131–140 of 167 posts
Competing against amazon with an animated Giraffe and a 3x markup was never going to work. If anything I'm surprised they made it this long. That is not to say that Bain, TPG, etc aren't objectively evil.
Do you buy toys? Amazon is almost always the most expensive retailer.
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So either the interest amount of $435M per year (which is roughly 15% interest on 6.6B) is incorrect from the original article or they receives less than 20% of that interest? Strange. $270M over 13 years from $1.1B in loans? ($270M = $470M - the $200M in fees.) That seems incredibly low interest. I am suspicious. LBO firms do not give low interest loans to their targets. If we assume an interest rate of 5%, you get…
> they receives less than 20% of that interest? They hold less than 20% of the debt. Most of their investment went in as equity. That's wiped out. > LBO firms do not give low interest loans to their targets PE buys equity and subordinated debt. Sub debt has high rates and wonky structures. In this case, I believe it was pay in kind, "a type of high-risk loan or bond that allows borrowers to pay interest with addition…
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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…
Assuming that 20% of that was to the holders of the $1.32B debt This is a very poor assumption. The PE firms bought equity in TRU, they are not paid back in the same way and on the same schedule as holders of debt.
> The trio put up $6.6 billion to pay off Toys 'R' Us' shareholders. But it was a leveraged buyout: Only 20 percent came out out of the buyers' pockets. The other 80 percent was borrowed.
I misjudged, I thought all of it was borrowed, just 20% was from the LBO firm.
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Yeah, seriously, the author is nuts. I've got a 5-year old and I can't remember the last time I've been to Toys R Us. She knows how to pick stuff out on Amazon; for trinkets there's Target, and a lot of her "toys" now are on her iPad/digital. Suburban big-box retail stores aren't a growth area, and toy stores selling Chinese-made junk are probably among the worst situated. Unlike, e.g. clothes or food, there is littl…
This is an excellent point. I don't think I've read an account of the TRU fiasco from the POV of a person with kids. By my read, TRU's problem isn't debt or Amazon, but changing substitutes. E.g.: + YouTube + Amazon: Lets kids see what a toy looks like in HD, whereas previously you'd need to go to a store to see the big images on the box, or to press the "try me" buttons. As you said, the brand drives most of the sal…
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> the exorbitant management fees These are charged to the fund ( i.e. the investors), not the company. PE firms charge companies transaction fees. "Toys 'R' Us does say in its SEC filings that $47 million in transaction fees that it owed KKR, Bain and Vornado, have been waived. The advisory fees were also voluntarily reduced by the investment firms in recent years" [1]. Private equity isn't VC. When a holding goes bu…
> the fund loses a lot of money This isn't equivocally true. It all depends on how levered the investment is and how much debt they pulled off the books to pay back the banks (or their fund). The stereotypical PE fund looks like this: buy company for $100M with 50% debt and 50% equity. Meaning, investment banks give them $50M to buy the company at market rates and the PE firm spends the other $50M from their fund. Lo…
Losing a dollar is losing a dollar, diversified or not. The investors in these PE funds lost money. Where they net out against other investments is irrelevant.
> GPs make their base salary from management fees and their bonus from carry on the return of the fund
Salary, yes. But good luck earning any carry on this fund. (They'll be lucky if DPI crosses 1x with a hole this big.) Agree that PE accounting is complicated.
Competing against amazon with an animated Giraffe and a 3x markup was never going to work. If anything I'm surprised they made it this long. That is not to say that Bain, TPG, etc aren't objectively evil.
You're overstating the markup, and they've price matched (including Amazon) for a while.
This is written as if the entire purpose of buying Toy R US is to drive it into the ground. Those buying it, and those providing the loans to buy it, lost a lot of money on a bet that they could turn it around. They lost the bet, and so be it. The previous shareholders got paid and were able to move their capital out into something they believed would provide better returns. Sure, a lot of people lost their jobs. On…
We don't really know that they lost the bet. In fact, it seems equally, if not more likely that they profited on the deal, by siphoning money out of the company over the last 12 years. This is a good primer on how these firms operate: https://www.rollingstone.com/politics/news/greed-and-debt-th...
You want someone who actually know's what they're talking about? Read Matt Levine's writings on Bloomberg.
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It probably feels very good to type a comment like that while imagining some invisible force gently guiding these newly unemployed people to their new careers. However in reality thousands of people have now lost their income and likely their health insurance, and will have to compete in what in many places is a pretty brutal and not at all healthy job market. It sucks, and there’s nothing you or I can do about it ..…
The job market is actually pretty healthy right now. Unemployment is nearing a 45 year low and prime age labor force participation rate has been on the upswing for about 3 years. We're also starting to see some growth in wages which is nice. And sure, it's weird to contrast a theory of firm destruction being necessary for a vibrant economy with the reality of individuals you can point to losing their jobs but the fac…
...which is still lower than it's been since 1986 [1], and is significantly lower than Australia, Japan, Britain, Canada, Germany, France, and Sweden [2].
[1]: https://data.bls.gov/pdq/SurveyOutputServlet (set from to 1948 and click "Go")
[2]: https://www.motherjones.com/kevin-drum/2017/12/raw-data-the-...
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A slowly dying company is still successfully serving some customers and employing people. So, early failure really is worse for both society and the companies workers. Further, leveraged buyouts are funded with loans, those lending money also lose out.
How long do you think Toys R Us would have taken to die a slow death? How many customers would they manage to serve, and how many employees would they manage to employ during that time? We got 14 years out of full Toys R Us experience out of this, and the writing on the wall should have been clear in 2004; how many failing retail giants had a good long term outcome from this type of buyout?
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> there was a team inside Toys 'R' Us that was trying to clone Amazon's e-commerce success If we flipped roles, with the team inside Toys 'R' Us trying to control costs before the PE firms came in and tried to make Amazon competitor, it would sound equally damning.
Would it? Has "control costs" ever worked out as a viable long term strategy in a business that is rapidly losing market share to a sea-change in competitors?
https://www.wsj.com/articles/overheard-amd-cutting-costs-141...