Byline Tax Agreement Made Easy

Byline tax agreement

whom people welcome back to the show today we're going to talk about how Sycamore Partners another private equity firms will go out and buy companies like staples and by the way Sycamore Partners owns Aeropostale Nine West Hot Topic and a handful of other businesses all are controlled by these large private equity companies and today I'm going to show you exactly how that works now if you haven't subscribed yet click on that link or button below whatever subscribe to get notified by when we go live if you want to learn more go to investment fun seekers comm you can see on our YouTube channel their place where we talk about this type of stuff now let's get into today about Sycamore Partners acquisition of Staples for six point nine billion dollars of Trump right there billions and billions billion dollars and how they did it okay so you guys have seen in our other videos how we talk about fun structure and private IP funds are no different structured like this the general partner limited partnership the fun limited partnership okay and limited partners LPS up here investors will put money into the limited partner ship and the general partner where the fund management will manage the limited partnership and they can go out and make acquisitions like staples or Hot Topic or they actually we're gonna do by Victoria's Secret but they cancelled that one hot topic okay that's what they're going this at least this fund is going up by now that's the same structure they're using now something different in these types of buyouts is they aren't using just straight equity what I meant is is this Sycamore Partners isn't going out and saying hey Staples is six point nine billion dollars we need to graze six point nine billion in our funds and go over and write a check and buy it they do something called a leveraged buyout or LBO you'll see this a lot private equity from leveraged buyout I'm gonna walk you through exactly first off why they do it and secondly how they do it and the cool thing I love about by the way about the fund world I think it's awesome take more partners if you look on I think maybe I'll pop it up you guys are watch the video only twenty people worked at Sycamore partners twenty and they manage all these big businesses many people work there that's why I love the fund model is so few people can control so much money and it makes you and me very wealthy to be fund managers all right so let's break it down okay so six point nine billion dollars I do not know the exact numbers we're gonna use some round numbers here imma show you the math of how this works kay so let's say for example they used for this two billion dollars of equity okay from investors and they could go out and raise four point nine billion from a bank as essentially alone this is very similar to a mortgage they put down a down payment of two billion dollars and they go get a mortgage or a loan from a bank and they get a leverage thereby out from a bank and let's say they borrow four point nine billion dollars let's say it's six percent okay and then probably are getting cheaper rates than that especially the feds dropped rates on almost to zero right now but let's just give them a bad rate and so let's say it's six percent on this LBO six percent on four point nine billion dollars quick math here in my head it's a two hundred ninety four educated that out two hundred anymore million dollars they pay out every single year in interest to the bank to supply this leveraged buyout now if terms of leverage browser gonna change now this is I'm giving you a simple example they might have stacked capital here a whole mix of mezzanine loans and second position lots of conglomerate that goes into this let's just keep it simple and say it's four point nine at six percent okay so why would they do this I want to give you an example this is not the exact numbers of what's going on but want to give an example how leverage works and applies for your purchase your bio okay so let's say they did not use this leverage piece two hundred ninety four million dollars they just used cash think it let's let's use round numbers here I lived I've eaten staples us about eighteen billion dollars gross revenue every year let's say they take home net a billion dollars for round numbers sake okay if they used all cash for this deal bought staples for six point nine billion dollars in net and one billion dollars that would be a fourteen point four percent return okay not bad they can give that to their you know split that with their investors eighty twenty whatever they're gonna do okay that's okay if they do the exact same deal but use leverage today they borrow 4.9 billion right here they got 6% bad interest rate they paid 294 million dollars so they're left with 706 million okay net a little bit less money I shoot I got less money but that's 706 million on there two billion dollar investment not the six point nine billion dollar investments here I'm going with here so if you take 706 on two billion dollars their returns jump up from a fourteen point four percent all the way to a thirty five point three percent not back on the exact same deal when you do a leveraged buyout you leverage your return you usually get a lot higher returns now it is a little bit riskier though because what if the company doesn't do well right what if they showed like staples has been showing losses for this last year you are still stuck with a bill of 294 million dollars which you not have to come out of your pocket from your phone and pay back the bank to have money so that's