The Investment Whisperer
  • Business
  • Politics
  • Investing
  • World
  • Business
  • Politics
  • Investing
  • World

The Investment Whisperer

Business

It wasn’t the endless shrimp that doomed Red Lobster. How private equity pinched the seafood chain.

by admin May 27, 2024
May 27, 2024
It wasn’t the endless shrimp that doomed Red Lobster. How private equity pinched the seafood chain.

Angry that your favorite Red Lobster closed down? Wall Street wizardry had a lot to do with it.

Red Lobster was America’s largest casual dining operation, serving 64 million customers a year in almost 600 locations across 44 states and Canada. Its May 19 bankruptcy filing and closing of almost 100 locations across the country has devastated its legion of fans and 36,000 workers. The chain is iconic enough to be featured in a Beyonce song.

Assigning blame for company failures is tricky. But some analysts say the root of Red Lobster’s woes was not the endless shrimp promotions that some have blamed. Yes, the company lost $11 million from the shrimp escapade, its bankruptcy filing shows, and suffered from inflation and higher labor costs. But a bigger culprit in the company’s problems is a financing technique favored by a powerful force in the financial industry known as private equity.

The technique, colloquially known as asset-stripping, has been a part of retail chain failures such as Sears, Mervyn’s and ShopKo as well as bankruptcies involving hospital and nursing home operations like Steward Healthcare and Manor Care. All had been owned by private equity.

Asset-stripping occurs when an owner or investor in a company sells off some of its assets, taking the benefits for itself and hobbling the company. This practice is favored among some private-equity firms that buy companies, load them with debt to finance the purchases and hope to sell them at a profit in a few years to someone else. A common form of asset-stripping is known as a sale/leaseback and involves selling a company’s real estate; this type of transaction hobbled Red Lobster.

In recent years, private-equity firms have invested heavily in all areas of industry, including retailers, restaurants, media and health care. Some 12 million workers are employed by private equity-backed firms, or 7 % of the workforce. Companies bought out and indebted by private equity go bankrupt 10 times more often than companies not purchased by these firms, academic research shows. In a report this month, Moody’s Ratings said leveraged buyouts like those pursued by many private-equity firms drive corporate defaults higher and reduce the amounts investors recover when the companies are restructured.

This post appeared first on NBC NEWS

0
FacebookTwitterGoogle +Pinterest
previous post
Boeing, NASA say Starliner astronaut launch will move forward despite spacecraft helium leak
next post
RUA GOLD Commences Exploration Program at the Glamorgan Project on the North Island of New Zealand.

Related Posts

Why Chappell Roan and other artists find themselves...

February 9, 2025

IBM pledges $150 billion to boost U.S. tech...

April 30, 2025

NBA star Russell Westbrook launches AI-enabled funeral planning...

May 8, 2025

Sports bar chain Twin Peaks is going public....

February 1, 2025

Prices held steady in October as inflation slowed...

November 16, 2023

UAW challenges Mercedes-Benz union vote, asks NLRB for...

May 27, 2024

Target CEO addresses price gouging accusations in retail

August 23, 2024

Restaurants are rebounding — but Starbucks and McDonald’s...

January 30, 2025

Bank of America CEO says financial industry will...

January 23, 2025

All the data so far is showing inflation...

April 28, 2024

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Categories

    • Business (1,430)
    • Investing (3,515)
    • Politics (4,746)
    • World (4,650)
    • About us
    • Contact us
    • Privacy Policy
    • Terms & Conditions

    Disclaimer: TheInvestmentWhisperer.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 TheInvestmentWhisperer.com | All Rights Reserved