what does this mean if your company is acquired and run by a private equity? will the rising fed rate mean that they are looking to cut out the highest salaries? am I better off not takin a higher salary because that might paint a red target on myself?
It just means that when entity A wants to buy entity B, they have a general 'cost of capital they use to determine whether or not they want to buy something - and it doesn't matter if it's with cash or debt really.
If you're an employee worrying about stuff, well, I wouldn't unless you're the CEO and have the power to make huge investments ...
If you are a very profitable company, i.e. 'cash cow' without a lot of debt, then private equity may be interested in buying your company with heavy borrowing, using the profits to pay for the debt.
Another way to look at it is, the company is not taking enough risk given the price of cash available in the market.
One thing a company might want to do is take on debt and extend the business.
If it's a private company with strong board control, and the shareholders don't want to sell, well, then you don't have to worry.
As for companies that do get acquired, this notion that PE just wants to screw things up short term etc. is a bit bullshit. Burger King was acquired by that famous Brazilian outfit, and they turned the company around. In that case, probably some execs got fired to clear the path for the new vision, but it will vary case by case. The company might get split up into components. Maybe there is a garbage part of the company dragging on revenues. Maybe that supposedly crappy part of the company is actually more 'long term' and killing R&D would hurt the company, but that's surprisingly hard to establish. A lot of R&D is a waste.
With rising interest rates, debt becomes more expensive, and companies have less to worry about getting bought out like this - of course, companies that are carrying debt have a greater burden.
In summary, companies probably need to adjust a bit given interest rates. This is where a good CFO comes in.
If its speculative, then its either going to deliver a multiple of its investment, or just be a cost, but one that may be worth it to explore an opportunity. I doubt that R&D which proves no viable product is feasible, or no market exists, is more wasteful than allowing a business to wither on aging uncompetitive product lines for want of proper R&D.
thanks I feel good now, I almost turned down a 4-bagger offer until I read your comment, but I am a bit wary, the new CFO is a bit of an unknown. am I going to show up on his radar now? I feel like the business can't run without what I built and my maintenance, in-depth knowledge of the critical business processes.
Oh Jesus, get an investment banker to help you with these things, don't worry to much about what random 'me' has to say about it. I mean - it's actually not that complicated at the end of the day once someone becomes 'financially literate' but the underlying conditions of any deal matter 100x more than general patter of VC, PE and interest rates. There are people (investment bankers) who do this day and and day out and it's like riding a bicycle to them. Find one who cares enough to know about the details and doesn't push you into a deal because they want the commission, which will be their big incentive. They may just require a fee. Try your peer network out for that.
All PE overlords are not the same. Learn what the company's style is and base your decision on how they've handled their other investments. Did they gut it and continue to run a husk? Did they buy companies to change leadership and then sell it to be an "add on" to other PE investments? Did they cut costs, load.on a reasonable amount of debt, take it public again and remain on the board and reap the rewards? All that and more could happen, and you will see your future in what has been done to other acquired companies.
