Economic Vampires

From an article in the NYT on private equity firms and their gigantic profits (also talked about below here), this story about the old, old mattress company called Simmons, which is going bankrupt while providing private equity firms with millions of dollars:

Simmons says it will soon file for bankruptcy protection, as part of an
agreement by its current owners to sell the company — the seventh time it has
been sold in a little more than two decades — all after being owned for short
periods by a parade of different investment groups, known as private equity
firms, which try to buy undervalued companies, mostly with borrowed money.

For many of the company’s investors, the sale will be a disaster. Its
bondholders alone stand to lose more than $575 million. The company’s downfall
has also devastated employees like Noble Rogers, who worked for 22 years at
Simmons, most of that time at a factory outside Atlanta. He is one of 1,000
employees — more than one-quarter of the work force — laid off last year.

But Thomas H. Lee Partners of Boston has not only escaped unscathed, it
has made a profit. The investment firm, which bought Simmons in 2003, has
pocketed around $77 million in profit, even as the company’s fortunes have
declined. THL collected hundreds of millions of dollars from the company in the
form of special dividends. It also paid itself millions more in fees, first for
buying the company, then for helping run it. Last year, the firm even gave
itself a small raise.

Wall Street investment banks also cashed in. They collected millions for
helping to arrange the takeovers and for selling the bonds that made those deals
possible. All told, the various private equity owners have made around $750
million in profits from Simmons over the years.

How so many people could make so much money on a company that has been
driven into bankruptcy is a tale of these financial times and an example of a
growing phenomenon in corporate America.

Is this kind of behavior going to drive America into a revolutionary situation?

In many ways, what private equity firms did at Simmons, and scores of other
companies like it, mimicked the subprime mortgage boom. Fueled by easy money,
not only from banks but also endowments and pension funds, buyout kings like THL
upended the old order on Wall Street. It was, they said, the Golden Age of
private equity — nothing less than a new era of capitalism.