Comment by romafirst3
2 years ago
They sold their real estate for 1.5 billion and then red lobster paid 200 million a year in rent. That’s insane. In 7.5 years they would pay back the purchase price.
That just seems like a massively bad deal for red lobster, I wonder was there another way the private equity firm made out on that deal ?
What’s most weird to me is that the PE firm owns Red Lobster. So if a deal is bad for Red Lobster, the deal is also bad for the PE firm.
I guess the reason that isn’t true is differing time horizons. If the consequences of the deal only become apparent years later, then the PE firm can sell the business before the chickens come home to roost.
But how do they sell Red Lobster without the buyer realizing what is going to happen? Who would be dumb enough to buy from a company that has a history of crippling companies it owns then selling them to suckers?
The hit from above-market leases vs. owning the land might be clearly visible in hindsight, but that's not necessarily true looking into the future. A buyer could have focused on the economies of scale from being in the seafood business and actually thought "we're not a real estate companye, and rentals are preferable in this inflated market". The got all that current debt off the books in exchange for future liabilities; that could also have looked good.
>> PE firm can sell the business before the chickens come home to roost.
It's really no different from pump and dump. Founders love it because it unlocks a huge pay-out without the hassle, costs and reporting obligations from going public, but if you've worked at a company before and then after a major PE investment it's universally worse IME.
… who’d PE sell the land to?
Was it… themselves, in some roundabout way?
That’s what I’m wondering, or if they got some other compensation that isn’t mentioned.
It’s not insane.
Holding a ton of a cash locked up in assets is highly inefficient.
Google did this - sell a building they own and lease it back. Do something else with the money.
The nice thing about the lease is that it’s a tax deductible expense for the business, and if you no longer need it, just don’t renew the lease.
No I don’t mean the strategy, I mean selling the real estate for 7.5 years of rent. Usually the multiple is closer to 20x
You dont understand, the PE firm IS red lobster. The old owners were paid 2.1 billion for the company and retired.
I do understand
I’m using the terms correctly it’s just that while red lobster is owned by the PE firm, the PE firm is more than red lobster.