Info Aqualung Financial Troubles

[scubadada]

If you read about the goals and objectives of the Montagu acquisition, they read similarly to the acquisition by Barings, hard to believe either

The acquisition has opened a new chapter in Aqua Lung’s history, providing it with the financial resources to accelerate its transformation and strengthen its position in its core markets, which include Dive and Military.

 

[BoltSnap]

Lets try an analogy:

You have a $3 million home.
You have continued to borrow money against it until you now owe $15 million on a loan attached to it.
Your income is $350,000/yr (before taxes).
Your interest only payments are $1,000,000/yr.

What do you call it when the bank 'acquires' your home?

Montagu did the unfortunately all too common PE thing of financing the acquisition with debt, a fair chunk of which they kept in the form of acquisition "fees". They also cashed out by selling a couple of the easy to sell pieces such as $20 million of AL's real estate holdings.

When AL proved unable to service the massive debt it was saddled with and no more suckers willing to loan it money or refinance the existing loans, Montagu simply handed possession over Barings which was AL's largest debt holder.

So Barings essentially foreclosed on AL rather than purchasing it. And like any financial institution that forecloses on something, they have no interest in holding onto it. All they want to do is limit their losses by selling off the pieces as fast as they can find at least semi-reasonable offers.

Wouldn't this be considered fraud or some sort of a crime?

 

[lowwall]

Wouldn't this be considered fraud or some sort of a crime?

Nope. It's business as usual.

Who was defrauded? It's a private company. The fired employees got screwed but they have no rights beyond whatever separation payments were required by the government where they were employed. The lenders will presumably lose money, but unless Montagu lied to them about the company's financial situation, they can't claim they were defrauded. It's their own fault for making a bad decision.

Wonder why lenders make these decisions? It's the classic misalignment of incentives. In the short term, making a big loan provides immediate income from fees and asset growth for the lender, both of which tend to increase the lender's stock price and, more to the point, result in large bonuses and sometimes promotions for the lender's managers and executives. Years later, when it becomes clear that the loan was a bad idea, the bonuses have been spent and the individuals involved have likely moved on. Of course, too many bad deals will eventually sink a financial institution, but the wonder of capitalism is that it really is an efficient way to create economic surplus. This surplus generally means that it takes more than the usual levels of greed and stupidity for financial institutions to be unprofitable despite the occasional bad deal. Especially as most of the surplus flows to the participants who already control the most capital.

 

[Outbound]

Wouldn't this be considered fraud or some sort of a crime?

Leveraged buyouts are typically how PE firms acquire companies. They put down 5%-10% in equity and fund the rest with debt.

 

[BoltSnap]

Nope. It's business as usual.

Who was defrauded? It's a private company. The fired employees got screwed but they have no rights beyond whatever separation payments were required by the government where they were employed. The lenders will presumably lose money, but unless Montagu lied to them about the company's financial situation, they can't claim they were defrauded. It's their own fault for making a bad decision.

Wonder why lenders make these decisions? It's the classic misalignment of incentives. In the short term, making a big loan provides immediate income from fees and asset growth for the lender, both of which tend to increase the lender's stock price and, more to the point, result in large bonuses and sometimes promotions for the lender's managers and executives. Years later, when it becomes clear that the loan was a bad idea, the bonuses have been spent and the individuals involved have likely moved on. Of course, too many bad deals will eventually sink a financial institution, but the wonder of capitalism is that it really is an efficient way to create economic surplus. This surplus generally means that it takes more than the usual levels of greed and stupidity for financial institutions to be unprofitable despite the occasional bad deal. Especially as most of the surplus flows to the participants who already control the most capital.

Leveraged buyouts are typically how PE firms acquire companies. They put down 5%-10% in equity and fund the rest with debt.

And they borrow money against alleged value of the company, siphon cash out of the company's accounts and then the lenders take over and everything just fizzles away?

 

[lowwall]

And they borrow money against alleged value of the company, siphon cash out of the company's accounts and then the lenders take over and everything just fizzles away?

Yes.

Medium. The long bloody lineage of private equity's looting

Or worse. A favorite PE tactic in the US is to buy a company that has money set aside to fulfill their pension obligations, loot the company and load it with debt to the PE firm until the company can no longer make the debt payments, then put it into bankruptcy, which allows the company to shed its pension obligations onto the public pension insurance fund. As senior creditor, the PE firm can then pay itself to buy the company out of bankruptcy and then turn around and sell whatever is left of the now debt-free company.

