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The Buyout of America: How Private Equity Is Destroying Jobs and Killing the American Economy Paperback – Bargain Price, November 30, 2010
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From Publishers Weekly
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved. --This text refers to an out of print or unavailable edition of this title.
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
Top Customer Reviews
Kosman explains how and why PE firms "put their companies into crippling debt and, unlike entrepreneurs, who manage their businesses to succeed in the marketplace and grow, they manage their companies largely for short-term gains." PE firms hurt their businesses competitively by limiting their growth, cutting jobs without reinvesting the savings, do not even generate good returns for their own investors. According to Kosman, they are "about to cause the Next Great Credit Crisis," one that could leave about two million of the 7.5 million Americans who work at PE-owned companies unemployed, and more than one thousand businesses bankrupt. "Leadership is needed to rally opposition to close the tax loopholes that make this very damaging activity possible."
In a book certain to generate controversy, Kosman provides a wealth of information (financial data and statistics as well as real-world situations) to support his observations, recommendations, and especially his accusations. After reading the book and then re-reading several key passages that I highlighted, I wish Kosman had included other perspectives on the issues he raises. For example, the thoughts of those who head the most active PE firms, of federal officials associated with relevant regulatory agencies, and of analysts who are best qualified to discuss PE firms. It seems that PE firms could play an important role in the process of what Charles Darwin characterizes as "natural selection," one from which some businesses survive (and perhaps even thrive) while others do not. Kosman asserts that these firms must not be allowed "unnatural" advantages that corrupt free market competition. Whether or not his call for action results in any significant reforms of what he calls "tax loopholes" remains to be seen.
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. Despite his mountain of data, I am left wondering: why doesn't the investment community sort these guys out for what they are? Setting aside the damage to companies and individual careers, if they do not deliver for their investors any more than Kosman says how do they keep getting funded?
In several places the author indicates he tried to get comments from PE spokesmen but usually could not attain it; no surprise there since they probably feel they have better things to attend to - where's their upside in helping him? As another indication Kosman may not be thinking broadly enough, he barely offers a single sketchy scenario on how the next PE induced credit crisis can be avoided, and that is easier corporate lending so the PE debts can be refinanced for another round. This idea is not really explored, just mentioned. Even if that life vest is available, it just postpones a calamity over a period of years so it is not so intense all at once. If he's right then maybe there are no good ways out, but I would have liked to have seen an opinion from an investment banker or other economist who might be more objective about the potential options.
I work for a PE owned company and have seen both good and bad effects. We are much more focused and centrally organized with a clearer purpose (we are a large company with several divisions). We have experienced some tough cost cutting too that has had detrimental effects, but we will not end up in bankruptcy like 50% of PE owned companies do according to Kosman. Again, I ask: how do PE firms keep getting investments if their raw business results are only good for them and virtually no one else on average? They are not the only bottom line minded greedy business people out there. Kosman's answer seems to be because they promise higher returns than anyone else and so sing their siren song to victim after victim of investors; maybe so.
In any case, I'm glad Kosman wrote this book. It is thick with data and a bit of a dry read but it opens a very important discussion we need to keep in mind for our elected leaders and those in business.
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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Read Kosman's Rolling Stone column detailing why Bain is the worst of capitalism to get a sense of what you are in for.Read more