[BillSaysThis]

My issue with most PE deals is that the PE firm doesn’t have enough skin in the deal. Look at, say, the EA deal where almost all of the purchase price is coming from debt on EA. This to me is wrong because the new owners have almost no incentive to build the business for the long term—EA is a strong operator but face layoffs and LOB closures just to service the new debt.

[gruez]

>This to me is wrong because the new owners have almost no incentive to build the business for the long term—EA is a strong operator but face layoffs and LOB closures just to service the new debt.

They have very strong incentive because debt holders have first dibs on the assets if EA goes belly up. Equity owners (ie. PE) are the last to get paid, so it's very much in their best interest that EA doesn't even lose a tiny bit of money, because such losses are magnified through leverage.

[BillSaysThis]

You’re assuming, or insinuating, the PE firms don’t immediately start paying themselves outsized management fees, bonuses, and the like.