Suffering from Success
June 15, 2023 5:17 PM Subscribe
The Instant Pot Failed Because It Was a Good Product
The Instant Pot is, by all indications, a perfectly good machine—maybe even a great one. The IP, as the device is known to its many devotees, is a kitchen gadget in the most straightforward sense of the term: It’s a classic labor-saver, promising to turn ingredients into family meals while you clean up, tend to your kids, and do all of the other things you could be doing instead of keeping an eye on the stove. Once you get the hang of the electric pressure cooker, it seems to basically deliver on that promise, chugging along gamely through years’ worth of weeknight dinners of pork green chili or chicken tikka masala. Since its debut in 2010, the Instant Pot has sold millions of machines and spent years as a must-have kitchen sensation.
Sure enough, in 2019, when the private-equity firm Cornell Capital bought the gadget’s maker, Instant Brands, and merged it with another kitchenware maker, the combined company was reportedly valued at more than $2 billion. A few years and one pandemic later, the company filed for bankruptcy on Monday, weighed down by more than $500 million in debt after years of supply-chain chaos and limited success expanding the Instant brand into other categories of household gadgetry. Perhaps counterintuitively, that the Instant Pot remains a useful, widely appreciated gadget is not unrelated to the faltering of its parent company. In fact, it’s central to understanding exactly what went wrong.
All of this amounted to the kind of public-relations coup that companies are constantly trying and failing to buy for their own new launches. Those failures are not infrequently a result of the products themselves; at this point, it’s very difficult to come up with a novel idea for a consumer good that addresses some kind of real and reasonably common issue. The average American just doesn’t have that many problems left that can plausibly be solved at the level of inexpensive gadgetry. The Instant Pot flourished because the company found a tiny bit of white space in a crowded market, and it sold a machine that did a serviceable job at helping out a particular type of very common home cook: someone who cooks regularly for more than one or two people, more out of necessity than because they find the process creative or relaxing. There was no slick branding exercise foundational to the Instant Pot’s success. The device was the brand. It still is.
Therein lies the problem, or at least one of the problems. A device developed primarily to address a particular food-prep inefficiency has a natural ceiling to its potential market, and when one catches on as quickly and widely as the Instant Pot, it can meet that market ceiling in pretty short order. Arguably, it can exceed it—people who wouldn’t have otherwise seen themselves as Instant Pot owners buy into the hype. Predictably, after a decade of lightning-fast sales in the United States, things seem to be cooling off. Instant Brands does not release detailed sales figures, but from 2020 to 2022, sales of multi-cookers as a product category dropped by half, according to the market-research firm NPD Group. Instant Pots dominate the category. Very few people seem to need or want a second IP within five years of buying a first one. Why would they?
From the point of view of the consumer, this makes the Instant Pot a dream product: It does what it says, and it doesn’t cost you much or any additional money after that first purchase. It doesn’t appear to have any planned obsolescence built into it, which would prompt you to replace it at a regular clip. But from the point of view of owners and investors trying to maximize value, that makes the Instant Pot a problem. A company can’t just tootle along in perpetuity, debuting new products according to the actual pace of its good ideas, and otherwise manufacturing and selling a few versions of a durable, beloved device and its accessories, updated every few years with new features. A company needs to grow.
In the past few decades, the idea that every company should be growing, predictably and boundlessly and forever, has leeched from the technology industry into much of the rest of American business. Recently, it’s become clear that those expectations are probably not sustainable even for companies that have produced era-defining software products. They’re certainly not sustainable when placed on the shoulders of the humble Instant Pot, which, despite being an object with a digital display and a wall plug, was never technologically innovative so much as it was a clever, useful packaging of existing components. This was not at all unclear during the product’s heyday, but private-equity interests tried to moneyball it anyway, as they are wont to do.
This article feels like the introduction to a really interesting deep dive. Hopefully someone digs in deep enough to tell the whole story with all its gory, stupid details.
posted by clawsoon at 5:30 PM on June 15, 2023 [2 favorites]
posted by clawsoon at 5:30 PM on June 15, 2023 [2 favorites]
Too many indistinguishable models and too hard of a push to expand the brand into all other countertop appliances.
The core line of IP cookers has a devoted following, I expect it will emerge from bankruptcy with at least that business intact, one way or another. The air fryers too, probably. The rest could all be cut and no one would notice.
A company can’t just tootle along in perpetuity, debuting new products according to the actual pace of its good ideas, and otherwise manufacturing and selling a few versions of a durable, beloved device and its accessories, updated every few years with new features.
Of course it can, as long as whoever's running it is content to maintain their niche market position and corresponding limits on profitability. The InstantPot was around for a good while before its acquisition. The problem with InstantHome was that its purchasers were absolutely not content to do anything but try to turn it into an all encompassing kitchen brand.
posted by snuffleupagus at 5:30 PM on June 15, 2023 [11 favorites]
The core line of IP cookers has a devoted following, I expect it will emerge from bankruptcy with at least that business intact, one way or another. The air fryers too, probably. The rest could all be cut and no one would notice.
A company can’t just tootle along in perpetuity, debuting new products according to the actual pace of its good ideas, and otherwise manufacturing and selling a few versions of a durable, beloved device and its accessories, updated every few years with new features.
Of course it can, as long as whoever's running it is content to maintain their niche market position and corresponding limits on profitability. The InstantPot was around for a good while before its acquisition. The problem with InstantHome was that its purchasers were absolutely not content to do anything but try to turn it into an all encompassing kitchen brand.
posted by snuffleupagus at 5:30 PM on June 15, 2023 [11 favorites]
Reading about it I felt it was an IRL example of the 'enshittification thesis' that Cory Doctorow has popularized recently. Capitalism as reverse Midas, turning things to shit.
posted by polymodus at 5:35 PM on June 15, 2023 [60 favorites]
posted by polymodus at 5:35 PM on June 15, 2023 [60 favorites]
Prohibit leveraged buyouts. If a company can't afford to buy another company without saddling the new entity with debt, then they can't afford it.
posted by tclark at 5:38 PM on June 15, 2023 [121 favorites]
posted by tclark at 5:38 PM on June 15, 2023 [121 favorites]
Seeing this thread reminded me that the Instant Pot had beeped half an hour ago to let me know that the yogurt was ready and I needed to go put it in the fridge. So thanks for the reminder!
We got our IP free from relatives who bought it in the big hype and then never used it. I've made yogurt every couple weeks for years now, and it also gets used to steam things often, is the easiest way ever to make both beans and risotto, and is occasionally used to make one of those actual one-dish pressure cooker recipes. If it weren't free, I never would have owned one, but when this dies, I'll probably buy whatever multi-cooker clone I can get for cheap. So yes, their business model was probably not a growth one, and also I assume those private equity raiders fucking destroyed it for fun like they do.
posted by hydropsyche at 5:40 PM on June 15, 2023 [13 favorites]
We got our IP free from relatives who bought it in the big hype and then never used it. I've made yogurt every couple weeks for years now, and it also gets used to steam things often, is the easiest way ever to make both beans and risotto, and is occasionally used to make one of those actual one-dish pressure cooker recipes. If it weren't free, I never would have owned one, but when this dies, I'll probably buy whatever multi-cooker clone I can get for cheap. So yes, their business model was probably not a growth one, and also I assume those private equity raiders fucking destroyed it for fun like they do.
posted by hydropsyche at 5:40 PM on June 15, 2023 [13 favorites]
This is private equity working according to plan. In fact, this is a mild case. PE can be much worse (I'm generally not one for content warnings, but this is an unsettling article featuring animal neglect, human neglect, and taking a detour into the Holocaust).
posted by adamrice at 5:44 PM on June 15, 2023 [16 favorites]
posted by adamrice at 5:44 PM on June 15, 2023 [16 favorites]
As soon as I saw the line, ”Sure enough, in 2019, when the private-equity firm Cornell Capital bought the gadget’s maker, Instant Brands”, I knew where this story was gonna go. Is there nothing private equity can’t ruin?
posted by May Kasahara at 5:54 PM on June 15, 2023 [37 favorites]
posted by May Kasahara at 5:54 PM on June 15, 2023 [37 favorites]
Leveraged buyouts are unbelievable. It's one of those things that would be totally unthinkable to allow normal people to do with actual money and property. You make the target company borrow the money to pay back the money that you used to buy it, plus it also borrows to pay your fees. (Oh and you get to decide your fees). It's like the Dukes of Moral Hazard.
posted by hovey at 5:55 PM on June 15, 2023 [89 favorites]
posted by hovey at 5:55 PM on June 15, 2023 [89 favorites]
I have an “IP”! It’s great! Relatives gave it to us years ago for Xmas and it sat in a box somewhere until last year when we moved to a new house and had room to use it in the kitchen. I always thought I didn’t need it because I had a Fagor stove top pressure cooker, but for real the integration of the temperature control into the pressure cooker makes it a lot easier to use. You don’t have to worry about getting the temperature right to get the water boiling but not overheating.
But once Instant Pot came out with their product it was eeeeasy for every other brand to copy, and they did. Even without the private capital buyout, I’m not sure they were going to last.
posted by chrchr at 5:57 PM on June 15, 2023 [2 favorites]
But once Instant Pot came out with their product it was eeeeasy for every other brand to copy, and they did. Even without the private capital buyout, I’m not sure they were going to last.
posted by chrchr at 5:57 PM on June 15, 2023 [2 favorites]
Capitalism.
posted by AlSweigart at 6:08 PM on June 15, 2023 [5 favorites]
posted by AlSweigart at 6:08 PM on June 15, 2023 [5 favorites]
Ugh capitalism. The IP is great. I also use it for yogurt once a week. Also love making dal with it because of how quickly it will cook dals. It’s also great as a prep tool. Need a bunch of beef or pork for a dish, bam, you can quickly get stuff to finish up on a stove.
But as others have said, these holding companies are the problem. It’s all about growing and expanding. There is nothing wrong with doing something simple and just keep doing that thing. As soon as shareholders get involved it’s over.
posted by misterpatrick at 6:16 PM on June 15, 2023 [8 favorites]
But as others have said, these holding companies are the problem. It’s all about growing and expanding. There is nothing wrong with doing something simple and just keep doing that thing. As soon as shareholders get involved it’s over.
posted by misterpatrick at 6:16 PM on June 15, 2023 [8 favorites]
Hmm, thought they'd make it up in volume...
posted by sammyo at 6:30 PM on June 15, 2023 [2 favorites]
posted by sammyo at 6:30 PM on June 15, 2023 [2 favorites]
Isn't a leveraged buyout the PE equivalent of using a mortgage to buy a house? ie something that normal people do with actual money and property every day? My favourite soccer team was bought out via leveraged buyout and the interest costs of that purchase have taken hundreds of millions of pounds out of the team over the last 15+ years so I'm against them but I don't think they're some unbelievable financial trick (the trick is for the owners to sell off the valuable parts and cash out those profits while saddling the company and creditors with the worthless leftovers).
posted by any portmanteau in a storm at 6:34 PM on June 15, 2023 [4 favorites]
posted by any portmanteau in a storm at 6:34 PM on June 15, 2023 [4 favorites]
Prohibit leveraged buyouts. If a company can't afford to buy another company without saddling the new entity with debt, then they can't afford it.
