Private Equity
Private equity, often shorthanded to PE, refers to an investment model through which a collection of investors partner-up and purchase some kind of asset (or portfolio of assets).
In the context you're most likely to hear about PE, it generally refers to a small club of investors gobbling up a private company (businesses not traded on stock exchanges, and which are thus otherwise difficult to invest in) using an approach called leveraged buyout (LBO), which is a fancy way of saying they take on a bunch of debt in order to afford the price-tag.
So if some friends and I want to buy Widget Company A, which demands a million dollars to be acquired, we might collectively go to some banks and other loan-offerers, pool that money together with some existing funds we already have on hand, and use it to buy Widget Company A.
The trick here is that the company we want to acquire, Widget Company A, will generally be loaded up with the majority of this debt. So if things go sideways, if we don't earn enough money from this company to pay down that debt after we acquire it, the company we're acquiring goes bankrupt, not us.
So we own the company and can use it to (hopefully) earn enough income to pay off the loans we took out (and attached to that company), but if not, our financial liability is limited, because it's that new asset that's taking on the majority of the risk.
This sort of arrangement, as you might suspect, makes things a lot more difficult for the acquired company because they suddenly have this (sometimes substantial) new payment to service.
It's no longer sufficient to earn enough revenue to pay existing expenses: now there's this potentially huge new debt payment it also has to service, and for no additional in-business benefit—it's a purely tacked-on cost that subtracts from their bottom-line without adding anything to the company's operation, quality, employee-base, etc.
I bring this up because a company that was, by all indications, doing quite well in many ways, Instant Brands, was bought-out in a PE deal back in 2019 by a private-equity firm called Cornell Capital.
Cornell Capital already owned a slew of other companies, many not at all connected to the kitchen appliance world, but some—like Corelle (which it acquired in 2017, and which makes an array of well-known Corning glass products) and Pyrex (which makes all sorts of bakeware and related products)—seemed to be a pretty good fit in terms of blending well-known, well-respected assets together and possibly finding synergies between them.
The combined company, called Instant Brands, was reportedly valued at more than $2 billion when that merger occurred, but by mid-June of 2023, it had declared Chapter 11 bankruptcy.
A few things worth noting:
First, Chapter 11 bankruptcy doesn't mean the company is gone or the products will disappear from shelves, it just means the company is underwater on its debt payments (to the tune of more than $500 million) and thus requires restructuring (with protection and oversight by the court) to pay those debts and get itself into some kind of new shape capable of continued, profitable (or at the very least, debt-paying) functionality.
Second, the Instant Pot is still generally considered to be a really good product.
It didn't invent the genre or technology of pressure cooking, but it made it safer, easier, and more attainable-seeming to a lot of people. And by some indications the quality of the product was actually part of the problem: the company couldn't sell more Instant Pots to their die-hard users, because their products tend to last a long time.
I'm an enthusiastic cook who owns the largest model of Instant Pot (purchased secondhand) and I've been using it for years to batch-produce curries and stews, soften-up beans and lentils—it's great. I expect to keep using it for many years, as the thing is just really well built, and easier to use and clean and maintain than most other appliances I own.
If you're a PE entity hoping to wring more money from a recent acquisition to service heaps of debt you piled on it, though, that's not a good situation, because it means your already-sated customers won't give you more money if you just keep doing what you've been doing.
Such a company needs growth to survive because of the tape worm-like debt with which it's been burdened.
Thus, post-acquisition, Instant Brands started releasing all sorts of new products of varying quality and necessity.
Air purifiers, air fryers, blenders, toaster ovens, coffeemakers, stand mixers—many of these products received middling reviews and didn't really differentiate themselves from the gobs of other, nearly identical (or obviously superior) products on the market, but the company was scrambling to find something, anything that would sell more units, so they produced a bunch of cookie-cutter appliances, slapped the "Instant" logo on it, and hoped for the best.
The best didn't happen, and frankly this shouldn't have been a big surprise.
This is what sometimes happens to profitable companies making good products that are bought-out by PE entities: that debt-burden turns them into husks of their former selves, and they're either converted into quick-buck generating assembly lines, the investors hoping to profit from the business’ good name before it goes bad, or the company is sold for parts—its assets hawked, the company winding down operations, another type of bankruptcy declared, and the investors walking away with whatever they were able to pocket before the once-solid brand collapsed upon itself.
Third and finally, I don't bring this up because I'm irritated that a brand that made a product I genuinely enjoy has been perhaps permanently damaged by vultures, nor do I want to imply that all debt is bad.
Some debt serves as genuine economic leverage that allows a company to do more than it did before, expanding their reach or product line (in an intentional, beneficial way), allowing for the construction of more manufacturing capacity to serve demand, enabling the hiring of more people and/or better benefits and paychecks for their existing employees; these are all legitimate and somewhat common reasons to take out debt and to use it as leverage, which then allows a good business to become a slightly bigger version of the same.
Where we see trouble, though, is when an outside entity steps in, sees profit-grabbing potential, and uses a good business as a vehicle for that grabbage.
Rather than investing in the company, these PE groups treat it as a resource to be ravaged, draining it of as much value as they can extract before moving on to the next victim.
I believe this is worth knowing about because it's possible to be had by a well-known, well-respected brand that, behind-the-scenes, has been taken over by this sort of entity, and that means the products or services they hawk might not be of the same quality as before, the add-ons they offer might not be as good or viable (warranties, repairs, etc) as anticipated, and our associations with these brands (recommending them to friends, for instance) might be worth a rethink, as although the products we own might still be solid for years and years, folks who buy them on our recommendation might find themselves with something of far-inferior quality.
(For what it's worth, I still think used Instant Pots are a great investment if you want to make slow-cooked meals fast or prepare things like dry lentils and beans quickly and easily).
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