Completely off topic, but you may be amused to know that this: https://www.wildernessmag.co.nz/spaniard/ is also a spaniard. It's a plant that consists of a group of spikes, with a large spike growing out of it, that has spikes on it.
I thought that biphasic sleep was a fact, since there is plenty of evidence of ‘first sleep’ and ‘second sleep’ in doctors’ prescriptions from the pre-industrial era.
You are missing some context. Full quote below.I believe it is just a fancy way to say that the are rebuilding their backend to make it more scalable
>>>5a/ Machine-scale infrastructure.
>>> Others are bolting AI onto platforms built for human-rate commits. Git itself wasn't designed for agent-rate work.
>>> We're rebuilding the underlying infrastructure for machine scale: a generational rebuild of git, the monolith giving way to composable, monetized services with agent-first APIs.
I read that book, and my recommendation is to skip the third act, which is painfully repetitive.
In fact, coming from a finance background, I didn't find the book in general to be particularly insightful, and much more ragebait / policy oriented (which makes sense given the author was a DOJ Antitrust prosecutor)
It's absolutely an LBO. The leverage is maximizing debt to equity. That debt is then transferred to the new entity.
It's how they destroy companies while making billions in private profit. They over leverage them. Accrue debts. Sell of equity. Wash, rinse, repeat until bankrupt.
Ryan is committed to not taking a salary, unless this changes the only way he stands to gain is by doing the opposite of this and undressing the share price long term.
This book got a unfortunate title. Private Equity can be a completely legitimate activity.
What it needs is some regulation on some underhanded financial tatics it uses, such as LBO.
The vast majority of the time, you don't hear about it at all. Leveraged buyouts and the monopolistic strategies like buying out all the private doctors or veterinarians in a region get all the negative press but they're a tiny fraction of private equity.
The big money is in really boring industries like mining/oil/resource extraction, power plants, infrastructure, construction, and other industries that are predictable and in high demand everywhere. PE firms often get the best deals because they thrive on those kinds of connections and can offer up large amounts of capital on favorable terms in exchange for first dibs. The "rich get richer" is their primary strategy and it works without minmaxing exploitation because that's a bottom feeder strategy, not one that can guarantee steady returns on tens of billions of dollars.
I've been through an LBO before, my first thought when I saw this news was: so eBay is going to have to pay interest on a $50B loan now?
eBay had $2B of net income in the last year. That might get them half-way to paying their annual interest payment if this deal closes. Get ready for the inevitable layoffs to cover that interest payment.
If there is iffy interest coverage for the debt and assets might be a stretch to cover (principal + interest), why will someone sponsor the debt here ?
Also, rates seems to be high, at least compared to recent history, to be favorable for this kind of LBO.
It may not be bad for the buyers, lenders, or the previous owners who all profit. But even then it could still be bad for regular people/society at large if it incentivizes anti-consumer practices by financial necessity when an otherwise healthy business suddenly has billions of dollars of debt it has to pay off ASAP. In which case it sort of looks like a simple transfer of wealth from existing customers to the organizers of the leveraged buyout with no broader societal value provided like new jobs created, R&D, etc.
You have a company "funded" with its own equity and now you turned it into a company exclusively made out of outside capital and an obligation to realize the terms of said outside capital.
Before, you could have had bad years in-between the good years, now you're only permitted to have good years and by good years I mean years that honor the financing terms.
When you understand this, you realize that functionally speaking, nothing has changed really, other than that the cost of financing has gone up significantly, since the company can't rely on its own equity anymore. Now the company can no longer earn what it currently earns, it needs to earn that plus some. Hence the deal was nothing but a burden to the acquired company.
The previous owners realized the value of their shares and don't have anything to complain about. The new owner acquired control over the company they wanted. So who is left to carry the burden? The employees and the customers.
It can be, sure. But a two-way deal might also affect third parties.
Example: what if Adleman hires Rivest to put laxative in Shamir's soup? Two consenting parties have made a deal. Shamir freely chooses to eat his soup, despite knowing that he has only imperfect information.
So that scenario works out as desired.
But intrusive government regulation might come into play. Maybe the state prohibits poisoning soup. That harms the free market, and it's wrong. But, perversely, Shamir might benefit (at Adleman and Rivest's expense).
Say you take out a mortgage, then rent the house to a series of meth dealers to extract the rent while devaluing the property, and then default: you're still personally on the hook for any post-foreclosure deficiency judgment. One issue with LBOs is that, after extracting cash and fees, PE funds have various ways to extinguish liabilities that individuals don't, both by shielding the PE fund from debts and the use of bankruptcy and restructuring of the acquired company to discharge liabilities, including those from litigation.
There are various proposals to deal with this, but the most effective are probably imposing joint and several liability on certain kinds of litigation (breaking the "investor veil" and allowing rights of action against PE funds for the actions of their portcos) and limiting business judgment rule protection for directors and senior managers who approve LBO sales that are reasonably foreseeable to end in bankruptcy, which creates personal liability for fiduciaries. In other words, align the financial and personal interests of the individuals and companies involved with those of the acquired entity.