They can afford it. It's like saying if you can't afford a house in cash you can't afford it. They found a counterparty who was willing to lend them the money to buy it and was willing to back that loan with the company itself. It's not like PE created money out of thin air. The bank isn't stupid though. They make sure that the deal says they have superiority in any bankruptcy proceedings and if/when the business is sold for scrap they'll still make their money on it.
Leveraged buyouts are unbelievable. It's one of those things that would be totally unthinkable to allow normal people to do with actual money and property. You make the target company borrow the money to pay back the money that you used to buy it, plus it also borrows to pay your fees. (Oh and you get to decide your fees). It's like the Dukes of Moral Hazard.
At least it's better than it used to be. Way back when the PE guys would IPO the failing business, cash out at the peak of the frenzy, and then peace out with squillions. Now almost every underwriter demands the PE guys hang around for another 6-9 months after IPO (because otherwise they couldn't find enough people to sucker) and funnily enough, they stopped doing that. Petco for instance was taken private with $90m in debt back in 2000. Then when it IPOed back in 2002 it had $400m in debt. The guys who executed that made a fucking killing on the IPO. It was a miracle the business even survived.
posted by Your Childhood Pet Rock at 6:41 PM on June 15, 2023 [5 favorites]
They can afford it. It's like saying if you can't afford a house in cash you can't afford it. They found a counterparty who was willing to lend them the money to buy it and was willing to back that loan with the company itself. It's not like PE created money out of thin air. The bank isn't stupid though. They make sure that the deal says they have superiority in any bankruptcy proceedings and if/when the business is sold for scrap they'll still make their money on it.
Leveraged buyouts are unbelievable. It's one of those things that would be totally unthinkable to allow normal people to do with actual money and property. You make the target company borrow the money to pay back the money that you used to buy it, plus it also borrows to pay your fees. (Oh and you get to decide your fees). It's like the Dukes of Moral Hazard.
At least it's better than it used to be. Way back when the PE guys would IPO the failing business, cash out at the peak of the frenzy, and then peace out with squillions. Now almost every underwriter demands the PE guys hang around for another 6-9 months after IPO (because otherwise they couldn't find enough people to sucker) and funnily enough, they stopped doing that. Petco for instance was taken private with $90m in debt back in 2000. Then when it IPOed back in 2002 it had $400m in debt. The guys who executed that made a fucking killing on the IPO. It was a miracle the business even survived.
posted by Your Childhood Pet Rock at 6:41 PM on June 15, 2023 [5 favorites]
Capitalism, everybody.
posted by Artw at 6:43 PM on June 15, 2023 [4 favorites]
posted by Artw at 6:43 PM on June 15, 2023 [4 favorites]
Oh and Twitter? That was an LBO. Except the difference in interest rates before and after the consummation of the deal meant that the banks trying to offload the debt had to take a huge haircut on their balance sheets. Straight off the bat they had to write off $10b. Plus after Elon started going full mask off they couldn't sell it even for pennies on the dollar.
Couldn't have happened to a nice bunch of shitlords.
posted by Your Childhood Pet Rock at 6:44 PM on June 15, 2023 [13 favorites]
Couldn't have happened to a nice bunch of shitlords.
posted by Your Childhood Pet Rock at 6:44 PM on June 15, 2023 [13 favorites]
I should probably buy spare and stash it somewhere in case my one breaks down.
posted by Artw at 6:45 PM on June 15, 2023 [2 favorites]
posted by Artw at 6:45 PM on June 15, 2023 [2 favorites]
"The private-equity owner of Downers Grove-based Instant Brands plucked a debt-financed dividend of $245 million out of the company in 2021..."
And I guess they waited long enough to make sure the transfer wouldn't be voided as a preference!
posted by praemunire at 6:46 PM on June 15, 2023 [7 favorites]
And I guess they waited long enough to make sure the transfer wouldn't be voided as a preference!
posted by praemunire at 6:46 PM on June 15, 2023 [7 favorites]
> Leveraged buyouts are unbelievable. It's one of those things that would be totally unthinkable to allow normal people to do with actual money and property
Home mortgages are leveraged buyouts.
posted by riotnrrd at 6:57 PM on June 15, 2023 [2 favorites]
Home mortgages are leveraged buyouts.
posted by riotnrrd at 6:57 PM on June 15, 2023 [2 favorites]
“particular type of very common home cook: someone who cooks regularly for more than one or two people, more out of necessity than because they find the process creative or relaxing.”
1. That’s a weird way to describe most people and 2. Did they ever consider that even ppl who cook out of necessity might *also* find it creative and relaxing?
posted by toodleydoodley at 7:00 PM on June 15, 2023 [2 favorites]
1. That’s a weird way to describe most people and 2. Did they ever consider that even ppl who cook out of necessity might *also* find it creative and relaxing?
posted by toodleydoodley at 7:00 PM on June 15, 2023 [2 favorites]
you know what? i'm glad. my parents gave me an instantpot and i tried, man, i really tried, but any time i wanted to do something that wasn't a soup (and i hate soup) i'd get that fucking 'burn' message so i'd have to depressurize everything, futz around with the ingredients which half the time there was no obvious issue and the other half there would be a hunk of elemental carbon welded to the bottom of the instantpot. so i'd put some water in, everything would slowly repressurize, and then 'burn.' process repeat until i'd added enough water that whatever thing i'd been trying to instantpot at the beginning of the ordeal was now a form of soup.
so: good. i hate you instantpot.
posted by logicpunk at 7:12 PM on June 15, 2023 [10 favorites]
so: good. i hate you instantpot.
posted by logicpunk at 7:12 PM on June 15, 2023 [10 favorites]
Yes, but if you cook to relax you don't need a time/labor-saving device. You'd just... cook. You might still need a pressure cooker for some things, but you won't be the one targeted by the ads because you'd get one anyway for your purpose. The Instant Pot was sold as a gadget rather than a tool, if you follow.
posted by Scattercat at 7:13 PM on June 15, 2023 [2 favorites]
posted by Scattercat at 7:13 PM on June 15, 2023 [2 favorites]
You gotta leave some space at the top, if you fill it all the way up you’ll get the Burn.
Anyway I love my instantpot, great for all sorts of things. It actually hit me into cooking more, with the ironic result that as I developed skills I ended up using it less and less - these days I haul it out for the yearly squash soup, the occasional steamed veg or mash potato, or, on special occasions, ribs. It makes great ribs.
posted by Artw at 7:16 PM on June 15, 2023 [4 favorites]
Anyway I love my instantpot, great for all sorts of things. It actually hit me into cooking more, with the ironic result that as I developed skills I ended up using it less and less - these days I haul it out for the yearly squash soup, the occasional steamed veg or mash potato, or, on special occasions, ribs. It makes great ribs.
posted by Artw at 7:16 PM on June 15, 2023 [4 favorites]
Isn't a leveraged buyout the PE equivalent of using a mortgage to buy a house?
No. A house is not a person, so it cannot be saddled with its owner's debt. A corporation is, and can.
posted by flabdablet at 7:30 PM on June 15, 2023 [44 favorites]
No. A house is not a person, so it cannot be saddled with its owner's debt. A corporation is, and can.
posted by flabdablet at 7:30 PM on June 15, 2023 [44 favorites]
Of course it can, as long as whoever's running it is content to maintain their niche market position and corresponding limits on profitability.
Every publicly traded company I've worked for is run with the concept that if you aren't growing, you are dying. Maintaining healthy, but constant profitability is a good way for shareholders to find a way to replace management.
posted by Dr. Twist at 7:33 PM on June 15, 2023 [6 favorites]
Every publicly traded company I've worked for is run with the concept that if you aren't growing, you are dying. Maintaining healthy, but constant profitability is a good way for shareholders to find a way to replace management.
posted by Dr. Twist at 7:33 PM on June 15, 2023 [6 favorites]
I love using my IP; I call it the Chili Machine. But I eat more than chili, even if it's just frying up burgers or assembling cold cut sandwiches.
posted by Halloween Jack at 7:51 PM on June 15, 2023 [1 favorite]
posted by Halloween Jack at 7:51 PM on June 15, 2023 [1 favorite]
I became (in?)famous for telling my department of software people that if I'd thought any of my kids would've grown up to get an MBA, I would've smothered them in their sleep.
There's nothing business needs to do except provide a valuable service or product at a price people will pay and which will allow the people who make up the business to survive.
Unfortunately, capitalist businesses do nothing but rapaciously devour everything they can get their maws on.
posted by Ickster at 7:51 PM on June 15, 2023 [12 favorites]
There's nothing business needs to do except provide a valuable service or product at a price people will pay and which will allow the people who make up the business to survive.
Unfortunately, capitalist businesses do nothing but rapaciously devour everything they can get their maws on.
posted by Ickster at 7:51 PM on June 15, 2023 [12 favorites]
even if it's just frying up burgers or assembling cold cut sandwiches
ok maybe these instant pots are more versatile than I thought
posted by ryanrs at 7:55 PM on June 15, 2023 [25 favorites]
ok maybe these instant pots are more versatile than I thought
posted by ryanrs at 7:55 PM on June 15, 2023 [25 favorites]
No. A house is not a person, so it cannot be saddled with its owner's debt. A corporation is, and can.
And also, even if it was, a financial instrument that is beneficial when used by individuals does not mean a similar instrument is beneficial when used by corporations.
This is the same trap people fall into who think sovereign governments need to balance their books.
posted by rhymedirective at 7:57 PM on June 15, 2023 [43 favorites]
And also, even if it was, a financial instrument that is beneficial when used by individuals does not mean a similar instrument is beneficial when used by corporations.
This is the same trap people fall into who think sovereign governments need to balance their books.
posted by rhymedirective at 7:57 PM on June 15, 2023 [43 favorites]
When I first saw the news about the bankruptcy, I was like "eh?", did a web search for "Instant Pot", and clicked on the first result which was https://instantpot.com/instant-pot-home/
What was on the page, whose link has not one, but two instances of "Instant Pot" in it? An AIR PURIFIER!
