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Originally Posted by ikestoys
Companies like Bain take over distressed business that are about to go broke.
They invest in whatever makes them money. They buy healthy businesses too.
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If every investment of Bain worked out like that, Bain would be broke.
The thing is, most of the time the leverage of a leveraged buyout sits at the business being bought, not at the buyer. The money they invest themselves is very small compared to the total purchase price and they will do everything they can to suck the bought company dry. So even if the business fails Bain will lose very little. Just look at the businesses previously held by Bain but that are now public, they are all in debt over their eyeballs.
I think people can legitimately criticize this strategy because during the smallest downturn these businesses will fail, while they would probably do fine if they weren't leveraged to the max. Personally I don't think it's that bad because that's how capitalism works, and in the end their involvement is probably a net positive for the market. But you can't pretend like Bain and/or Romney are good guys turning around businesses in trouble.