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The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis Hardcover – November 12, 2009

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Editorial Reviews

From Publishers Weekly

With exhaustive research and a rogues' gallery of interviews, journalist Kosman puts together a convincing and disquieting argument that private equity firms are about to cause the next great credit crisis. Many people don't realize that private equity is just a new name for a leveraged buyout, and that private equity firms make their money by loading their acquired companies with debt, garnering short-term gain at the cost of the businesses' financial longevity. Exposing the pernicious practices of various high-profile firms (including Mitt Romney's company, Bain Capital, notorious for its company-destroying practices), Kosman reveals how they cripple their acquired businesses competitively, limit growth and cut jobs without reinvesting the savings, all without even generating good returns for their investors. But if only half of PE-owned businesses go bankrupt, that would leave almost two million Americans out of jobs. What's to be done? Kosman is a proponent of legislation that encourages buyers of companies to hold on to them for at least five years. This alarming book will keep anxious credit watchers on their toes—and hopefully inspire some pressure to keep PE firms from going the way of mortgage brokers. (Nov.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.


"The Buyout of America takes a different approach. It is less concerned with blow-by-blow deal-making or personal stories than with the real-life economic effects of private-equity deals. Mr. Kosman brings to the subject a relentlessly critical approach that is refreshing, simply because so many stories about the buyout firms are the sort of puff pieces that result from delicate negotiations for access. He documents dozens of companies acquired in buyouts--such as hospitals, mattress manufactuerers and a car-parts maker--whose service or products went downhill, whose employees suffered pay cuts or layoffs, and whose fortunes plummeted, sometimes ending in bankruptcy.

Time and again, Mr. Kosman details how the rest of us suffer at the hands of the buyout barons, 17 of whom are members of the Forbes 400. The private-equity firms pay lowball prices, he says, shortchanging public investors, by teaming up with management to pre-empt competing bids. They cream fees from their acquisitions, generating profits no matter how the companies fare. The companies cut more jobs than publicly owned competitors and sidestep proposed reforms by currying favor with politicians. Mr. Kosman finds a University of Chicago study showing that, for the years 1980 to 2001, the private-equity firms' investors got returns that fall short of the broad market average, after fees.

Mr. Kosman provides exhaustive specifics."
--Wall Street Journal


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Product Details

  • Hardcover: 288 pages
  • Publisher: Portfolio Hardcover (November 12, 2009)
  • Language: English
  • ISBN-10: 1591842859
  • ISBN-13: 978-1591842859
  • Product Dimensions: 6.4 x 1.1 x 9.3 inches
  • Shipping Weight: 1 pounds
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (19 customer reviews)
  • Amazon Best Sellers Rank: #1,475,456 in Books (See Top 100 in Books)

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Customer Reviews

Very well written; very well researched.
D. Azinger
This will eventually precipitate a crisis of some sort when all these unpayable loans taken out by companies controlled/owned by PE firms come due.
This book deserves much more widespread attention then it appears to have received.

Most Helpful Customer Reviews

91 of 96 people found the following review helpful By Robert Morris HALL OF FAMETOP 500 REVIEWERVINE VOICE on November 16, 2009
Format: Hardcover
In the Introduction, Josh Kosman offers what he calls a "little primer" on how private equity firms operate, explaining that they "buy businesses the way that homebuyers acquire houses. They make a down payment and finance the rest. The financings are structured like balloon mortgages, with big payments due at some point in the future. The critical difference, however, is that while homeowners pay the mortgages on their houses, PE firms have the businesses they buy take out the loans, making THEM responsible for repayment. They typically try to resell the company or take it public before the loans come due." It soon gets even more interesting. "As long as the PE firms could refinance, or turn around and sell off their holdings before the biggest loan payments came due, spectacular flameout bankruptcies could be avoided...PE firms would like to have us all think the reason they try so hard to raise earnings in their businesses [by `starving companies of operating and human capital'] is so that companies can use these profits to pay down the money they borrowed to finance their own acquisitions. But the records show that during the 2003-7 buyout rush, that wasn't generally the case. Instead, they used the profits s a basis to borrow more money. The new loans, which were piled in top of the original debt taken on to finance the LBO, were used to issue dividends" to the (you guessed it) PE firms. What if all, most, or even only some of the companies collapse? No problem. The PE firms have incurred no debt while receiving dividends as well as substantial management fees. "Despite the credit crisis in 2009," Kosman notes, "PE firms are sitting on roughly $450 billion in unspent capital and itching for more deals." Of course they are. Given their circumstances, would wouldn't?Read more ›
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12 of 13 people found the following review helpful By Roy Massie on March 2, 2010
Format: Hardcover
Josh Kosman writes as a journalist experienced in coverage of Wall Street and other large financial deals. He brings his extensive journalistic background of about 10 years data gathering to bear in this sweeping indictment of Private Equity (PE) firms.

