McIntosh Group purchased by PE firm

“PE is looking for profit and a multiplier then dump. These guys will own them for 7 years max money in on 3-5. “

100%

@wturkey 

I wish you were right!  It is far far worse than you think.

PE is an evil that is destroying business all around the world.    It cares nothing for the businesses it buys nor the people in them or the products they sell.  It is simple greed.

Using as little as possible real money, it maxxes the borrowing and puts it all in the target (McIntosh here).  It bleeds the business dry of investment and capital, extracting maximum interest, dividends and remuneration so as to treble or quadruple within a few years the small amount of money invested.  McIntosh then unsurprisingly fails, leaving a carcass to be picked over by other greedy feeders operating at a lower level in the food chain.

Expect McIntosh to be bust within 5 years.

By the way....There is a remedy for this.  Put a statutory limit on the amount of borrowings that can be used to buy a company.  Say 50:50 borrowing (funny money) and real money.

And while you are at it, kill off pre-pack liquidations that simply rob creditors and make offering business credit a dangerous occupation.

Yes, the business world is filled with evil.

Interestingly, Highlander does not use “other people’s money”. The partners bought Mac with their own money. So, *maybe*, they think about Mac & Sonus Faber a little differently than the average PE firm. And Mac is the longest-surviving luxury audio brand I can think of (I’m sure I’m missing something obvious) so why kill the golden goose? With no outside money, they can own as long as they want if it produces good cash flow

Highlander describes the companies as producing “functional works of art” - even the most avaricious exploitation of luxury products can take the path of “Veblen Goods” - the higher the price, the greater the demand (think Hermes). But the quality needs to be very high for that to work. So the value may not lie in cheapening the goods (the highest end luxury watch & jewelry co’s are all owned by p/e firms or enormously wealthy families. And even Hermes had to go public to raise capital)

One path would be to create clearer tiering of the product line at both companies (clear floor on pricing, more distinct tiers, creation of new “highest tiers”. Then, look for other people’s products to move through the distribution channels. And will definitely reorganize home entertainment to be a big business for both. And both probably need capital to rationalize design - ie there are probably 14 types of screws used to assemble a McIntosh chassis, because no one’s taken the time to figure out how to make it two

Or, they could fxck it all up

In my work life I've worked for three companies that were sold to private equity and they seem to all follow the same playbook, 1) replace the top management with their own, 2) suck the cash out of the business and replace it with debt and 3) lots of outsourcing and employee terminations.

Having said that, if Highlander is in fact funding the acquisition with their own money and not borrowing to do so, this may actually benefit McIntosh as they expand.  If that's the case, it wouldn't surprise me that, after the expansion is well underway that Highlander sells their interest to "cash out".

If they are smart at Highlander (and they probably are), they realize that they've snagged a jewel of a specialized company with a great future and won't gut McIntosh for short-term gain.

Goatshead,

That is an unwarranted and cynical comment.  ejr1953 says it all.