I love my air purifiers but when people go to the instant pot dot com slash instant pot home page, they probably want a pressure cooker and not a generic air purifier that is probably on Amazon for half the price.
posted by meowzilla at 7:59 PM on June 15, 2023 [11 favorites]
What was on the page, whose link has not one, but two instances of "Instant Pot" in it? An AIR PURIFIER!
I love my air purifiers but when people go to the instant pot dot com slash instant pot home page, they probably want a pressure cooker and not a generic air purifier that is probably on Amazon for half the price.
posted by meowzilla at 7:59 PM on June 15, 2023 [11 favorites]
Also I went to that page again, clicked on the "shop now" button on the air purifiers, and I got pressure cookers. It appears that they fail at running a web site in addition to a business.
posted by meowzilla at 8:31 PM on June 15, 2023 [5 favorites]
posted by meowzilla at 8:31 PM on June 15, 2023 [5 favorites]
To be fair, online retail is a pressure cooker environment.
posted by flabdablet at 8:38 PM on June 15, 2023 [16 favorites]
posted by flabdablet at 8:38 PM on June 15, 2023 [16 favorites]
Hmm, thought they'd make it up in volume...
There’s a joke here involving the Ideal Gas Law but I can’t quite stick the landing.
posted by slogger at 9:00 PM on June 15, 2023 [16 favorites]
There’s a joke here involving the Ideal Gas Law but I can’t quite stick the landing.
posted by slogger at 9:00 PM on June 15, 2023 [16 favorites]
A company needs to grow
A company will grow if it deserves to grow, mainly by creating new markets. The iPod, then the iPhone, then the iPad. There's only a limited number if iPods people will buy after all, and if Apple had been content to stop at the iPod they would have remained a relatively small company.
The fact that failure is common doesn't mean that no one should try. The invention of the lightbulb was the culmination of thousands of failed iterations over dozens of different inventors.
There's all this cynicism that you can't be successful creating a good quality product without built in obsolescence. But that's literally how the Japanese and Koreans dominate the auto industry - good quality product, low maintenance costs, good resale value. We bought a Toyota and had to replace 1-2 parts on it over 15 years.
posted by xdvesper at 9:07 PM on June 15, 2023 [4 favorites]
A company will grow if it deserves to grow, mainly by creating new markets. The iPod, then the iPhone, then the iPad. There's only a limited number if iPods people will buy after all, and if Apple had been content to stop at the iPod they would have remained a relatively small company.
The fact that failure is common doesn't mean that no one should try. The invention of the lightbulb was the culmination of thousands of failed iterations over dozens of different inventors.
There's all this cynicism that you can't be successful creating a good quality product without built in obsolescence. But that's literally how the Japanese and Koreans dominate the auto industry - good quality product, low maintenance costs, good resale value. We bought a Toyota and had to replace 1-2 parts on it over 15 years.
posted by xdvesper at 9:07 PM on June 15, 2023 [4 favorites]
On a more serious note…
I took over my family’s small-ish wholesale distribution business about 12 years ago. When I first came back, the mindset was sales at all costs. Make line go up. The company barely turned a profit, but hey, line go up. It took me years to break this mindset. It was only through deliberative management, strong employee retention, strong customer and credit policy, and continual reinvestment that we’ve been able to make the company more profitable. Sure, line doesn’t go up like it used to but I’m able to pay my employees (and myself) a bit better and keep the banks off my back. It’s not hard, just don’t be so fucken greedy.
posted by slogger at 9:12 PM on June 15, 2023 [41 favorites]
I took over my family’s small-ish wholesale distribution business about 12 years ago. When I first came back, the mindset was sales at all costs. Make line go up. The company barely turned a profit, but hey, line go up. It took me years to break this mindset. It was only through deliberative management, strong employee retention, strong customer and credit policy, and continual reinvestment that we’ve been able to make the company more profitable. Sure, line doesn’t go up like it used to but I’m able to pay my employees (and myself) a bit better and keep the banks off my back. It’s not hard, just don’t be so fucken greedy.
posted by slogger at 9:12 PM on June 15, 2023 [41 favorites]
As I see it, a buyout like this has three major parties:
1) Instant Brands: the owners get bought out for $*illions, and go buy a boat or an island and don't have to work any more
2) Private Equity: they get paid $*illions in fees and whatnot for buying out and managing the husk of Instant Brands
3) Lender: they gave $*illions to Private Equity, and lose it when Instant Brands goes bankrupt
I understand 1 & 2 (I like money), but I don't understand 3. Are there more cases of successful leveraged buyouts that we just don't hear about? What's the benefit to a lender when the business case is so poor?
posted by MengerSponge at 11:04 PM on June 15, 2023 [7 favorites]
1) Instant Brands: the owners get bought out for $*illions, and go buy a boat or an island and don't have to work any more
2) Private Equity: they get paid $*illions in fees and whatnot for buying out and managing the husk of Instant Brands
3) Lender: they gave $*illions to Private Equity, and lose it when Instant Brands goes bankrupt
I understand 1 & 2 (I like money), but I don't understand 3. Are there more cases of successful leveraged buyouts that we just don't hear about? What's the benefit to a lender when the business case is so poor?
posted by MengerSponge at 11:04 PM on June 15, 2023 [7 favorites]
It's an interesting idea, but I don't think it is true that there wasn't a business potential in the IP brand. First of all, there are still literally billions of people who don't have electric pressure cookers, and a huge percentage of them are already very comfortable with pressure cookers, more so than most American consumers were when it was first marketed. And it's an energy-saving electric device in an age where we need to cut down on our use of gas. Yes, there are tons of copies, but by all accounts, IP is (was) still the market leader, because of its good construction and UI. So yes, leveraged buyout. Isn't that disgusting?
I was never interested in an IP, because they are so f-ing ugly. I don't want anything that ugly in my home. But that just goes to show where there is room for improvement.
Our family firm went bankrupt during the nineties. My uncle couldn't or wouldn't understand the market changes so that was that. But there was a niche product we produced and sold, where the family of the designer took back the rights. It has been really fascinating to follow. The product was very specifically designed for the healthcare sector, but the family rebranded it as a lifestyle item, changed the finish of the core product, and have also expanded their product line hugely. Out of a little thing, they have built an empire, so cool.
posted by mumimor at 11:32 PM on June 15, 2023 [1 favorite]
I was never interested in an IP, because they are so f-ing ugly. I don't want anything that ugly in my home. But that just goes to show where there is room for improvement.
Our family firm went bankrupt during the nineties. My uncle couldn't or wouldn't understand the market changes so that was that. But there was a niche product we produced and sold, where the family of the designer took back the rights. It has been really fascinating to follow. The product was very specifically designed for the healthcare sector, but the family rebranded it as a lifestyle item, changed the finish of the core product, and have also expanded their product line hugely. Out of a little thing, they have built an empire, so cool.
posted by mumimor at 11:32 PM on June 15, 2023 [1 favorite]
Prohibit leveraged buyouts.
How about we take it a step further? Prohibit buyouts. Corporations should not be allowed to own corporations. What if we lived in that world? How much mischief would that stop?
And a further step: people shouldn't be allowed to own corporations, either, if they're big enough. You start a successful company and it grows to 200 employees and you want to keep growing? Congratulations, you've earned the opportunity to sell your stake to your employees for their new co-op, and run for CEO like we live in a democracy.
posted by biogeo at 12:19 AM on June 16, 2023 [35 favorites]
toodleydoodley: "1. That’s a weird way to describe most people"
The "more than one or two people" creates a lot of wiggle room, so it could be referring to most people, or it could be referring to a much smaller percentage. "One person" households account for 28% (stats) of all households, so if we're looking at "more than one," yeah, this is most people. However, if we're looking at "more than two," that number comes way down: married w/o children is 30%, so those two together already account for 58%. Some portion of "single w/ children" (9%) will also be single + 1 child, and the same goes for "Other family" (9%), some portion of which would be two-person households, "Other nonfamily" (7%), and the huge "Nonfamily households (35%)". If that's including couples that aren't married, that's going to be largely 2 person households, so we're looking at something like 80% or so being people who cook for two (and thus not "more than two")
So it could be referring to most people, or it could be referring to a pretty small group of people.
toodleydoodley: "2. Did they ever consider that even ppl who cook out of necessity might *also* find it creative and relaxing?"
Presumably yes. Not sure why you think the didn't. Like, I cook regularly for more than two people, and I find it creative/relaxing (well, in my case, not creative, just relaxing), but I also do it out of necessity, and if you compared the percentages, I'm definitely in the "more out of necessity than because I find the process relaxing" camp. There's nothing mutually exclusive in that phrasing.
posted by Bugbread at 12:35 AM on June 16, 2023
The "more than one or two people" creates a lot of wiggle room, so it could be referring to most people, or it could be referring to a much smaller percentage. "One person" households account for 28% (stats) of all households, so if we're looking at "more than one," yeah, this is most people. However, if we're looking at "more than two," that number comes way down: married w/o children is 30%, so those two together already account for 58%. Some portion of "single w/ children" (9%) will also be single + 1 child, and the same goes for "Other family" (9%), some portion of which would be two-person households, "Other nonfamily" (7%), and the huge "Nonfamily households (35%)". If that's including couples that aren't married, that's going to be largely 2 person households, so we're looking at something like 80% or so being people who cook for two (and thus not "more than two")
So it could be referring to most people, or it could be referring to a pretty small group of people.
toodleydoodley: "2. Did they ever consider that even ppl who cook out of necessity might *also* find it creative and relaxing?"
Presumably yes. Not sure why you think the didn't. Like, I cook regularly for more than two people, and I find it creative/relaxing (well, in my case, not creative, just relaxing), but I also do it out of necessity, and if you compared the percentages, I'm definitely in the "more out of necessity than because I find the process relaxing" camp. There's nothing mutually exclusive in that phrasing.
posted by Bugbread at 12:35 AM on June 16, 2023
MengerSponge, you left out #4
4) The employees, who lose their jobs when a good company making a desirable product goes bankrupt.
posted by eye of newt at 12:50 AM on June 16, 2023 [7 favorites]
4) The employees, who lose their jobs when a good company making a desirable product goes bankrupt.
posted by eye of newt at 12:50 AM on June 16, 2023 [7 favorites]
So the headline and post title are a lie - it was killed by private equity, not by any success.
posted by Dysk at 1:09 AM on June 16, 2023 [15 favorites]
posted by Dysk at 1:09 AM on June 16, 2023 [15 favorites]
> Isn't a leveraged buyout the PE equivalent of using a mortgage to buy a house?