When Private-Equity Firms Bankrupt Their Own Companies

Private-equity firms can succeed when their companies, customers, and employees fail. It’s a broken system.

www.theatlantic.com

 

[cerich]

@scubadada @Outbound my understanding is the business was sustainable before the PE firm (Montagu) bought Aqualung and loaded it up with debt in order to buy it. Air Liquide needed to raise cash for the Airgas acquisition is why it was sold. Barings was the bank/debt holder which then took it over.

thanks for that laugh

 

[cerich]

Yes.

Medium. The long bloody lineage of private equity's looting

Or worse. A favorite PE tactic in the US is to buy a company that has money set aside to fulfill their pension obligations, loot the company and load it with debt to the PE firm until the company can no longer make the debt payments, then put it into bankruptcy, which allows the company to shed its pension obligations onto the public pension insurance fund. As senior creditor, the PE firm can then pay itself to buy the company out of bankruptcy and then turn around and sell whatever is left of the now debt-free company.

When Private-Equity Firms Bankrupt Their Own Companies

Private-equity firms can succeed when their companies, customers, and employees fail. It’s a broken system.

www.theatlantic.com

The Aqua L sale from Air L occurred just after PADI had been sold for an eye watering sum (and note how often PADI was sold again) when interest rates were near zero and money was looking all over for a place to make ROI. The oldest and biggest equipment brand in the same/adjacent industry as PADI seemed like a good place to some. It wasn't.

The numbers did tell the truth, but too many must have not understood the industry when they looked at the numbers, and there was far too much optimism that the revenue numbers could be leveraged to greater profits (margin) by MBA'ing the heck out of the place. Some folks that were paid to consult to Montagu from the industry were not so optimistic but it seems that the really clever PE MBA's from top rated schools felt that the dive industry consultants simply "didn't get it" regards to how PE works and how they can always find value by doing what they do when there is revenue and some diversification in the target asset. One consultant with dive industry knowledge made himself unpopular when he compared how Aqua L was operating to how dive shops operate and it was "moronic", in that namely of all the potential profit centers but one was run at break even or loss but that instead of that actually being an opportunity to make them profitable instead was fundamentally based on wrong assumptions around "scale" and given the structure those business units would be unlikely to be able to compete or achieve any great cost savings to achieve profitability. They simply weren't vertical in those areas and there was too much vulnerability. The truth at the time was somewhere in the middle I suspect except that... things changed in the greater economy and it all came down around them.


This is just one indicator of a bigger dive industry story that is playing out and ALSO how the PE industry is facing immense headwinds of the reality of revised valuations in a higher interest rate environment. PE industry reality in 2024

JOUT Q2 results are.. interesting and they attribute diving #'s to "geopolitical issues affecting travel to certain regions of the world". That's BS. Frankly with Aqua L's issues they "should" be having a good year in diving all else being equal, that they aren't is a massive red light flashing with a loud alarm playing in the background.

 

[cerich]

Air Liquide sold Aqua Lung to the PE firm, Montagu, in 2016. Air Liquide focused on the core business of gas/services and acquired Airgas.

Montagu sold Aqua Lung to Barings last year, completed in December

Time will tell

actually the truth will tell, and what you stated regards it being sold to Barings is not true.

Baring's got Aqua Lung by acquisition not by purchase which is what happens when something is sold.

You know, you really have an issue with saying things as fact that aren't. It's a pattern.

 

[BoltSnap]

Yes.

Medium. The long bloody lineage of private equity's looting

Or worse. A favorite PE tactic in the US is to buy a company that has money set aside to fulfill their pension obligations, loot the company and load it with debt to the PE firm until the company can no longer make the debt payments, then put it into bankruptcy, which allows the company to shed its pension obligations onto the public pension insurance fund. As senior creditor, the PE firm can then pay itself to buy the company out of bankruptcy and then turn around and sell whatever is left of the now debt-free company.

When Private-Equity Firms Bankrupt Their Own Companies

Private-equity firms can succeed when their companies, customers, and employees fail. It’s a broken system.

www.theatlantic.com

OMG, this shiit is legal??