'Cash-strapped private equity firms...'

Question

Hi,Please have a look at this:'Cash-strapped private equity firms have been unloading some of their companies for as little as a dollar'=&gt; - Does 'cash-strapped' mean 'short of cash'?- Does 'private equity firms' mean 'firms established with the owner's private capital' (not firms established with capital borrowed from banks/etc)?- How different are 'firms' and 'companies' here? so 'companies' are smaller than 'firms'?- 'unloading some of their companies for as little as a dollar'? Does it mean they sell their companies at 1 dollar? Is it exaggeration?Many thanks,Nessie.

Mr Wordy · Accepted Answer

- Does 'cash-strapped' mean 'short of cash'? -- Yes.

- Does 'private equity firms' mean 'firms established with the owner's private capital' (not firms established with capital borrowed from banks/etc)? -- No, it means firms that raise money from investors in order to buy up (or buy stakes in) private companies (that is, companies whose shares are not publicly traded on an exchange).

- How different are 'firms' and 'companies' here? so 'companies' are smaller than 'firms'? -- Not really; there's little difference.

- 'unloading some of their companies for as little as a dollar'? Does it mean they sell their companies at 1 dollar? Is it exaggeration? -- No, think it really means that. Some companies are such a liability that they are worth nothing or even a negative amount (i.e. you have to pay someone to take them off your hands). The $1 is a nominal sum; effectively they're giving them away to get rid of the liability.

Nessie000 · Answer

Thank you very much, Mr Wordy

<How different are 'firms' and 'companies' here? so 'companies' are smaller than 'firms'? -- Not really; there's little difference>

=> but then those companies have been unloading some oftheir companies? I can't understand

<The $1 is a nominal sum; effectively they're giving them away to get rid of the liability.>

=> sorry but could you please be a bit more specific about this? I don't get it very well

Thank you so much once again,

Nessie.

Mr Wordy · Answer

Some of these transactions can get fairly complicated, and I'm not the world's greatest expert on this subject, but hopefully this simplified explanation gives the general idea and is correct enough for the present purposes.

Say that company A is a private equity firm. Its business is investing. Say that companies B, C and D are ordinary companies, engaged in whatever activity it might be (manufacturing, or property development, or whatever). Company A raises a bunch of investment money and buys companies B, C and D from their current owners, often with the aim of growing the companies and selling them on at a later date at a profit. This is what "unloading their companies" refers to: "unloading" = selling/getting rid of; "their companies" = companies B, C and D, that company A previously bought and now owns.

Say that company B previously borrowed $100m from the bank, but now its business is now not looking so good, and the present value of its foreseeable profits only amounts to about $100m. Company B is therefore effectively worth nothing. Company A is happy to give it away ("unload it") to get it off its books, but for the sake of the paperwork makes a nominal charge of $1.

'Cash-strapped private equity firms...'

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