Not very colorful, this morning's story in the NYTimes. Drib-drab, gray-grey. It's about new rules for private equity. Not venture capital, which is betting on startups, but private equity. It's what Mitt Romney used to do, swooping in on a company, buying everything, often laying off workers and selling off assets, generally gussying up the balance sheet before putting the company back on the market. Whether you think this is moral is immaterial; it's perfectly legal and, in some cases, even beneficial.
Case in point: when the owners of Seattle's Metropolitan Market looked at the future, they were constrained by a lack of capital. They couldn't undertake any major expansion (like a new store, for exampe) that wasn't funded out of cash flow; the owners couldn't make succession plans or, because the company was privately held, "cash out," either. So it made perfect sense for the chain to sell itself to a regional private equity firm, Endeavour Capital. Founded 20 years ago by Seattle attorney Stephen Babson, Endeavour already owned Portland's New Seasons markets, California's Bristol Farms, not to mention the wine, beer & spirits distributor Columbia.Distributing. Also Aladdin Bail Bonds, for some reason, whose tag line is "We Get You Out.")\
So, with the solid backing of Endeavour, Metropolitan Market was able to buy and remodel a grocery store in Magnolia. In three years the original owners will be cashed out. Good news.
But not all private equity deals are as simple. Take Sun Capital Partners, a private equity firm in Boca Raton. You might remember the infamous "47 Percent" speech that tarnished the Romney campaign last year? He delivered those remarks at the home of Marc Leder, the co-chairman of Sun. Among the gems of Sun Capital's portfolio: Seattle-based Restaurants Unlimited, a group of 47 stores under 21 brands, including flagship restaurants like Palisade and Palomino. But it wasn't RUI's part-timers that drew the attention of the Court of Appeals. Rather, it involved arcana surrounding the control of certain employee retirement accounts. The court scolded Sun for trying to avoid its tax responsibilities as well as pension liabilities. No, Mr. Leder, you can't get yourself out.
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