Kosman has a mountain of data and stories to tell which clarify the dangers PE firms impose on our economy. It's not just the 10% of American workers that are either terminated or extremely overworked being affected. The investors marshaled by the PE management also often come up short - losing money in pension funds, investment bank loans and other macro-economic areas that further hurt the economy.

The author provides names and extensive details making his book a strong opening salvo for the discussion he wants to bring the American people (and others) into. He has a web site listed in the book that is also for this purpose. Kosman predicts that defaults on PE investment loans between 2012-15 will lead to the next credit crisis and it is about the same size as the mortgage crisis we are in now. The same easy lending policies that allowed subprime loans for houses also funded massive leverage buyouts via PE financiers. The PE financiers are so greedy in Kosman's account that it is incredible, yet he backs it up pretty convincingly. The lavish lifestyle and cavalier attitude towards society of LBO kings is pretty well known anyway, but this book details the savage business practices that leave a wake of destruction where only the PE interests are assured of walking away whole.

It is amazing how much these PE financial wizards get away with in Kosman's accounts and that leads to what I think is the books' primary weakness.
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8 of 9 people found the following review helpful By D. Azinger on November 28, 2011
Format: Hardcover Verified Purchase
Ive read alot of books this year, this one is tops.

Very well written; very well researched. Makes an excellent case
for the chaotic influence of private equity on our economy.

The chapter on what private equity did to the mattress industry is a major eye opener. You can't believe what you're reading, and PE is so pervasive it is really scary.

Author really talented guy. Obviously a guy with some integrity who "chose" to avoid a career in PE.

And if you're thinking about voting for Romney;
you might read chapter 6.

Wow -- it's hard to believe this guy is still credible as a businessman and/ or job creator.

Great book. Wish I'd read it sooner.
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9 of 11 people found the following review helpful By Judah on July 19, 2011
Format: Hardcover
This book is about the history of private equity, what it means, how it operates, and the wreckage the industry generates. Private equity means making money. Money is more important than jobs, than lives, than the environment, than investors, and cash in the pocket is much more important than long term gains.

A PE [private equity] company wants to buy a well performing company with an LBO [Leveraged Buyout Offer] in order to loot the company for as much cash as possible. First the PE firm finds investors, usually retirement funds because they promise extremely unrealistic return percentages, and then they put up about 10% of the purchase price and borrow the rest from a fee loving bank. They get the company.

OK, the first thing the PE firm does is take out a huge amount of loans, or more accurately, they make the successful firm they just bought take out loans in *the name of the firm* -- that means the business is liable, not the PE firm (who also scored a transaction fee from their investors as part of the deal). Then the PE firm fires 5-10% of the company workforce, usually the entire research division and most of customer service, in the name of 'leanness', but what they are really doing is raising as much short term cash as possible. The goal of the PE company is to flip this (formerly) successful business after gutting it of money. If the successful company is a conglomerate, the PE firm 'spins off' and sells the less profitable divisions as separate companies (after loading them with debt).

At this point the PE firm is sitting on a pile of money.
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