where a little bit of risk comes into the same concept applies to real estate things you can get a mortgage on a house even if you could pay cash you get a mortgage you leverage should theoretically on paper making more money however if you getting getting a buying this default on your mortgage that they're gonna come take the house or the company from you depending on your terms now what do actual private equity funds do when they buy out these types of businesses now there's a few things these PE funds will do and there's a hundred or more of little niches in between here shades of grey could column but typically what's happening inside of here is Sycamore partners will come in and do a number of things they might come in and replace the entire management team bring it under one roof you you can see Sycamore Partners owns a lot of this is a little bit outside of their wheelhouse that you typically own clothing brands Nine West Hot Topic they want to get in Victoria's Secret Aeropostale those companies all kind to have the same model may will have similar managers over each one they will sit on our board make sure that they're running the biz that's right and try to grow it combine it make it more efficient those are all different ways improving the management team the other thing they could do is split it apart so sometimes they'll call private equity funds corporate raiders where they come in and instead of trying to grow staples as this great company make it bigger bigger they come in and say hey staples you're going down anyways so let's take off all the pieces and sell them separately so we're gonna sell all the real estate piece separately we're gonna sell you guys are good at some printers okay about division printer division is gonna be a separate thing inside sale is gonna be a whole separate division sold off and you now some companies can't do it as well some of these companies you can do it very well but they will take a company split it into pieces they bought it for six point nine billion they believe the pieces will be worth more maybe they can sell the pieces individually for you know seven point eight billion right and they make their money on that spread that's what they're doing there those are more corporate raider type of private equity firms that come in and will tear a company apart sometimes they come in and take it through bankruptcy restructure I mean there's a whole number of things that they have planned when they come in and buy out these businesses and take them over so you'll see on the news sometimes you'll see like a politician get up and private equity funds are the scum of the earth and they're destroying businesses and companies and sometimes they are right they're coming in they're splitting up companies they're they're tearing apart doing mergers of other companies and they're trying to seek yield and they're incentivized to whatever makes us the most money we're gonna do it whether that means tearing apart our company or that means building up a company firing all the staff hiring new management team now this is where private equity funds make a name for themselves as how they come in and steppin in transition there's two different types of private equity funds that I see you have active managed portfolios and passively managed portfolio sometimes they'll come in berkshire hathaway is a great example will come in and they buy Heinz ketchup and or coca-cola and sometimes they just want to be a passive member and say hey you guys are already doing a great thing just keep growing we don't want to step in and replace thing just we're gonna be a passive member but we got the money we'll be a passive member and help you guys grow see Apollo do this okay take care it depends on their byline on HNH company how they evaluate now there's other ones where it's very active where they step in and say guy this is being run right I don't like how it's going you're all fired and we're gonna replace the the executive team and step in so hopefully that gives you a little overview of what's happening Sycamore partners buying staples how a leveraged buyout works how they still use this General Partner limited partnership structured is now sometimes they'll set up an entity below there and that entity will buy hot topic or that entity will buy stable but it's all flowing up to the limited partnership to the limited partners the general partner and then also their registered investment advisor if they have that as well that's kind of the structure of what's going on the guts inside of a private equity fund if you guys like this I want to hear more go to our youtube channel list another podcast if I want to subscribe or hit other we have playlists on there with private equity playlists we have a debt playlist different fund structure players how to raise capital the whole nine yards if you want to come on one of our weekly calls I go to an investment fund secrets calm I do a live training every week you guys can hop on in here what's what's going on what my thoughts are doing live Q&A with me and get more in touch I'd love to hear your guys the story what's your doing because there are surprisingly lots of entrepreneurs like you and me around the world going out and launching and starting funds just no one knows about it so we're connecting everybody together bring it under one roof we're the Wall Street rebels we're fighting those finance bros the sleek back whatever you want to call them dudes that don't think what we're doing is possible and we're doing everyday single day so thank you guys and I'll see you on the next episode peace