.marketplace.org/2018/03/06/business/toys-r-us-an...

"The private equity firms’ investors haven’t made money off this deal. But the firms themselves have. It’s unclear where Vornado ended up. But after collecting fees from Toys R Us, Bain and KKR each took home at least $15 million."

Re: How vulture capitalists ate Toys 'R' Us

#119

Post by metabagel » Mon, Apr 23, 2018, 7:45 PM UTC

gvhst wrote: post #90

metabagel wrote: post #85

Earlier quoted context omitted.

I think you may have missed the part where Toys 'R' Us' debt skyrocketed from $109M to $5B due to the leveraged buyout. The interest on that debt as well as the exorbitant management fees did Toys 'R' Us in. https://www.bloomberg.com/news/articles/2018-03-09/toys-r-us...

While I agree with you with respect to the over-leveraging of the business, management fees are charged to the LPs (Investors) of the fund and not portfolio companies.

Thanks. I stand corrected. :-)

Re: How vulture capitalists ate Toys 'R' Us

#120

Post by listenallyall » Mon, Apr 23, 2018, 7:45 PM UTC

ISV_Damocles wrote: post #78

jimmaswell wrote: post #72

Earlier quoted context omitted.

A problem is that in a retail store, you might walk by something new and want to try it. On Amazon et al you're largely going to stick with what you know, and the site's recommendations are probably not going to stray much. Additionally, walking out of a store with something is a nice experience, maybe reading the manual on the way home, instead of waiting a week to get something unless you have prime or pay for fast…

What you've described doesn't sound like a value-add at all to me. In stores they can manipulate your senses to get you to make emotion-based purchases whether or not it makes economic sense or if you're going to actually get your money's worth out of the product. You only think it's better reading the manual on the way home and not waiting a few days because you're still riding that emotional high. I much prefer the…

Do you really think you're not being manipulated by Amazon? "Frequently bought together", fake reviews based on free samples in exchange for "honest opinions" (hah!), gold box deals with countdowns to artificial deadlines, "people also shopped for", add-on items, "recommendations for you", free shipping when you spend at least $X, discounts calculated from inflated retail prices, "your shopping history" going back 10+ years, daily email specials, curated product photos. And millions of A/B tests to optimize everything from the layout, colors, product recommendations, search results, and checkout process to make more people buy more stuff.