Book SummaryPlunder, by Brendan Ballou

1-Page Summary1-Page Book Summary of Plunder

Private equity firms' growing sway and tactical methods, in addition to their structural organization.

Equity firms that are privately held often employ a core strategy for management and profit generation, which can sometimes harm the businesses they purchase.

Ballou sheds light on the simple yet potentially devastating tactics used by private equity firms. They use a small amount of their own money, which is significantly increased through support from investors, to obtain further capital from banks and lenders. They employ the acquired funds to acquire companies, aiming to increase their value before selling them at a profit after a set period. Ballou argues that the quest for swift monetary gains promotes strategies prioritizing immediate gains and risky fiscal maneuvers, often compromising the long-term solidity of the involved corporations.

Private equity firms utilize a range of strategies to swiftly secure financial gains from their acquired businesses. Although they claim to improve businesses through the implementation of streamlining initiatives, the truth is that these "efficiencies" often lead to staff cutbacks, cost-saving strategies, and the levying of fees upon the acquired corporations. Ballou emphasizes that while businesses acquired by private equity firms are not doomed to fail by default, they face a significantly increased risk of failure when owned by such entities. He strengthens his case with statistics indicating that around 20% of significant companies acquired through leveraged buyouts confront bankruptcy within a decade, whereas only 2% of comparable companies not affiliated with private equity experience the same fate.

Firms specializing in private equity employ tactics that involve leasing out assets and then selling them back to quickly boost their profits and establish a steady flow of income, despite burdening the involved companies with rental commitments.

Ballou highlights how firms specializing in private equity often employ "leasebacks" as a strategy to quickly generate income. The company that has recently been taken over typically has to divest its assets, often property, and subsequently rent them from the acquiring entity. The firm specializing in private equity gains from the initial deal and the ensuing income from rent, while the acquired organization takes on a substantial debt that continues over time. Sun Capital swiftly recouped its investment in Shopko through a deal that involved selling the property and subsequently leasing it back, imposing a significant rental obligation on Shopko that contributed to its ultimate insolvency. He further contends that in the realm of nursing home operations, leasebacks can be exploited for more nefarious objectives. Nursing homes are often owned by private equity firms that create a complex network of individual corporations for each facility, along with their property assets, which makes it exceedingly difficult for families of neglected patients to secure considerable damages.

Other Perspectives

• The use of leasebacks can be a mutually beneficial arrangement, providing the company selling the asset with immediate liquidity and the private equity firm with a steady income stream, rather than being solely profit-driven.
• The focus on quickly recouping investment through such deals may overlook the opportunity to invest in the core business of Shopko, which could lead to missed opportunities for innovation and competitive improvement.
• Insolvency can be the result of a variety of factors, including poor management, market conditions, or business model flaws, rather than the leaseback arrangement itself.
• There is an argument that the complexity of corporate structures can sometimes protect the nursing homes from financial volatility, ensuring that one facility's financial issues do not necessarily spill over to affect the others.
• The complexity of corporate structures might slow down the process of seeking damages, but it does not make it impossible, and persistent legal efforts can still lead to successful outcomes for families of neglected patients.

Entities specializing in private investments often manipulate a firm's financial obligations to their advantage, consequently imposing the duty of fulfilling these monetary obligations on the company itself.

Ballou describes the strategy utilized by private equity firms to extract capital from the businesses they have taken over, commonly known as "dividend recaps." The business is pressured into taking on additional debt, not to improve its functionality, but to pay a dividend to the private equity firm. He likens the approach to amassing debts that are then transferred to the corporate card of another individual, resulting in the purchased entity shouldering the additional fiscal responsibilities. This approach can have a significant impact on companies by harming their credit ratings and hindering their ability to cover crucial costs. Ballou illustrates through the Hertz example that the choice of Clayton, Dubilier & Rice to burden the company with an extra $1 billion in debt to facilitate a dividend distribution was a critical factor in the subsequent financial downfall of Hertz. He underscores the unfairness of a framework in which private equity firms invest only a small portion of their own resources but receive significant returns largely underwritten by borrowed funds.

Other Perspectives

• Financial restructuring, including the assumption of debt, can be a necessary step for a company's turnaround or to navigate challenging economic conditions, and not necessarily a manipulation for the private equity firm's benefit.
• The decision to undertake a dividend recap is often made by the company's board of directors, which includes representatives who are tasked with protecting the interests of the company and its shareholders.
• The characterization of the practice as "pressuring"...

Plunder Summary Private equity firms exert significant sway across various industries, including real estate, commerce, healthcare, and financial services.

The incursion of private equity-focused investment companies into the residential property market has transformed the dynamics of home ownership and contributed to the rise in housing costs, significantly affecting neighborhoods with lower economic status.

Ballou argues that the presence of private equity firms has significantly transformed the residential property market, changing the fundamental nature of homeownership in America, driving up costs, and exacerbating social inequalities. Following the 2007 housing crisis, Brendan Ballou notes that private equity firms took advantage of the declining market to acquire a multitude of homes on the brink of foreclosure, with substantial support from Fannie Mae, a government-sponsored entity. The transformation of these properties from personal possession to rental units managed by these entities led to a decline in homeownership rates and exacerbated inequalities, particularly impacting African American and other minority communities.

The author contends that as corporations have expanded their land ownership, this has adversely affected tenants through higher rents, substantial tenancy fees, more frequent evictions, and a...

Plunder Summary The activities conducted by private equity firms lead to harmful consequences for society and the economy, adversely affecting employees, local areas, and the results for consumers.

Private equity companies often prioritize short-term financial profits, which can lead to negative consequences for their workers, including job cuts, reduced pension benefits, stagnant wages, and disregard for the well-being of employees.

Ballou depicts the relentless pursuit of profit by firms specializing in private investments, a journey often resulting in employment reductions, diminished retirement benefits, stagnant wages, and a general disregard for the well-being of workers. He elucidates that the pursuit of swift financial gains and the influence of fleeting investment periods lead companies to regard their employees as disposable. Ballou contends that this fosters an environment of uncertainty, in which employees are frequently regarded more as expenses that should be reduced instead of valuable investments. He strengthens his argument using multiple examples, such as the diminished number of employees at Shopko, the neglected pension promises made to employees of grocery stores, and the significant cutback in staff at PetSmart.

The insolvency of Toys "R" Us exemplifies this trend, as the CEO left with a multi-million dollar exit package, the law firm handling...

Plunder Summary The influence of private equity on governance and political matters necessitates regulatory reforms to correct the sector's misconduct.

Influential investment groups specializing in private equity wield significant influence over the crafting of legislation through their use of political donations, lobbying efforts, and the recruitment of former government officials, which frequently results in legal frameworks that favor their interests.

Ballou argues that private equity has cemented its significant influence on Congress through a mix of political donations, lobbying efforts, and the recruitment of former government personnel to sway lawmaking. He underscores the significant monetary contributions made by the industry in recruiting former high-ranking government officials and in funding political campaigns, which in turn creates a pervasive network that prioritizes the interests of private equity firms over the general interests of the American public.

The story demonstrates the skillful maintenance of tax advantages by private equity firms and their continued evasion from regulatory oversight, highlighting their influence over government bodies despite widespread public disapproval.

Ballou contends that, even with significant opposition from the public and...