It is kind of close if the model is buying the house with a loan, then - rather than just living in the house yourself - renting out the house to others in order to make the monthly payments on the loan.
It is closer yet if part of the plan is to gradually strip the house of its furnishings and anything saleable, and the loan is set up in such a way that using the profit from those sales, together with the rents collected, is the only realistic way to keep making the monthly payments.
It is closer yet if whole plan for profitability turns on the idea of stripping those assets of the house at maximum speed over a relatively short period of time, patching it up quickly with the cheapest possible materials so that it looks pretty good at a cursory glance, and then selling the house at full value to some other sucker, who will pay the regular going price for a house of, say 2500 sq ft with a 1/4 acre yard, without quite realizing the degree to which the value has been stripped from the property behind the scenes and in non-obvious ways, and covered up by a few cheap garbage tricks.
Closer yet if you're taking care to pay yourself hefty fees as the real estate agent, property manager, asset liquidator, maintenance and construction company, etc etc etc, of the property at each of these transaction points.
So yeah, it's actually exactly like the average everyday mortgage with only a few minor caveats . . .
posted by flug at 1:20 AM on June 16, 2023 [35 favorites]
It is kind of close if the model is buying the house with a loan, then - rather than just living in the house yourself - renting out the house to others in order to make the monthly payments on the loan.
It is closer yet if part of the plan is to gradually strip the house of its furnishings and anything saleable, and the loan is set up in such a way that using the profit from those sales, together with the rents collected, is the only realistic way to keep making the monthly payments.
It is closer yet if whole plan for profitability turns on the idea of stripping those assets of the house at maximum speed over a relatively short period of time, patching it up quickly with the cheapest possible materials so that it looks pretty good at a cursory glance, and then selling the house at full value to some other sucker, who will pay the regular going price for a house of, say 2500 sq ft with a 1/4 acre yard, without quite realizing the degree to which the value has been stripped from the property behind the scenes and in non-obvious ways, and covered up by a few cheap garbage tricks.
Closer yet if you're taking care to pay yourself hefty fees as the real estate agent, property manager, asset liquidator, maintenance and construction company, etc etc etc, of the property at each of these transaction points.
So yeah, it's actually exactly like the average everyday mortgage with only a few minor caveats . . .
posted by flug at 1:20 AM on June 16, 2023 [35 favorites]
I'll be here with my awesome stovetop pressure cooker from the YMCA store.
posted by parmanparman at 1:20 AM on June 16, 2023 [3 favorites]
posted by parmanparman at 1:20 AM on June 16, 2023 [3 favorites]
>2) Private Equity: they get paid $*illions in fees and whatnot for buying out and managing the husk of Instant Brands
>3) Lender: they gave $*illions to Private Equity, and lose it when Instant Brands goes bankrupt
There are usually few steps in between #2 and #3, such as a quick juicing of the company to make it look more appealing to stock investors and then moving to a IPO (a typical strategy is large layoffs to improve short-term profit margins, then quickly moving to the IPO before the longer-term effects of destroying the company's knowledge capital come into play), breaking up the company into multiple smaller units and selling them off (for various reasons multiple small businesses often can often be sold for more, in total, than trying to sell the exact same businesses unified together into one single larger company), and other such tricks.
I don't understand them all in detail, or I suppose I would be a filthy rich private equity investor.
But in short they are arbitraging various quirks of the market system, banking system, tax system, financial system, and stock market, with larg-ish companies as their subject.
It requires quite a lot of know-how AND large quantities of cash AND very good access to the finance/banking/political system to make all this work, which is one reason such large arbitrage opportunities still exist.
If it were easy & cheap to do, everyone would be doing it to the hilt, and the arbitrage opportunities would be measured in pennies rather than $*illions.
posted by flug at 1:37 AM on June 16, 2023 [6 favorites]
>3) Lender: they gave $*illions to Private Equity, and lose it when Instant Brands goes bankrupt
There are usually few steps in between #2 and #3, such as a quick juicing of the company to make it look more appealing to stock investors and then moving to a IPO (a typical strategy is large layoffs to improve short-term profit margins, then quickly moving to the IPO before the longer-term effects of destroying the company's knowledge capital come into play), breaking up the company into multiple smaller units and selling them off (for various reasons multiple small businesses often can often be sold for more, in total, than trying to sell the exact same businesses unified together into one single larger company), and other such tricks.
I don't understand them all in detail, or I suppose I would be a filthy rich private equity investor.
But in short they are arbitraging various quirks of the market system, banking system, tax system, financial system, and stock market, with larg-ish companies as their subject.
It requires quite a lot of know-how AND large quantities of cash AND very good access to the finance/banking/political system to make all this work, which is one reason such large arbitrage opportunities still exist.
If it were easy & cheap to do, everyone would be doing it to the hilt, and the arbitrage opportunities would be measured in pennies rather than $*illions.
posted by flug at 1:37 AM on June 16, 2023 [6 favorites]
I understand 1 & 2 (I like money), but I don't understand 3. Are there more cases of successful leveraged buyouts that we just don't hear about? What's the benefit to a lender when the business case is so poor?
So we have a saying, that there's no such thing as a bad product.
However, there are badly priced products.
One clear example of this is in the design and pricing of computer chips or graphics processing units. AMD vs Intel, or AMD vs NVIDIA, each takes certain risks in the design of their products and often cannot predict the performance of the final product. Sometimes their product performs better than expected, sometimes worse. However, there is no such thing as a BAD chip or graphics processing unit, because they are always priced commensurate with their performance. If a chip has low performance, and the customer is only willing to pay $200 for it because how alternatives are priced, then it will go on the shelf for $200, and that $200 will represent fair value for the consumer. The chip maker, on the back end, could make a loss on it, but we're focusing on the buyer here - from the buyer's perspective, every product is priced fairly.
The investment banks connect lenders with investment opportunities. The "price" is the interest rate, or yield on the debt. The riskier the investment, the higher the yield. If both sides have done their due diligence, the additional yield would compensate you for the probability of failure.
During the GFC, I seem to recall that you could buy GM debt for about $0.07 on the dollar, which meant that the market was roughly pricing in a 93% probability of bankruptcy. If you invested $700 and GM didn't go bankrupt, you would have turned it into $10,000 and become rich. But it turns out that GM did indeed go bankrupt.
At the same time Ford debt was being priced at about $0.15 on the dollar. If you had invested $1,500 you would have come out with $10,000. Ford didn't go bankrupt in the end and repaid its debts.
The lender will also want to see the acquiring company pony up at least half the money required - they should have skin in the game and the confidence to bet their own money that their takeover will be profitable, due to information asymmetry. (lender has less information than the acquiring company).
posted by xdvesper at 1:43 AM on June 16, 2023 [3 favorites]
So we have a saying, that there's no such thing as a bad product.
However, there are badly priced products.
One clear example of this is in the design and pricing of computer chips or graphics processing units. AMD vs Intel, or AMD vs NVIDIA, each takes certain risks in the design of their products and often cannot predict the performance of the final product. Sometimes their product performs better than expected, sometimes worse. However, there is no such thing as a BAD chip or graphics processing unit, because they are always priced commensurate with their performance. If a chip has low performance, and the customer is only willing to pay $200 for it because how alternatives are priced, then it will go on the shelf for $200, and that $200 will represent fair value for the consumer. The chip maker, on the back end, could make a loss on it, but we're focusing on the buyer here - from the buyer's perspective, every product is priced fairly.
The investment banks connect lenders with investment opportunities. The "price" is the interest rate, or yield on the debt. The riskier the investment, the higher the yield. If both sides have done their due diligence, the additional yield would compensate you for the probability of failure.
During the GFC, I seem to recall that you could buy GM debt for about $0.07 on the dollar, which meant that the market was roughly pricing in a 93% probability of bankruptcy. If you invested $700 and GM didn't go bankrupt, you would have turned it into $10,000 and become rich. But it turns out that GM did indeed go bankrupt.
At the same time Ford debt was being priced at about $0.15 on the dollar. If you had invested $1,500 you would have come out with $10,000. Ford didn't go bankrupt in the end and repaid its debts.
The lender will also want to see the acquiring company pony up at least half the money required - they should have skin in the game and the confidence to bet their own money that their takeover will be profitable, due to information asymmetry. (lender has less information than the acquiring company).
posted by xdvesper at 1:43 AM on June 16, 2023 [3 favorites]
flug, so Private Equity Leveraged Buyouts are like flipping real estate to Airbnbs?
Yeah, let's ban both.
posted by I claim sanctuary at 1:44 AM on June 16, 2023 [9 favorites]
Yeah, let's ban both.
posted by I claim sanctuary at 1:44 AM on June 16, 2023 [9 favorites]
Reminds me of the story about how crocs reached market saturation because they last forever, but at least you can sell those in different colors to the same person.
posted by subdee at 5:18 AM on June 16, 2023
posted by subdee at 5:18 AM on June 16, 2023
I find the instant pot to be very useful for two person meals, FWIW.
posted by Artw at 5:21 AM on June 16, 2023 [4 favorites]
posted by Artw at 5:21 AM on June 16, 2023 [4 favorites]
Home mortgages are leveraged buyouts.
Even most of the pushback against this statement seems to accept that mortgages are good and necessary and not like, another shambling horror of latestage capitalism.
posted by aspersioncast at 6:01 AM on June 16, 2023
Even most of the pushback against this statement seems to accept that mortgages are good and necessary and not like, another shambling horror of latestage capitalism.
posted by aspersioncast at 6:01 AM on June 16, 2023
I guarantee you I don’t feel about my mortgage on the place I live that I actually need to pay each month the way PEs feel about dumping debt on their latest victim.
posted by Artw at 6:04 AM on June 16, 2023 [2 favorites]
posted by Artw at 6:04 AM on June 16, 2023 [2 favorites]
“Mortgage” covers a lot of ground.
The 30 year fixed rate mortgage has been around for nearly 100 years in the US, and has allowed countless families to afford high quality housing while making consistent, reasonable, affordable payments. It’s neither evil nor a part of “late stage capitalism.”
The interest-only, derivative backed “no job no income” mortgages of the early 2000s ruined lives, bankrupted people while enriching banks, and crashed the global economy.
All debt is a tool. You can use a hammer to build a bird house, or murder someone. Neither is the hammer’s fault.
posted by Frayed Knot at 6:29 AM on June 16, 2023 [5 favorites]
The 30 year fixed rate mortgage has been around for nearly 100 years in the US, and has allowed countless families to afford high quality housing while making consistent, reasonable, affordable payments. It’s neither evil nor a part of “late stage capitalism.”
The interest-only, derivative backed “no job no income” mortgages of the early 2000s ruined lives, bankrupted people while enriching banks, and crashed the global economy.