>both by shielding the PE fund from debts and the use of bankruptcy and restructuring of the acquired company to discharge liabilities, including those from litigation.
Who's extending credit to these companies? Individuals can do something similar by declaring bankruptcy. I think banks can be considered sophisticated enough that if they got hosed on a LBO deal, that it's hard to feel sympathy for them.
The people doing the lending can still make a profit. They get their interest payments and have a secured debt against the company. I.e. If interest and repayments until time of bankruptcy + liquidation of assets at bankruptcy is more than you'd get investing elsewhere at lower risk it's still a good investment. It's the other stakeholders (employees/community/unsecured debtors) that lose out.
I mean, if I'm allowed to just make up silly hypotheticals, I can easily justify anything.
Say I raise money for a friend to buy a house and they proceed to rent it out to meth dealers. The friend is the one on the hook for the loans, of course; but would I not be on the hook for at least a reputation hit such that I can't do that again? Or do we think folks can get away with that sort of poor judgement forever?
In that sort of hypothetical the Mortgage bank is likely to take one look at your friend, see you with all the money for the down payment, and decide that you need to at least cosign the loan (if not be solely responsible). You would be on the hook for the reputation (and credit score) hit and certainly still paying off the rest of the loan or face foreclosure and possibly a criminal lawsuit for fraud.
Which yeah, leaves a lot of questions for why this is legal for an LBO. Where's the "credit score" hit on these PE firms doing LBOs? How is it that these investors are allowed to be their own mortgage bank, not require themselves to cosign the very loan they are providing the down payment equity for, and not be liable for damages such as bankruptcy of the entity they put on the hook for the loan?
If you give the friend the money as a gift, you have nothing to do with it, right? if you give it to him as a loan to inflate his assets and don't disclose that then you are committing a Federal crime.
I didn't give any money in that hypothetical. Rather, I convinced a lot of other people to give them the loan. That is, largely, exactly what fundraising is. You convince other people to give money to someone or something.
If people are regularly doing this at my request, and it is constantly going to someone that just burns the money, how are people still taking my requests?
Yes. That doesn't change my question, here. You can arrange to bootstrap another company. It could go bust in a way that you are not on the hook for any money, but you should be on the hook for the things you did. That is the entirety of my point.
The hypotheticals being pushed on this thread have a foregone conclusion that the arranging party is completely free of any hit.
The hypotheticals seem to be in line with reality though. This business model works because the people who make money are the ones who are in control of whether to do it. Liquidating a large company in bankruptcy can get a lot of the money back for the investors while leaving a smoking ruin where it used to be generating economic value.
Are they, though? There are certainly some cases where it has happened, but I don't think it has been established that that is the norm.
Naive searching on the term shows that they common in PE, and they do have a worse default rate at 20% over 2% otherwise. Certainly something to look at more closely. And I would be nervous being party to one. That said, 80% success is still better than what some companies are looking at otherwise.
It is a thorny question. The best way I can square the difference is that generally buying a house with debt is on the debtor and the house itself is collateral. The debtor can't pay back the loan the house is taken by the bank to be sold. Where as a PE leveraged by out the debtor is the target company. A company is different than real estate in that they are a legal entity that is now responsible to pay back a loan equal to their own value. The collateral is the business, but the business is now illiquid and has to sell of real assets and go bankrupt.
For example, Joanne's Fabrics was a profitable business with a fair amount of real estate. After PE bought them and was saddled with unreasonable debt they were in the red and had to sell all their stores. This removed useful and profitable business from the economy and sold off the assets in a fire sale. Where as me losing a house just means a bank now owns it and someone else can buy it. But if someone were to buy Joanne's they'd have to pay off the debt Joanne's owed for being bought and run into the ground
There is a long practice of having cosigners on home loans. This feels basically like that.
Which, granted, if you don't like the idea of establishing a company to take on loan responsibilities, I am not trying to offer a defense of that. Was a legit question of how you would structure it so that this is illegal, but home/auto loans are not.
A cosigner is different than what's happening in leveraged buy outs. A Cosigner is financially responsible if the debtor cannot pay back their portion of the loan. In a Leveraged buyout the purchaser does not take on financial liability for the debt, that is all placed on the company being purchased. This means that if the purchaser isn't even the cosigner in this scenario; the company being purchased is the sole entity responsible for repayment. So if GameStop goes through with this, but Ebay can't repay the debt than Ebay would suffer graver consequences than GameStop
But the biggest reason the purchaser does not have to cosign that loan is because in an LBO the purchaser is also essentially the mortgage bank for that loan. Should that be allowed?
Fair, but the nefarious scenarios people are talking about should at least be a major reputational hit for the people that did the fund raising. We are literally describing a ton of value getting destroyed. Someone is taking that hit.
It would be functionally the same as what you described if the parent company took on the debt, but that’s not how they do it. They make the purchased entity take on the debt. Hence why you often see mass layoffs in the company that was acquired soon after the deed was done. The company has so much debt it can barely function and the easiest way to pay some back is redirecting salaries at it.
