RTS frequently works for restaurant companies that are owned (or partially owned) by private equity firms. We’re typically asked to improve operations and marketing – and, hopefully, sales. We enjoy these relationships and look forward to more.
That said, PE firms have come in for a pile of negative publicity, mainly the result of Newt Gingrich and Gov. Rick Perry, who have hammered Republican rival Mitt Romney. Closer to home, Star-Tribune business columnist Eric Wieffering battered Caxton-Iseman, owners of bankrupt Buffets Inc., for throwing workers out of their jobs.
Still, charges that PE executives are vulture capitalists who ruin workers’ livelihoods and the companies they invest in — while paying themselves handsome dividends — seems to some people completely misguided. University of Chicago Professor Steve Kaplan is one; he rose up recently to defend investors:
While it is true that the private equity firms get to keep the dividends, it is ridiculous to say that private equity investors actively loot their companies. As Steve Rattner (former Obama administration “car czar” and former private equity investor) pointed out recently, private equity firms can take cash out of a company only when banks are willing to lend more money. That happens only when the company has done well and is expected to do well in the future. In most dividend recaps, therefore, the private equity investors and the banks are positive about the company—the banks expect to be repaid, and the private equity investors expect their equity to be worth even more. When those companies go bankrupt instead, something unexpected (and negative) has usually happened.
Kaplan, the Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at the Booth School of Business, published his defense in an enlightening essay explaining the risks PE firms take to make money for their general and limited partners. Just thought you’d like to know.