All debt is a tool. You can use a hammer to build a bird house, or murder someone. Neither is the hammer’s fault.
posted by Frayed Knot at 6:29 AM on June 16, 2023 [5 favorites]
Eh, inherent morality of debt aside, mortgages in the US have by and large been tools of white supremacy meant to raise whiteness to the top. Though, any tool in the hands of Capital in the United States will ultimately bend toward the US' founding purpose as a white Christian man's purchasing co-op for slaves and stolen land. But yeah, in the US, evil by most metrics imo.
posted by CPAnarchist at 6:47 AM on June 16, 2023 [1 favorite]
posted by CPAnarchist at 6:47 AM on June 16, 2023 [1 favorite]
crocs reached market saturation because they last foreverI've had to replace crocs when the soles wore down until there were holes in them.
Relatedly I'm worried that the pressure cook button on my Instant Pot is wearing out. (Luckily several other buttons also start it pressure cooking.)
I've considered getting a second instant pot just because sometimes I want to make rice in addition to the main IP dish and it can be annoying to need to wait another 15 minutes.
posted by joeyh at 6:50 AM on June 16, 2023 [6 favorites]
Yeah, after I hit post I realized I should have mentioned redlining.
It's disgusting, and you're completely correct. But the US is gonna be the US, no matter what. If mortgages didn't exist the government would have found some other way to support White Supremacy, as its has for it's entire history.
posted by Frayed Knot at 6:51 AM on June 16, 2023 [2 favorites]
It's disgusting, and you're completely correct. But the US is gonna be the US, no matter what. If mortgages didn't exist the government would have found some other way to support White Supremacy, as its has for it's entire history.
posted by Frayed Knot at 6:51 AM on June 16, 2023 [2 favorites]
I love my IP so much. If you ever had occasion to take it apart (well, take the bottom off, to clean up after a spill), you'd appreciate how much thoughtful design went into it. It's a really well made device. I'll be sad when ours dies. I am half tempted to just buy another one now and keep it mint in box against the future.
posted by seanmpuckett at 7:08 AM on June 16, 2023 [6 favorites]
posted by seanmpuckett at 7:08 AM on June 16, 2023 [6 favorites]
I think the miskeading element here is the idea that The Instant Pot itself failed in any meaningful way. The product didn't fail. The product is fine and the product will, without a doubt, continue to exist, even if sales have slowed somewhat. The ownership and debt structure failed (although probably fairly intentionally) and the intellectual property (any extant patents, trademarks) may be sold again to another company that will cut costs and continue to make Instant Pots. The product itself may eventually fall out of the market because of patent expiry and the damage done to a brand name by years of cost cutting and better innovation by other makers, but this is not that point.
posted by jacquilynne at 7:38 AM on June 16, 2023 [6 favorites]
posted by jacquilynne at 7:38 AM on June 16, 2023 [6 favorites]
that fucking 'burn' message
This is what "pot in pot" is for. Which for some reason people have trouble describing with clarity, so -- you put the water in the liner, to generate the pressure; you put a trivet in the water, you put another pot on top of the trivet and cook in that.
There are kits for stacking small pots inside the IP, kind of like a steamer basket but with a little space between the levels.
I've considered getting a second instant pot just because sometimes I want to make rice in addition to the main IP dish
I really want an Ultra Mini because I'm attached to the knob interface in my bigger Ultra, but apparently they had a very short production run, and the eBay sellers know it.
posted by snuffleupagus at 8:20 AM on June 16, 2023 [3 favorites]
This is what "pot in pot" is for. Which for some reason people have trouble describing with clarity, so -- you put the water in the liner, to generate the pressure; you put a trivet in the water, you put another pot on top of the trivet and cook in that.
There are kits for stacking small pots inside the IP, kind of like a steamer basket but with a little space between the levels.
I've considered getting a second instant pot just because sometimes I want to make rice in addition to the main IP dish
I really want an Ultra Mini because I'm attached to the knob interface in my bigger Ultra, but apparently they had a very short production run, and the eBay sellers know it.
posted by snuffleupagus at 8:20 AM on June 16, 2023 [3 favorites]
Strictly speaking, preferences are w/in 90 days of the bankruptcy filing
The lookback period is a year for insiders, 11 U.S.C. § 547(b)(4)(B).
Also, you've left out dividend recaps, of which I understand there have been plenty lately (the Bloomberg article this week (?) is sadly gated).
posted by praemunire at 8:21 AM on June 16, 2023 [1 favorite]
The lookback period is a year for insiders, 11 U.S.C. § 547(b)(4)(B).
Also, you've left out dividend recaps, of which I understand there have been plenty lately (the Bloomberg article this week (?) is sadly gated).
posted by praemunire at 8:21 AM on June 16, 2023 [1 favorite]
A company will grow if it deserves to grow, mainly by creating new markets. The iPod, then the iPhone, then the iPad.
The model here was very clearly Cuisinart or KitchenAid (as vs. brands like Champion, Robo Coupe or ThermoMix, which still do one thing well and remain largely unknown outside their narrower markets).
But even Cuisinart doesn't try to market hyped up versions of Conair's air purifiers (last I checked, anyway). Whirlpool pushes it a bit more with KitchenAid badging, and a lot of those products do go nowhere. But Whirlpool can afford it.
dividend recaps
Even if way up, probably a return to normal after 2022 (globally)?
posted by snuffleupagus at 8:38 AM on June 16, 2023
The model here was very clearly Cuisinart or KitchenAid (as vs. brands like Champion, Robo Coupe or ThermoMix, which still do one thing well and remain largely unknown outside their narrower markets).
But even Cuisinart doesn't try to market hyped up versions of Conair's air purifiers (last I checked, anyway). Whirlpool pushes it a bit more with KitchenAid badging, and a lot of those products do go nowhere. But Whirlpool can afford it.
dividend recaps
Even if way up, probably a return to normal after 2022 (globally)?
posted by snuffleupagus at 8:38 AM on June 16, 2023
I've been wavering on whether to get a small instant pot (cooking for one person but leftovers are handy) for a while, does the bankruptcy mean I should do it now while they're still around?
posted by rivenwanderer at 9:08 AM on June 16, 2023
posted by rivenwanderer at 9:08 AM on June 16, 2023
Hmm, thought they'd make it up in volume...
There’s a joke here
posted by thecincinnatikid at 10:47 AM on June 16, 2023
There’s a joke here
posted by thecincinnatikid at 10:47 AM on June 16, 2023
There are kits for stacking small pots inside the IP, kind of like a steamer basket but with a little space between the levels.
my bad i didn't know i had to accessorize with matryoshka pots. the recipe for 'EZ pork picnic' didn't specify and i dumped everything in the lone pot that was provided like a common dullard. shoulda been named 'instant potS'
also: yo dawg i heard you like to pressure cook, so i put a pot in your pot so you can burn while you burn.
posted by logicpunk at 10:48 AM on June 16, 2023 [2 favorites]
my bad i didn't know i had to accessorize with matryoshka pots. the recipe for 'EZ pork picnic' didn't specify and i dumped everything in the lone pot that was provided like a common dullard. shoulda been named 'instant potS'
also: yo dawg i heard you like to pressure cook, so i put a pot in your pot so you can burn while you burn.
posted by logicpunk at 10:48 AM on June 16, 2023 [2 favorites]
eponylegit, keep putting water on your food and not expecting soup.
posted by snuffleupagus at 10:58 AM on June 16, 2023
posted by snuffleupagus at 10:58 AM on June 16, 2023
Superheated steam (like pot-within-pot pressure cooking) is incredibly useful. It provides perfect heat conduction and controllable sub-to-super boiling temperature control without adding excess moisture. Not to be mocked at all. A commercial cooking appliance with a similar function is the steam-jacketed kettle, which is a large bowl-within-a-bowl with the section in between sealed tight and heated with steam to whatever temperature you need. (The food itself is not pressure sealed, though.) Much better than almost any other kind of heating for speed, control, and over-shoot protection leading to charring/burning.
posted by seanmpuckett at 11:26 AM on June 16, 2023 [2 favorites]
posted by seanmpuckett at 11:26 AM on June 16, 2023 [2 favorites]
Anyway, I make pulled pork by throwing all the pork in the pot, smushing it down, adding my spices/seasoning, then tossing in a cup of water and pressure cook it. Some liquid does result but it's extremely concentrated and perfect stock for making soup. As for the meat, holy moly.
posted by seanmpuckett at 11:29 AM on June 16, 2023 [5 favorites]
posted by seanmpuckett at 11:29 AM on June 16, 2023 [5 favorites]
I don't have one of these pots but the idea that the company that makes Pyrex is broke stuns my mind a little.
posted by thatwhichfalls at 11:38 AM on June 16, 2023 [3 favorites]
posted by thatwhichfalls at 11:38 AM on June 16, 2023 [3 favorites]
Dividend recaps are a thing, yes. I'm not sure that I missed them given the context of my comment,
If you're talking about the money to be made by the entities involved in an LBO, I'd say dividend recaps are a meaningful omission.
given that I practice in this field of law I was fully expecting to be corrected by someone who does not.
I've never carried out an LBO, but I've spent significant time in the past investigating private equity funds on behalf of LPs. I feel comfortable having an opinion.
posted by praemunire at 11:58 AM on June 16, 2023 [1 favorite]
If you're talking about the money to be made by the entities involved in an LBO, I'd say dividend recaps are a meaningful omission.
given that I practice in this field of law I was fully expecting to be corrected by someone who does not.
