Author: BAS57
Date: 2018-06-26 06:09
Clarineteer:
Why would it be "prudent" to sell a bankrupt company (or at least a company with trouble paying its debts)?
And more relevant to this forum, why would that be good for the quality of the clarinets or Buffet itself?
When Fondations Capital bought Buffet in 2012, they financed it with way less debt than the average private equity acquisition. Debt was 1.5 times EBITDA (a very rough measure of cash flow) vs. 3-6 times Debt/EBITDA for most private buyouts. That 1.5x level of debt should be easy to repay and is one data point that suggests that Fondations Capital are a relatively prudent bunch compared to your average PE firm. Now of course that was 2012 and they could have taken on way more debt when they bought Powell, but profitability would have to have been truly, truly terrible from 2012 to the present in order to have trouble with debt repayment. Also, credit markets are currently strong and they could refinance and push back the debt repayment date. All told, I would highly doubt they are close to bankruptcy.
Even if your speculation is correct and they are having trouble servicing debt, a sale won't help - the debt doesn't magically go away. In that scenario, cost cuts are likely and that certainly won't help the quality of the clarinets. We should not hope for that.
No owner of Buffet wins if the quality goes down enough so that many clarinetists stop automatically choosing Buffet. But the other side of the coin is that no owner can afford to throw so much money at R&D, raw materials, and facilities that quality rises tremendously either. It's a balance and there are always trade-offs, as there are with interpreting a piece of music.
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