What happened to Recaro after the venture capitalists bought it out?

[whizbyu]

Apparently the workers did not draw the usual salaries for some time to try to keep the company afloat. I cannot help but wonder how that affects morale and pride, and ultimately the quality of their recent products since the acquisition.
Can anyone in the M&A industry explain in very simple terms what exactly happened?

 

[LenZee]

The goal is maximum profits and this type of investor takes aggressive action up to and including asset stripping. Often they will exploit loopholes in an investment agreement and screw over employees.
'vulture' capitalists

 

[Mainia]

https://www.autocar.co.uk/car-news/...rts-seat-manufacturer-recaro-files-bankruptcy

 

[Enthusiast]

Could also the problem be regulations in the industry concerning swapping seats out when factory car seats contain airbags?

 

[Nick1994]

Some who go bankrupt are touted as being geniuses, so this may not be a bad thing for them.

 

[Carmudgeon]

Companies that find themselves in enough financial distress usually suffer from fundamental issues, related to the market they're in, or how the company is managed. Or both.

If there are elements worth salvaging, they can become targets for takeovers, but there's no guarantee that the buyer will seek to try to continue to operate the business, especially if unsound, rather than just strip it for the parts that are still valuable, like the real estate.

There's also no promise that the buyer has a sound strategy, or even knows what they're doing. Daimler dumping Chrysler into the hands of Cerebrus is a good example of that.

Every case has to be examined on its own merits. I can't say what troubles the automotive division; it could be many things.

The automotive division operates with the Recaro name under license. The Recaro holding company, which includes the aircraft seating division, is doing fine.

Some here like to cite how cutthroat the tech culture is, but high finance has had it covered, for a long time.

The German parent company of the gaming peripheral maker, Fanatec, is also in trouble.

 

[pbm]

Some who go bankrupt are touted as being geniuses, so this may not be a bad thing for them.

Some people use bankruptcy 'protection' successfully because they are intelligent to use laws that are on the books to their advantage.
OTOH, when you collect a government check for your entire life you wouldn't need to file for bankruptcy...you just count on taxes being raised.

 

[k1xv]

These deals are usually leveraged buyouts, where a company with little debt is bought out by another company, that borrows 90% of the purchase price to finance the purchase. The company goes from debt free to highly in debt. Any drop in sales or increase in interest rates means net cash flow goes negative, and bankruptcy can soon follow.

 

[wings&wheels]

VC's typically target distressed companies and will either restructure them for a return to profitability and sale/ipo or break up the company and sell the assets...or both. Either way they work to get their return, which is how it should be; that is the incentive.

Unfortunately cost cutting and job cuts, and sometimes bankruptcies, are key tools for this whole process, but most companies that are in this situation were already vulnerable so in many cases the VC's are saviors of what was a moribund company. The mass market news (not the business rags) and other rage stokers will focus on the VC's job cuts, etc., but in reality the true 'bad guys' are usually the prior management that weakened the entity in the first place.

As mentioned Recaro Automotive seating is not the core Recaro company, and apparently the switch in vehicle tastes had hurt their market somewhat. Also, I'd guess that the aftermarket seat business isn't what it was as OE seats have gotten much better but are also much more integrated with the car itself.

Our daughter did have Recaro car seats though, thought they were the best at the time.

 

[k1xv]

Didn't they diversify into commercial passenger aircraft seating?

 

[wings&wheels]

Didn't they diversify into commercial passenger aircraft seating?

That is actually the core company. Automotive and apparently child seats are now licensed businesses.

 

[andrew_j]

Apparently the workers did not draw the usual salaries for some time to try to keep the company afloat. I cannot help but wonder how that affects morale and pride, and ultimately the quality of their recent products since the acquisition.
Can anyone in the M&A industry explain in very simple terms what exactly happened?

Always floored when employees elect to reduce salaries to keep each other’s jobs or afloat. Company is not viable , push it over the cliff.

 

[andrew_j]

VC's typically target distressed companies and will either restructure them for a return to profitability and sale/ipo or break up the company and sell the assets...or both. Either way they work to get their return, which is how it should be; that is the incentive.

Unfortunately cost cutting and job cuts, and sometimes bankruptcies, are key tools for this whole process, but most companies that are in this situation were already vulnerable so in many cases the VC's are saviors of what was a moribund company. The mass market news (not the business rags) and other rage stokers will focus on the VC's job cuts, etc., but in reality the true 'bad guys' are usually the prior management that weakened the entity in the first place.