I've never carried out an LBO, but I've spent significant time in the past investigating private equity funds on behalf of LPs. I feel comfortable having an opinion.
posted by praemunire at 11:58 AM on June 16, 2023 [1 favorite]
I got mine in 2012 and still using it occasionally but it was a mild disappointment for me. It's an ok pressure cooker with the usual crappy controls found on modern appliances. That's all.
posted by donio at 12:02 PM on June 16, 2023 [1 favorite]
posted by donio at 12:02 PM on June 16, 2023 [1 favorite]
I got a job in 2014 at the plant where they make Corelle. This was pre-merger with Instant Pot but at some point the merger happened and I was given more instant pots than I could use if I wanted to during the holiday ‘employee loyalty’ bribe events around the holidays. It was a commonplace when I started working, among my fellow union workers, there that the company was going to go bankrupt within ten years. I quit about a year ago, after 8 years there, and here we are.
posted by Whale Oil at 2:45 PM on June 16, 2023 [2 favorites]
posted by Whale Oil at 2:45 PM on June 16, 2023 [2 favorites]
I realise people say these sorts of things all the time as a sort of emotional gesture, but I quite genuinely, logically and dispassionately believe that venture capital is to capitalist economies what cancer is to organisms.
posted by Grangousier at 2:52 PM on June 16, 2023 [4 favorites]
posted by Grangousier at 2:52 PM on June 16, 2023 [4 favorites]
(Or, alternatively, it's like one of those grotesque insect relationships, where an ant takes over the central nervous system of a wasp or something and the wasp is dead, but it's still moving and seems to be alive but no it's a zombie wasp and sooner or later the ant will lose interest and move on to another wasp and cast the wasp husk aside. Anyway, that's what venture capital is.)
posted by Grangousier at 2:55 PM on June 16, 2023 [3 favorites]
posted by Grangousier at 2:55 PM on June 16, 2023 [3 favorites]
(And of course I meant private equity there. replace one with the other. That's the problem, you get so carried away with your rhetorical flourishes, you forget to check the actual words.)
posted by Grangousier at 2:57 PM on June 16, 2023 [2 favorites]
posted by Grangousier at 2:57 PM on June 16, 2023 [2 favorites]
Is this sort of like what happened with Cuisinart in the 1980s? They wanted some cash, got some financing, and their creditors ate them. (Or so I understand.)
posted by CCBC at 3:50 PM on June 16, 2023
posted by CCBC at 3:50 PM on June 16, 2023
flabdablet: A house is not a person, so it cannot be saddled with its owner's debt. A corporation is, and can.
I understand that's "corporate personhood," a fact-in-law in your jurisdiction but it involves making a number of choices that give money more rights than a bunch of citizens.
posted by k3ninho at 4:07 PM on June 16, 2023
I understand that's "corporate personhood," a fact-in-law in your jurisdiction but it involves making a number of choices that give money more rights than a bunch of citizens.
posted by k3ninho at 4:07 PM on June 16, 2023
Mod note: [btw, this post has been sidebarred]
posted by taz (staff) at 1:53 AM on June 17, 2023 [1 favorite]
posted by taz (staff) at 1:53 AM on June 17, 2023 [1 favorite]
The positive case for the private equity rip off job is that they find companies that are using a lot of resources in the economy and not producing enough. They put those resources — capital, workers — back into the pool to be reallocated.
Once Instant Pot demonstrated that there was a market for the electric pressure cooker and sold one to everyone who wanted one and then some, maybe they’ve done what they needed to do for the world and the most productive thing they could do is feed the sharks. Ongoing demand for pressure cookers can be met by other companies.
posted by chrchr at 6:35 AM on June 17, 2023
Once Instant Pot demonstrated that there was a market for the electric pressure cooker and sold one to everyone who wanted one and then some, maybe they’ve done what they needed to do for the world and the most productive thing they could do is feed the sharks. Ongoing demand for pressure cookers can be met by other companies.
posted by chrchr at 6:35 AM on June 17, 2023
Hope there’s no patents attached to anything they’re doing.
posted by Artw at 7:03 AM on June 17, 2023
posted by Artw at 7:03 AM on June 17, 2023
the idea that the company that makes Pyrex is broke stuns my mind a little.
That makes the glassware marketed as Pyrex, now. When you can't actually produce Pyrex (as in borosilicate, for good reason), then sooner or later you get Anchor Hockinged.
Still, the people suddenly paying widly inflated sums to buy Cornflower Blue Corningware on eBay (let alone the other, rarer patterns) due to this bankruptcy are getting wildly bilked.
The core brands (IP, Pyrex, Corelle) will survive one way or another; and ultimately the market for vintage cookingware will recede to the people actually interested in using it as it always does.
posted by snuffleupagus at 12:46 PM on June 17, 2023 [2 favorites]
That makes the glassware marketed as Pyrex, now. When you can't actually produce Pyrex (as in borosilicate, for good reason), then sooner or later you get Anchor Hockinged.
Still, the people suddenly paying widly inflated sums to buy Cornflower Blue Corningware on eBay (let alone the other, rarer patterns) due to this bankruptcy are getting wildly bilked.
The core brands (IP, Pyrex, Corelle) will survive one way or another; and ultimately the market for vintage cookingware will recede to the people actually interested in using it as it always does.
posted by snuffleupagus at 12:46 PM on June 17, 2023 [2 favorites]
Gretchen Morgenson on Private Equity [transcript] - "The Pulitizer price winning investigative journalist is the author of a new book, These Are the Plunderers: How Private Equity Runs―and Wrecks―America."
posted by kliuless at 11:00 AM on June 18, 2023 [4 favorites]
posted by kliuless at 11:00 AM on June 18, 2023 [4 favorites]
I wouldn't mind picking up another Instant Pot for cheap, and reserve using it for just yogurt.
I stopped making it in my current one because those sealing rings tend to hold onto whatever you cooked last (yes I know you can swap them, but it's a pain and doesn't always do the trick).
I learned this the hard way after making a generous portion of onion-flavored full fat yogurt, mmmmm.
posted by jeremias at 11:29 AM on June 18, 2023 [3 favorites]
I stopped making it in my current one because those sealing rings tend to hold onto whatever you cooked last (yes I know you can swap them, but it's a pain and doesn't always do the trick).
I learned this the hard way after making a generous portion of onion-flavored full fat yogurt, mmmmm.
posted by jeremias at 11:29 AM on June 18, 2023 [3 favorites]
Spare liners are sold by a number of vendors (I got a nonstick one that I now use for curries and etc), and spare lids can be had on ebay for around $35.
posted by snuffleupagus at 2:17 PM on June 18, 2023 [2 favorites]
posted by snuffleupagus at 2:17 PM on June 18, 2023 [2 favorites]
"corporate personhood," a fact-in-law in your jurisdiction but it involves making a number of choices that give money more rights than a bunch of citizens
The only such choice relevant to determining whether a leveraged buyout can reasonably be thought of as something akin to a scaled-up house mortgage is whether or not the law treats the thing being bought via debt financing as capable of being held responsible for its own debts, which corporations routinely can and do, but assets such as houses cannot.
Once a PE outfit acquires ownership of a corporation, there are all kinds of ways in which that corporation can be made to take on some of the PE outfit's debt. Often, the extra debt that the corporation is made to take on is exactly the amount that the PE outfit borrowed to acquire it in the first place. Once that's done, then provided that the corporation can be gussied up enough to look attractive to new purchasers even with its now-increased debt to equity ratio, then the PE outfit can sell it on for more than it bought it for without ever having to repay its "mortgage"; the corporation itself, rather than the PE outfit, has become the party responsible for doing that.
Stripped of all the ownership manoeuvring, this is as if Mallory borrows an enormous sum from Alice, then coerces Bob into taking on the responsibility for paying that back. Bob might get it together to pay back Alice's loan, or might go bankrupt while trying, but in no case is that Mallory's problem any more; Mallory just walks away with pockets jingling with coin and a strong incentive to run the same play on Carol and Dave.
This is very different to the closest parallel involving a mortgaged house, where Frank uses a mortgage to buy a property, renovates it to increase its market value, then resells and pays back the loan from the proceeds. Frank cannot rid himself of the obligation to repay the loan by transferring that to the house itself, because the house is merely his asset rather than being a business entity in its own right, and his profit reflects how much work he did on the house rather than how much he was initially able to borrow.
posted by flabdablet at 8:08 PM on June 18, 2023 [8 favorites]
The only such choice relevant to determining whether a leveraged buyout can reasonably be thought of as something akin to a scaled-up house mortgage is whether or not the law treats the thing being bought via debt financing as capable of being held responsible for its own debts, which corporations routinely can and do, but assets such as houses cannot.
Once a PE outfit acquires ownership of a corporation, there are all kinds of ways in which that corporation can be made to take on some of the PE outfit's debt. Often, the extra debt that the corporation is made to take on is exactly the amount that the PE outfit borrowed to acquire it in the first place. Once that's done, then provided that the corporation can be gussied up enough to look attractive to new purchasers even with its now-increased debt to equity ratio, then the PE outfit can sell it on for more than it bought it for without ever having to repay its "mortgage"; the corporation itself, rather than the PE outfit, has become the party responsible for doing that.
Stripped of all the ownership manoeuvring, this is as if Mallory borrows an enormous sum from Alice, then coerces Bob into taking on the responsibility for paying that back. Bob might get it together to pay back Alice's loan, or might go bankrupt while trying, but in no case is that Mallory's problem any more; Mallory just walks away with pockets jingling with coin and a strong incentive to run the same play on Carol and Dave.
This is very different to the closest parallel involving a mortgaged house, where Frank uses a mortgage to buy a property, renovates it to increase its market value, then resells and pays back the loan from the proceeds. Frank cannot rid himself of the obligation to repay the loan by transferring that to the house itself, because the house is merely his asset rather than being a business entity in its own right, and his profit reflects how much work he did on the house rather than how much he was initially able to borrow.
posted by flabdablet at 8:08 PM on June 18, 2023 [8 favorites]
I've never understood the soft-left Liz Warren Democrat perspective that capitalism is basically great, except for a weird grab-bag of basically technocratic gripes over LBOs, stock-buy-backs, interest cost expensability, MBAs, Elon Musk personally, etc. If you don't like capitalism then, yeah, of course you're against those things but also against public equity markets and the whole system, otherwise it seems like such an idiosyncratic few things to be concerned about.
"corporate personhood," a fact-in-law in your jurisdiction but it involves making a number of choices that give money more rights than a bunch of citizens
Corporations existing at all requires "corporate personhood", they are the same thing. What is uniquely unhinged about the United States in recent years is the lunatic decision that this goes further than being able to sign contracts etc. and that "personhood" means that rights intended for natural persons should be extended to corporations. This is completely different from the useful theoretical idea of corporate legal personhood.
Ironically, when people get upset about PE "killing" companies, to me they look oddly like Mitt Romney telling us that "corporations are people, my friends", it's taking a good idea a little far. Companies are not alive and a company entering bankruptcy is not a person being murdered. When the underlying business is profitable, it continues to run through and after bankruptcy and it is the equity owners and creditors who get it in the neck. So what? Those people assumed the risk and they don't need our sympathy. Workers in business with sound operating models (i.e. they can pay their non-debt related bills just fine) don't typically lose their jobs as part of this process.
The most visible PE-mediated corporate failures have been in retail, an industry where failures have been rife in recent decades for structural reasons. Where are the examples of companies with healthy operations where large numbers of workers lost their jobs?
I understand 1 & 2 (I like money yt ), but I don't understand 3. Are there more cases of successful leveraged buyouts that we just don't hear about? What's the benefit to a lender when the business case is so poor?
