Buying the company when it’s down

Mitchell Hartman Jan 2, 2009
HTML EMBED:
COPY

Buying the company when it’s down

Mitchell Hartman Jan 2, 2009
HTML EMBED:
COPY

TEXT OF STORY

Steve Chiotakis: How many times have you heard this? “It’s a buyer’s market.” But it’s not just homes for sale — how about companies? Some investors are grabbing up corporate wreckage on the cheap. Does that mean a company resurrection, or liquidation? From the Entrepreneurship Desk at Oregon Public Broadcasting, Mitchell Hartman reports.


Mitchell Hartman: The phenomenon is known as “loan-to-own.” Investors lend money to a desperate company, or buy up its outstanding debt. Then, when the company can’t pay its bills or files for bankruptcy, the buyout artists step in to take over.

Harlan Platt teaches finance at Northeastern University:

Harlan Platt: In many of these cases, you can buy up these debt instruments at 5, 6, 7, 10 cents on the dollar, so you are buying into these companies cheaply.

And the potential return for private-equity firms is huge. But, Platt warns, not every buyout will lead to a successful turnaround.

Platt: Those that simply are chasing this pack, and buying up distressed debt without really fully understanding the operational difficulties of these companies, are likely to be losers again.

Who else will be “losers,” in this case, is the employees, who will likely see what’s left of their company sold off for scrap.

I’m Mitchell Hartman for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.