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The VC-backed media myth is combusting

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13.06.2019

Business Insider is a large media operation and filled with many smart and talented business reporters, and so I imagine a recent headline sent shivers down some of their spines. CNN reported that Axel Springer, BI‘s parent company, is trying to go private, with private-equity firm KKR offering to purchase minority stakeholder shares.

True, media companies are prone to sales, yet this move could prove to be a worrying one. Private equity isn’t invested in the long game: It wants to consolidate to maximize cashflow wherever possible. It’s a get-rich-quick scheme for already rich people. And so, this news likely gave some people pause.

For examples of PE’s destruction, we need only look at numerous industries. Aging retail stores like Toys “R” Us and Payless have been bought private by PE firms, only to face growing debts and ultimately death. Newspapers like the Denver Post saw a similar fate after being sold to a hedge fund.

In theory, private equity is designed to give mature companies growth capital when they sit in between being a venture-stage company and a public one. In practice, though, the private-equity playbook all too often operates to extract cash from struggling companies rather than find clever new ways to revivify them. Investors use it as a financial apparatus. Firms invest with an eye toward a company’s cash flow, or an overfunded pension, let’s say, and then saddle it with debt if the company needs more funds. From........

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