Obviously the vast majority of leveraged buyouts are in fact successful, otherwise nobody would do them! The fact that lenders and equity buyers make sure to protect their downside doesn't mean that they make money on failed deals like this, just that they don't lose all their money when it goes wrong.
They (Instant Brands) were purchased by a private equity firm Cornell Capital in 2017. Odds are Instant Brands were raided and gutted and their bankrupt husk is being tossed aside for their profit.
What's interesting in this case is it's the exact opposite of the usual criticism of private equity which is that they cut R&D, don't invest in growth, and run the business as hard and lean as they can to extract every bit of money from it. I see that many comments like flug's make exactly this mistake. You're complaining about asset stripping when this is literally the opposite.
In this case they borrowed loads of money precisely in order to develop new product lines and grow the company. It's not that clear that this is that distinct from the business itself, pre PE takeover doing the exact same thing. Lots of management teams become overconfident, borrow too much money to expand and then go bankrupt when that fails to work.
Leveraged buyouts are unbelievable. It's one of those things that would be totally unthinkable to allow normal people to do with actual money and property. You make the target company borrow the money to pay back the money that you used to buy it, plus it also borrows to pay your fees. (Oh and you get to decide your fees). It's like the Dukes of Moral Hazard.
Not only do we secure commercial and residential mortgages on the property that we used that money to buy, this is also the most common way of people selling each other small businesses, including through what are effectively management buy-outs. A big loan to pay off the previous owners, followed by a few years where that loan gets repaid. Sure, a property is not a legal entity which can have debt assigned to it, only secured on it but I don't really the meaningful difference in economic fundamentals. Either way you're securing a loan based on the cashflows of an asset. If you live in a non-recourse state in the US then this is even more true for residential mortgages because if you're willing to give up your equity in the asset, then you have the same kind of legal distance from the debt as the owner of a limited company.
So in terms of economic fundamentals, I don't see why in flabdablet's example, Frank cannot rid himself of the obligation in a downside scenario by walking away from his investment in a house in a non-recourse state.
The 30 year fixed rate mortgage has been around for nearly 100 years in the US, and has allowed countless families to afford high quality housing while making consistent, reasonable, affordable payments. It’s neither evil nor a part of “late stage capitalism.”
The interest-only, derivative backed “no job no income” mortgages of the early 2000s ruined lives, bankrupted people while enriching banks, and crashed the global economy.
It is precisely US government managed structured finance which makes fixed rate mortgages possible. Variable rate mortgages, especially interest only are actually a much simpler financial product and much less risky for the banking system. Before the US government stepped in to do some fancy financial engineering under FDR, it was variable rate mortgages which were available and "normal" and variable rates with short fixes are still what most of the world uses by financial necessity. It's transforming a variable rate wholesale funding market (i.e. banks borrow at variable rate) to a fixed rate loan to Joe Q. Public that creates a derivatives and structured finance world in the first place.
posted by atrazine at 7:36 AM on June 19, 2023
"corporate personhood," a fact-in-law in your jurisdiction but it involves making a number of choices that give money more rights than a bunch of citizens
Corporations existing at all requires "corporate personhood", they are the same thing. What is uniquely unhinged about the United States in recent years is the lunatic decision that this goes further than being able to sign contracts etc. and that "personhood" means that rights intended for natural persons should be extended to corporations. This is completely different from the useful theoretical idea of corporate legal personhood.
Ironically, when people get upset about PE "killing" companies, to me they look oddly like Mitt Romney telling us that "corporations are people, my friends", it's taking a good idea a little far. Companies are not alive and a company entering bankruptcy is not a person being murdered. When the underlying business is profitable, it continues to run through and after bankruptcy and it is the equity owners and creditors who get it in the neck. So what? Those people assumed the risk and they don't need our sympathy. Workers in business with sound operating models (i.e. they can pay their non-debt related bills just fine) don't typically lose their jobs as part of this process.
The most visible PE-mediated corporate failures have been in retail, an industry where failures have been rife in recent decades for structural reasons. Where are the examples of companies with healthy operations where large numbers of workers lost their jobs?
I understand 1 & 2 (I like money yt ), but I don't understand 3. Are there more cases of successful leveraged buyouts that we just don't hear about? What's the benefit to a lender when the business case is so poor?
Obviously the vast majority of leveraged buyouts are in fact successful, otherwise nobody would do them! The fact that lenders and equity buyers make sure to protect their downside doesn't mean that they make money on failed deals like this, just that they don't lose all their money when it goes wrong.
They (Instant Brands) were purchased by a private equity firm Cornell Capital in 2017. Odds are Instant Brands were raided and gutted and their bankrupt husk is being tossed aside for their profit.
What's interesting in this case is it's the exact opposite of the usual criticism of private equity which is that they cut R&D, don't invest in growth, and run the business as hard and lean as they can to extract every bit of money from it. I see that many comments like flug's make exactly this mistake. You're complaining about asset stripping when this is literally the opposite.
In this case they borrowed loads of money precisely in order to develop new product lines and grow the company. It's not that clear that this is that distinct from the business itself, pre PE takeover doing the exact same thing. Lots of management teams become overconfident, borrow too much money to expand and then go bankrupt when that fails to work.
Leveraged buyouts are unbelievable. It's one of those things that would be totally unthinkable to allow normal people to do with actual money and property. You make the target company borrow the money to pay back the money that you used to buy it, plus it also borrows to pay your fees. (Oh and you get to decide your fees). It's like the Dukes of Moral Hazard.
Not only do we secure commercial and residential mortgages on the property that we used that money to buy, this is also the most common way of people selling each other small businesses, including through what are effectively management buy-outs. A big loan to pay off the previous owners, followed by a few years where that loan gets repaid. Sure, a property is not a legal entity which can have debt assigned to it, only secured on it but I don't really the meaningful difference in economic fundamentals. Either way you're securing a loan based on the cashflows of an asset. If you live in a non-recourse state in the US then this is even more true for residential mortgages because if you're willing to give up your equity in the asset, then you have the same kind of legal distance from the debt as the owner of a limited company.
So in terms of economic fundamentals, I don't see why in flabdablet's example, Frank cannot rid himself of the obligation in a downside scenario by walking away from his investment in a house in a non-recourse state.
The 30 year fixed rate mortgage has been around for nearly 100 years in the US, and has allowed countless families to afford high quality housing while making consistent, reasonable, affordable payments. It’s neither evil nor a part of “late stage capitalism.”
The interest-only, derivative backed “no job no income” mortgages of the early 2000s ruined lives, bankrupted people while enriching banks, and crashed the global economy.
It is precisely US government managed structured finance which makes fixed rate mortgages possible. Variable rate mortgages, especially interest only are actually a much simpler financial product and much less risky for the banking system. Before the US government stepped in to do some fancy financial engineering under FDR, it was variable rate mortgages which were available and "normal" and variable rates with short fixes are still what most of the world uses by financial necessity. It's transforming a variable rate wholesale funding market (i.e. banks borrow at variable rate) to a fixed rate loan to Joe Q. Public that creates a derivatives and structured finance world in the first place.
posted by atrazine at 7:36 AM on June 19, 2023
If you live in a non-recourse state in the US then this is even more true for residential mortgages because if you're willing to give up your equity in the asset, then you have the same kind of legal distance from the debt as the owner of a limited company.
That is a very big if at the start of this statement.
posted by Dysk at 7:48 AM on June 19, 2023
That is a very big if at the start of this statement.
posted by Dysk at 7:48 AM on June 19, 2023
if you're willing to give up your equity in the asset, then you have the same kind of legal distance from the debt as the owner of a limited company
Not really, unless you formed a LLC to take the mortgage; or you personally guaranteed your LLC's leases and loans. Depending, to a certain degree, on state anti-deficiency law and the way the home is foreclosed on.
posted by snuffleupagus at 7:58 AM on June 19, 2023
Not really, unless you formed a LLC to take the mortgage; or you personally guaranteed your LLC's leases and loans. Depending, to a certain degree, on state anti-deficiency law and the way the home is foreclosed on.
posted by snuffleupagus at 7:58 AM on June 19, 2023
That is a very big if at the start of this statement.
It is - I don't live in such a place myself - but the point is that for a large number of people participating in this thread, a transaction with pretty similar economic substance is a familiar one. Obviously a non-recourse residential mortgage is not legally the same as loading debt onto a limited company of which you are a shareholder but the substance of the economic risk transfer is not that different.
Of course these anti-deficiency laws are by design only restricted to primary residences and have restrictions on when and how they can be used but the idea of borrowing money and securing that money by somehow encumbering the thing you purchased - whether that is a mortgage secured on a property or assigning some part of the debt used to purchase a company to that company.
In all cases it is the fundamental fact that it is the care taken by the lenders that is the primary check against recklessness. Lenders to LBOs expect to get paid back the majority of the time and to recover a substantial chunk of their loan in almost all cases where that is not possible. They simply do not around just spaffing their cash at deals that they think will fail.
posted by atrazine at 8:29 AM on June 19, 2023
It is - I don't live in such a place myself - but the point is that for a large number of people participating in this thread, a transaction with pretty similar economic substance is a familiar one. Obviously a non-recourse residential mortgage is not legally the same as loading debt onto a limited company of which you are a shareholder but the substance of the economic risk transfer is not that different.
Of course these anti-deficiency laws are by design only restricted to primary residences and have restrictions on when and how they can be used but the idea of borrowing money and securing that money by somehow encumbering the thing you purchased - whether that is a mortgage secured on a property or assigning some part of the debt used to purchase a company to that company.
In all cases it is the fundamental fact that it is the care taken by the lenders that is the primary check against recklessness. Lenders to LBOs expect to get paid back the majority of the time and to recover a substantial chunk of their loan in almost all cases where that is not possible. They simply do not around just spaffing their cash at deals that they think will fail.
posted by atrazine at 8:29 AM on June 19, 2023
The history of a wound-up and dissolved LLC's defaults doesn't follow it. The entity is gone. An actual person's do, even if the liability is shed.
the idea of borrowing money and securing that money by somehow encumbering the thing you purchased - whether that is a mortgage secured on a property or assigning some part of the debt used to purchase a company to that company....In all cases it is the fundamental fact that it is the care taken by the lenders that is the primary check against recklessness.
In asset backed lending there are secured transactions with perfected security interests, and arrangements like lockboxes for the creditor to receive the borrower's revenue first.
posted by snuffleupagus at 9:14 AM on June 19, 2023
the idea of borrowing money and securing that money by somehow encumbering the thing you purchased - whether that is a mortgage secured on a property or assigning some part of the debt used to purchase a company to that company....In all cases it is the fundamental fact that it is the care taken by the lenders that is the primary check against recklessness.