Then once you realize why private equity firms do this, how their leaders have extreme monetary incentives to squeeze value out of companies in ways not limited to this, you realize why it’s insane how we have basically zero regulation on it.
Home owns are owned by people, not the home itself. If someone fails to pay a loan, their own credit score will be impacted
For these PE loans, its the new company that takes on the debt, not the buyer. Essentially any broke person can "afford" any trillion dollar company this way
Home loans are secured by the asset (the home). It's comparable to stock, but it's a less liquid asset.
Any broke person can afford a trillion dollar loan, if they can convince the bank that their house is worth 1.8 trillion dollars. But is that really possible?
Loan companies do due diligence so if GameStop is $A and eBay is worth $A + $B, then so long as $A/$B remains the same, the acquiring company owns two assets worth the full price of the loan.
It doesn't seem to be a scam to me. Am I missing something?
The difference is that when you buy a home the debt is in your name and you are required to pay it off. In a leveraged buy out wouldn't be to person taking out the loan, the debt is owned by the target of the purchase. If it were like a home loan and this deal goes south GameStop would go bankrupt and have to sell it's own assets to cover the losses. But in reality the debt from the deal would be owned by Ebay and if GameStop can't pay the loan back it'd force Ebay into bankruptcy and sell Ebay's assets. It's essentially a riskless move by GameStop and PE in general. Heads GameStop wins tails Ebay loses
There are other categories of real estate loans where the debt is against the property itself. The lender evaluates the property's income and expenses when underwriting the loan.
Fair point, it's a corporation taking out the loan so there's nobody to go after if the company goes under the way there is if the value of your house tanks and you stop paying your mortgage. But doesn't the bank take that risk into account when deciding whether to issue the loan? Why should that be illegal?
The way I’m reading your question, it seems like you are looking for the law to follow philosophically consistent principles.
That is simply not the case and lawmakers can make any kind of law to shape the society how we wish. If leveraged buyouts are creating problems for the country, then it’s totally valid to make them illegal in certain cases.
The problem is that people can take loans without financial liability (not how home purchases work) and drive profitable businesses (which are good for the economy) into the ground (bad for the economy and society).
No one is worried about the bank making the loan in this situation. They are concerned that PE is buying up large parts of the economy using debt they aren't responsible for, which makes them irresponsible owners because they do not face consequences when the moves fail
> which makes them irresponsible owners because they do not face consequences when the moves fail
Again, isn't that entirely the bank's problem? They're responsible for the debt if the company can't pay it, right? I agree on the surface this seems like a bad deal for the bank, but what makes you think you know better than the bank so much so that they shouldn't even be allowed to take that risk?
Leaving aside that the new company is the buyer; the point remains that home and car loans are leveraged loans. With the main asset in the leverage being that which is being bought. Defaulting on that loan results in the assets going to the lender.
If a lender builds a pattern of lending to people that can't make the payments, that lender will take a hit. If we think that isn't happening, why? And how could we return us to that?
Or, back to my question, how would you structure a legal framework where some loans can be done this way, but others could not? (I can think of a few ways, largely curious if I have a blind spot here.)
In a home loan, the borrower buys a house and pledges that house as collateral. The debt is the buyer’s obligation. The house does not have to “pay the mortgage” by laying off the kitchen, selling the roof, or cutting maintenance. The borrower uses outside income to service the debt.
In an LBO, a private equity buyer often buys a company using a large amount of debt, but the debt is typically placed on the acquired company’s balance sheet or serviced from that company’s cash flows. In effect, the target company helps pay for its own acquisition. That is the key difference.
In a lot of LBO schemas, the acquirer loads the target with, abusing leverage to maximize its returns, but this leaves the company with very little margin errors, any hiccup in the economy, and Kabum! The company goes under, an once viable company closes its doors, employees lose their jobs and local economies suffer. Meanwhile, the PE entity walks with as much cash as it could extract from the acquired company and debt-free.
Some PEs also go one step ahead, make the acquired company borrow more money, not to invest in the business, or restructure debt, but to pay a dividend to them.
In other cases, PE companies acquire a controlling block and then use it to make the company sell their assets to them, to be immediatelly leased back to the company. Then, there is also the practice of extracting all kins of "monitoring fees", "advisory fees", "consulting fees", etc. for services that are vague and frequently of questionable value.
PE companies also frequently engage in overly agressive cost-cutting to manipulate the EBITDA in the short run to sell the company at a appreaciated valuation, but hurting the long term value creation potential of the company and the quality of their services.
For PE, sometimes even bankruptcy is a business strategy.
Technically the lender is the purchaser in the LBO which is also why this is so much the purchased company having to pay for its own purchase. Which seems to me like the easiest part to regulate: require third party lenders who can also audit the details of the loan terms and fees.
>>> In the last week we received ~470000 crash reports, these do not represent all crashes because it's an opt-in system, the real number of crashes will be several times larger
Having the number of unique machines would be great to see how skewed this estimate is.
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