As mentioned Recaro Automotive seating is not the core Recaro company, and apparently the switch in vehicle tastes had hurt their market somewhat. Also, I'd guess that the aftermarket seat business isn't what it was as OE seats have gotten much better but are also much more integrated with the car itself.

Our daughter did have Recaro car seats though, thought they were the best at the time.

VC also strip mine companies of any value by selling anything of value like real estate , patent or whatever take the cash and let it fizzle. Capitalism is not always great.

 

[wings&wheels]

VC also strip mine companies of any value by selling anything of value like real estate , patent or whatever take the cash and let it fizzle. Capitalism is not always great.

Overly simplistic view, ignores the benefits of their investments and, the key point really, is you have to ask how the acquired companies came to be in a position where their "strip mine(d)" IP, real estate and other assets are worth more than the value of the ongoing entity?

How much M&A/Integration have you been involved with? 2002-2006 for me, although we were self funded, and recognizing that VC activity differs from our typical corporate strategic acquisitions.

I agree that capitalism has some warts, but demonstrate a system that provides and allows for more innovation and the opportunity for more wealth generation and upward mobility and I am all ears.

 

[andrew_j]

Overly simplistic view, ignores the benefits of the investments and, the key point, is you really have to ask how the acquired companies came to be in a position where their "strip mine(d)" IP, real estate and other assets are worth more than the value of the ongoing entity?

How much M&A/Integration have you been involved with? 2002-2006 for me, although we were self funded, and recognizing that VC activity differs from typical corporate strategic acquisitions.

I agree that capitalism has some warts, but demonstrate a system that provides and allows for more innovation and the opportunity for more wealth generation and upward mobility and I am all ears.

https://www.cbsnews.com/amp/news/steward-health-care-ceo-ralph-de-la-torre-senate-subpoena/

 

[wings&wheels]

https://www.cbsnews.com/amp/news/steward-health-care-ceo-ralph-de-la-torre-senate-subpoena/

Your point??

Oh, politician="Rage Stoker", from my initial post

 

[PandaBear]

Always floored when employees elect to reduce salaries to keep each other’s jobs or afloat. Company is not viable , push it over the cliff.

Sometimes it is because they have no choice. Some will definitely leave and the company doing this will eventually be left with the not-the-best employees, as they likely have nowhere else to go.

Many tech companies went downhill by keeping average salary low instead of paying according to performance and fire the lower performing employees. Intel, Cisco, etc are prime examples.

 

[SC Maintenance]

These deals are usually leveraged buyouts, where a company with little debt is bought out by another company, that borrows 90% of the purchase price to finance the purchase. The company goes from debt free to highly in debt. Any drop in sales or increase in interest rates means net cash flow goes negative, and bankruptcy can soon follow.

Don't know if the timing fits - but a lot of companies did this in 2020 - when interest rates where really low. Low end investment grade commercial bonds / loans may have been 6 or 7%. There maybe double that today. If the loans reset they might not be able to pay the interest.

It also mentioned they lost a major contract - with who it didn't say - which could make it worse on the other side.

There are many companies in this boat right now of all types of businesses. There called zombies, because they don't even make enough profit to cover the interest payment.

 

[Carmudgeon]

VC also strip mine companies of any value by selling anything of value like real estate , patent or whatever take the cash and let it fizzle. Capitalism is not always great.

Which "V"?

To be clear, venture capital, oft referred to as VC, is a specific type of private equity that's focused on investing in nascent, or startup companies, in the hope that they'll catch on, grow, and be able to provide the payoff in the future. Emphasis on young, early-stage companies that have nothing except for a business plan, people, or IP to make them an attractive bet, and use the VC's money to establish the business and operate it until it can stand on its own.

"Vulture" capital is the slang for the trolls who seek out the late-stage distressed companies, rehab them, and hope that they regain enough value to resell. There are also those who use the deal to turn a quick buck, either through the deal itself, or by flipping the company, with no genuine interest in the business in question beyond being a means to an end.

There are a lot of rotten PE firms, some very large, who give the industry a bad name, but there are good ones as well. Not unlike car dealerships.

 

[pbm]

Sometimes it is because they have no choice. Some will definitely leave and the company doing this will eventually be left with the not-the-best employees, as they likely have nowhere else to go.

Many tech companies went downhill by keeping average salary low instead of paying according to performance and fire the lower performing employees. Intel, Cisco, etc are prime examples.

It's not that easy to 'fire' people today....lawsuits often follow firings.

Also, I'm surprised those Massachusetts 'leaders' allowed such 'corporate greed'.....they seem to talk enough about it but apparently do little to stop it.