In asset backed lending there are secured transactions with perfected security interests, and arrangements like lockboxes for the creditor to receive the borrower's revenue first.
posted by snuffleupagus at 9:14 AM on June 19, 2023
It is - I don't live in such a place myself - but the point is that for a large number of people participating in this thread, a transaction with pretty similar economic substance is a familiar one.
...and for an awful lot of people in this thread, the notion that you can just default on a mortgage and property and walk away with no lasting consequences is batshit insane. Hence drawing the parallels to what is going on here.
posted by Dysk at 9:46 AM on June 19, 2023 [2 favorites]
...and for an awful lot of people in this thread, the notion that you can just default on a mortgage and property and walk away with no lasting consequences is batshit insane. Hence drawing the parallels to what is going on here.
posted by Dysk at 9:46 AM on June 19, 2023 [2 favorites]
Exactly, in other words, the theoretical thing people compare about - this idea that PE buyers can load a company with debt with no checks whatsoever and then just "walk away" isn't even true. People are aghast that such a thing can exist but the the thing itself:
a) doesn't exist because real lenders have a vast array of tools to secure their interests, whether that's securing a first cut of certain or all revenue streams, securing debt against specific valuable company assets like real estate or IP, careful control of debt preferences and partial guarantees from sponsor PE funds. Lenders don't just throw money at every PE deal that comes their way and then stand around like a bunch of yokels when gosh darn it, they got soaked again. In other words people are appalled by a fantasy transaction class.
b) while you're completely right that a LLC is just gone while a non-recoverable liability to a person doesn't, PE funds in the real world run on reputation that survives in a way that the asset HoldCo does not - people who persistently lose money for lenders are legally in the clear but will not be able to borrow for their next transaction the way that a fund with a reputation for probity and success can.
c) accepting your point on the fundamental differences between dissolving a limited company and a non-recourse mortgage and Dysk's that for many people such mortgages are pretty alien themselves - I still maintain that buying an asset and then associating the debt used to buy it with the asset in a legally durable way makes this not such a weird and unusual kind of economic transaction in the first place.
posted by atrazine at 11:31 AM on June 19, 2023 [1 favorite]
a) doesn't exist because real lenders have a vast array of tools to secure their interests, whether that's securing a first cut of certain or all revenue streams, securing debt against specific valuable company assets like real estate or IP, careful control of debt preferences and partial guarantees from sponsor PE funds. Lenders don't just throw money at every PE deal that comes their way and then stand around like a bunch of yokels when gosh darn it, they got soaked again. In other words people are appalled by a fantasy transaction class.
b) while you're completely right that a LLC is just gone while a non-recoverable liability to a person doesn't, PE funds in the real world run on reputation that survives in a way that the asset HoldCo does not - people who persistently lose money for lenders are legally in the clear but will not be able to borrow for their next transaction the way that a fund with a reputation for probity and success can.
c) accepting your point on the fundamental differences between dissolving a limited company and a non-recourse mortgage and Dysk's that for many people such mortgages are pretty alien themselves - I still maintain that buying an asset and then associating the debt used to buy it with the asset in a legally durable way makes this not such a weird and unusual kind of economic transaction in the first place.
posted by atrazine at 11:31 AM on June 19, 2023 [1 favorite]
This thing that doesn’t happen sure seems to happen again and again.
posted by Artw at 12:24 PM on June 20, 2023 [1 favorite]
posted by Artw at 12:24 PM on June 20, 2023 [1 favorite]
Watching what makes the line goes up it seems the crueler and more destructive their actions are the better their reputations are going to be with money people, in fact.
posted by Artw at 6:25 AM on June 21, 2023
posted by Artw at 6:25 AM on June 21, 2023
> atrazine: "I still maintain that buying an asset and then associating the debt used to buy it with the asset in a legally durable way makes this not such a weird and unusual kind of economic transaction in the first place"
Aside from mortgages, there is another circumstance in which one entity acquires control of another and then loads up the acquired entity with debt: the classic mob bust out, memorably portrayed in a second season episode of The Sopranos. Of course, PE acquisitions and LBOs are not identical to bust outs and differ in many respects (particularly where it comes to the precise means by which the acquirer gains control), but it might be worth thinking about which ways are they similar. For example, I've found that non-finance people were often quite surprised when informed that Sears' main (largest?) creditor was their own CEO (or, technically, his fund but c'mon).
posted by mhum at 4:59 PM on June 21, 2023
Aside from mortgages, there is another circumstance in which one entity acquires control of another and then loads up the acquired entity with debt: the classic mob bust out, memorably portrayed in a second season episode of The Sopranos. Of course, PE acquisitions and LBOs are not identical to bust outs and differ in many respects (particularly where it comes to the precise means by which the acquirer gains control), but it might be worth thinking about which ways are they similar. For example, I've found that non-finance people were often quite surprised when informed that Sears' main (largest?) creditor was their own CEO (or, technically, his fund but c'mon).
posted by mhum at 4:59 PM on June 21, 2023
Planet Money (remember them?): Tears for Sears (2018)
Also the subprime crisis, and CDOs as insurance on the house you're burning down.
posted by snuffleupagus at 6:13 PM on June 21, 2023
Also the subprime crisis, and CDOs as insurance on the house you're burning down.
posted by snuffleupagus at 6:13 PM on June 21, 2023
So you take a company like IP. You add on debt and pull out profits until you are at the point where lenders are a bit worried about getting paid back. The lenders ask for (say) 7% interest on their loan, and insist that you maintain a certain cash flow to pay off their loans. If you fall below that cash flow, they demand you cut costs until your cash flow is sufficient to service their loan, and if your business runs into trouble they require you pay down the loan.
If you lend instant pot 400 million dollars, you are getting back 28 million dollars per year. It has been 6 years, so you got back 168 million in interest.
The company going bankrupt means it can no longer service the terms of its loans, nor is anyone willing to pay the loan off. The companies assets are sold off (factories, patents, brands) and the money is used to pay off the loan. As this company was "worth" 1 billion dollars, maybe the bankruptcy sale of assets is only worth 300 million.
So the lenders get 300 million of their 400 million back, and got 168 million in interest payments, leaving them with a 68 million dollar profit on a 400 million investment over 6 years; 17%, but under 3% per year.
Not great. But not bank breaking. For the longest time, fed interest rates where 1%; that means this scheme could have cleared 20 million dollars in profit, despite the company going under.
Meanwhile, they are doing this to 100s of other companies. Each of them is providing a nice cash stream. Some go under, some grow.
The theory here is that the IP of instant pot -- the good will, the design, etc -- isn't the property of the current IP company nor its management or workers. Instead, this is turned into cash for the owners/founders/etc of IP, and the current company carries debt representing the value of that good will.
If the company can't manage to turn a profit despite that debt to good will, then maybe the resources should be spent elsewhere.
Without this kind of debt-leverage, a company like IP could rest on its laurels. It would provide secure employment for workers and management who didn't (all) create the product in the first place, a positive externality, instead of it being captured by the finance types and the original owners and founders.
Modern capitalism loves to capture positive externalities and shed negative externalities. In an efficient market, doing that is a route to economic profit.
posted by NotAYakk at 10:45 PM on June 21, 2023 [1 favorite]
If you lend instant pot 400 million dollars, you are getting back 28 million dollars per year. It has been 6 years, so you got back 168 million in interest.
The company going bankrupt means it can no longer service the terms of its loans, nor is anyone willing to pay the loan off. The companies assets are sold off (factories, patents, brands) and the money is used to pay off the loan. As this company was "worth" 1 billion dollars, maybe the bankruptcy sale of assets is only worth 300 million.
So the lenders get 300 million of their 400 million back, and got 168 million in interest payments, leaving them with a 68 million dollar profit on a 400 million investment over 6 years; 17%, but under 3% per year.
Not great. But not bank breaking. For the longest time, fed interest rates where 1%; that means this scheme could have cleared 20 million dollars in profit, despite the company going under.
Meanwhile, they are doing this to 100s of other companies. Each of them is providing a nice cash stream. Some go under, some grow.
The theory here is that the IP of instant pot -- the good will, the design, etc -- isn't the property of the current IP company nor its management or workers. Instead, this is turned into cash for the owners/founders/etc of IP, and the current company carries debt representing the value of that good will.
If the company can't manage to turn a profit despite that debt to good will, then maybe the resources should be spent elsewhere.
Without this kind of debt-leverage, a company like IP could rest on its laurels. It would provide secure employment for workers and management who didn't (all) create the product in the first place, a positive externality, instead of it being captured by the finance types and the original owners and founders.
Modern capitalism loves to capture positive externalities and shed negative externalities. In an efficient market, doing that is a route to economic profit.
posted by NotAYakk at 10:45 PM on June 21, 2023 [1 favorite]
Just here to report that, although I live in a multi-person household, our instant pot is used almost exclusively to produce food for one person at a time. I use it to make my (veg) stuff, and my partner uses it to make her (meat) stuff.
posted by mabelstreet at 11:22 PM on June 21, 2023
posted by mabelstreet at 11:22 PM on June 21, 2023
@hypomodern:
Instant Pot wasn't bankrupted because their product was too durable; it was because, like so many other out-of-left-field bankruptcy stories, they got bought by a vulture capital company and couldn't meet both their insane growth targets and deal with the debt said new owner saddled them with.
It's not really even about capitalism per se, it's about how fucking bad private equity firms are for capitalism.
(I would disagree slightly - Private Equity firms are an inevitable awful outcome of capitalism and basically what capitalism looks like when it doesn’t have to pretend or put a friendly face on.)
posted by Artw at 6:41 AM on July 14, 2023
Instant Pot wasn't bankrupted because their product was too durable; it was because, like so many other out-of-left-field bankruptcy stories, they got bought by a vulture capital company and couldn't meet both their insane growth targets and deal with the debt said new owner saddled them with.
It's not really even about capitalism per se, it's about how fucking bad private equity firms are for capitalism.
(I would disagree slightly - Private Equity firms are an inevitable awful outcome of capitalism and basically what capitalism looks like when it doesn’t have to pretend or put a friendly face on.)
posted by Artw at 6:41 AM on July 14, 2023
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There's a reddit thread with comments that seem to support that: So how much of this is Instant Pot being "too successful," and how much of it is the all-too-often destructive nature of leveraged buyouts?
(I am sincerely asking - my quick searching and skimming yesterday didn't turn up any useful answers, but I know all experts are MeFites, so I'm hoping people who know more will help me understand more.)
Thanks for posting this, Pachylad!
posted by kristi at 5:28 PM on June 15, 2023 [56 favorites]