If they can make even more money on a different viable business by vampiring out this one, the NPV calculation says...

(What %age of eastern european enterprises got long term investment in the 1990s?)

When you value a business, part of it is brand and people's habits. The new owners are betting that they can trade in that value for cash, by selling a crap lesser product under the old name, and that this will return faster than a sustainable business.

It's not obviously bad from a finance point, it's just significantly shorter term thinking than the original owner.

Not certain, but I would guess it is to do with investment horizons and getting a 10x return on the money they put in to return to their fund, rather than 1x revenue per year.

Once you realize the destruction of the sunk cost fallacy it's easy to detach from things that would harm you long term.

IMO the fundamental issue is that the goal of private equity isn't to save the company, but to make as much money as quickly as possible off of it. The article hits on the exact pattern. Equity strips down a business, does whatever they can to juke the numbers with no concern for sustainability. As soon as they can make the numbers look appealing [enough], they sell it to the next sucker, and that person is left holding the bag, while the PE gets out with a tidy profit. From the article:

---

After the real estate move, Golden Gate sold 25% of the company in 2016 to Thai Union, a Thailand seafood company, for $575 million and unloaded the rest of the company to an investor group called the Seafood Alliance, of which Thai Union was a part, in 2020. Golden Gate likely came out ahead, but the same can't be said for Thai Union, which also controls the Chicken of the Sea brand. It is now looking to get out of its stake in Red Lobster...

---

The bigger question to me is why there are so many entities interested in buying up businesses from private equity, when this exact pattern has been repeated about a million times. I suppose in this game nobody ever thinks they're the sucker. After all if you can casually toss around billions of dollars, you must clearly have had plenty of financial success at some point, and it most certainly was due exclusively to your exceptional financial genius.

It reminds one of NFTs in a way. Spending hundreds of thousands of dollars on a poorly drawn picture of a cartoon ape is either moronic or brilliant dependent exclusively on whether you're the one left holding the cartoon.

That's the trick though, they don't own it. They often take a company private and make the company "own itself". Then make it take out exorbitant loans to pay them their consultation fees. Then they fuck around as consulting management as the company struggles to meet even the interest payments on the massive loan taken out in its name.

All reward, no risk.

It's rooted in societal culture and what people incentivize (ie assign the highest multiple to).

Until Americans take on a mindset of longterm/family (as I've seen many Chinese families express), they'll be doomed to make short term decisions. Right now very few Americans are able to accept an optimization that looks like "I invest today, and my grandkids will get the returns". So America is stuck in that local maxima of invest for next few quarters. The obvious tradeoff being the risks/ability to predict the future.

I want my investments to pay back over 30 years to me. I don't care about quarter to quarter returns. I don't need to invest for my grandkids for any of this.

It’s very interesting that you seem to be making a dichotomy between Chinese and American people instead of one between rich and poor mindsets.

As I understand the gross summarization of Chinese culture is that they're extremely family oriented. Anecdotally I've heard of grandmas acting like their homeless to earn a little money to give to a grandson which drives a Ferrari. They do it because they love and maximize for the next generation.

Plenty of money is being made by taking the short term route. Execs move factories to China and Mexico and they'll get a fat bonus while the workers will see their communities go into decline, and the government starts erecting trade barriers to protect what's left.

At some point in my lifetime, the mindset switched from "I'm investing because I want to see long-term, steady growth and get regular dividends" to "I want to make as much money as possible as quickly as possible and damn the consequences to others".

The short-sightedness and greed is destroying so much.

Or, the hardnosed focus on economical value over sentimentality is freeing resources to be used more productively elsewhere.

Schumpeter tells us the market operates by creative destruction. Properly killing companies is just as important as properly starting them.

Making money off restaurants is incredibly hard. It's just a lousy business. Even well-run, well-liked, well-attended restaurants are often running on incredibly thin profit margins.

Which seems crazy, since the costs of inputs are so low at most restaurants. They pay workers embarrassingly little money, and the ingredients have massive externalities. (Those "endless shrimp" are possible because of literal slave labor and environmental destruction in southeast Asia.)

And yet restaurants bleed money. There are so many invisible costs -- replacing bent silverware, repairing the walk-in fridge, shady suppliers whose produce you have to toss, etc etc etc etc. It's just a crappy business.

A private equity firm may not know how to turn a profit. Or they could run it with a tiny profit that just isn't worth their time and effort, and it's easier to just shutter it. It's a much bigger hardship to the employees than it is to them -- even the potential gains are too small.

For the same reason that large tech firms lay off thousands and shutter successful, or yet to be released projects.

Short term gains over a long, steady market is the current driving mentality of Western capital.

The private equity fund who makes the decisions about what to do is buying the company with other people's money. They get a % of the other peoples money they manage as revenue and slice of the profits on success.

Also they often engineer things so the money the fund put into the deal comes back very fast. In this case they sold the companies real estate which got a big chunk of their initial investment back ASAP.

the simplified view - red lobster they bought it for $2.1b - they sold off the real estate for $1.5b and 25% of the equity for $575m - so the PE fund has $25m of their original investment in the deal. They borrowed a bunch of money and then paid out dividends on that $25m that were multiples times that amount.