Old Tricks, New Suits: What 1970s hostile takeovers taught private equity firms (#283)

When I was a young man in Australia, my father worked for a pastoral company named Australian Mercantile Land & Finance Co. Ltd. (AML&F). The company owned vast areas of wool growing and cattle raising properties, ran stock and station agencies in numerous country towns throughout Australia, and was a financier for numerous families.

In the 1970s, everything changed. AML&F was the subject of a hostile takeover by Wood-Hall Trust Ltd. of the United Kingdom. AML&F was overcapitalized, and the company’s market value was less than the value of its assets. A prime target!

After the acquisition, the company completely changed. Staff were fired, offices were closed, and properties were sold, displacing countless loyal employees. In 1982, Wood-Hall Trust Ltd. sold AML&F to another investment company.

I knew many of the families whose lives were destroyed by this hostile takeover, all in the name of generating returns for the shareholders of Wood-Hall Trust Ltd. in the United Kingdom.

It occurred to me that investment companies in the 1970s that engaged in hostile takeovers and asset stripping might share several key similarities with modern private equity (PE) firms, even though the strategies and language may have evolved.

Here's what a hostile takeover and private equity acquisition may have in common:

Focus on Undervalued Companies:
- Then: 1970s corporate raiders sought companies whose market value was less than the value of their assets. They’d buy out the company, often through a hostile takeover, then sell off assets (like real estate, divisions, patents) to make a profit.
- Now: PE firms also target undervalued or underperforming companies, especially those with untapped potential or inefficient operations. They aim to restructure and improve profitability before reselling (or taking public).

Heavy Use of Debt (Leverage):
- Then: Corporate raiders used leveraged buyouts (LBOs), borrowing heavily to fund takeovers and putting the debt onto the books of the acquired company.
- Now: Modern PE firms also rely on LBOs. The acquired company often bears the burden of debt, which PE firms manage through cash flow improvements and asset sales.

Short-to-Medium-Term Horizon:
- Then: Asset strippers aimed for quick returns, dismantling companies and flipping parts for a fast profit.
- Now: PE firms typically aim for a 3-7 year holding period, during which they work on improving performance before exiting through a sale or IPO.

Restructuring and Downsizing:
- Then: Raider takeovers often led to mass layoffs and restructuring as non-core assets were sold.
- Now: PE firms also often restructure - cutting costs, selling divisions, or relocating operations. While more strategic and polished today, layoffs and cost-cutting remain common.

Controversy and Criticism:
- Then: Corporate raiders were seen as predatory, dismantling industry.
- Now: PE firms face similar criticism, especially in industries like retail and healthcare, where aggressive cost-cutting and debt loads can lead to bankruptcies, job losses, and diminished service.

Financial Engineering:
- Then: The goal was to unlock hidden value, often through breaking up conglomerates and monetizing undervalued assets.
- Now: PE firms still engage in financial engineering, but also incorporate sophisticated strategies, including tax optimization, management incentives, dividend recapitalizations.

Influence Over Management:
- Then: Raiders often replaced management with their own teams or forced changes.
- Now: PE firms take board seats, install new leadership, and actively manage strategy. They’re deeply involved, just with a friendlier tone.

Rick’s Commentary

Different Eras, Familiar Playbooks.

While the sharp suits and slick language of today’s private equity firms may seem worlds apart from the brash corporate raiders of the 1970s, the underlying philosophy remains strikingly similar:

Identify undervalued assets, restructure for profit, and exit strategically.

What has changed is not the core intent, but the packaging and precision of execution.

Whether it’s a sprawling pastoral enterprise picked apart for land value, or a modern veterinary hospital optimized for earnings before interest, taxes, depreciation and amortization (EBITDA) growth, the dance between capital and control continues, albeit to a different rhythm.

Understanding this lineage isn’t just a history lesson; it’s a lens through which to view how business reshapes itself to suit the times, while often playing the same old tune.

Rick LeCouteur

Old Tricks, New Suits: What 1970s hostile takeovers taught private equity firms (#283)

In the 1970s, everything changed. AML&F was the subject of a hostile takeover by Wood-Hall Trust Ltd. of the United Kingdom. AML&F was overcapitalized, and the company’s market value was less than the value of its assets. A prime target!

After the acquisition, the company completely changed. Staff were fired, offices were closed, and properties were sold, displacing countless loyal employees. In 1982, Wood-Hall Trust Ltd. sold AML&F to another investment company.

I knew many of the families whose lives were destroyed by this hostile takeover, all in the name of generating returns for the shareholders of Wood-Hall Trust Ltd. in the United Kingdom.

It occurred to me that investment companies in the 1970s that engaged in hostile takeovers and asset stripping might share several key similarities with modern private equity (PE) firms, even though the strategies and language may have evolved.

Here's what a hostile takeover and private equity acquisition may have in common:

Focus on Undervalued Companies:

Then: 1970s corporate raiders sought companies whose market value was less than the value of their assets. They’d buy out the company, often through a hostile takeover, then sell off assets (like real estate, divisions, patents) to make a profit.

Now: PE firms also target undervalued or underperforming companies, especially those with untapped potential or inefficient operations. They aim to restructure and improve profitability before reselling (or taking public).

Heavy Use of Debt (Leverage):

Then: Corporate raiders used leveraged buyouts (LBOs), borrowing heavily to fund takeovers and putting the debt onto the books of the acquired company.

Now: Modern PE firms also rely on LBOs. The acquired company often bears the burden of debt, which PE firms manage through cash flow improvements and asset sales.

Short-to-Medium-Term Horizon:

Then: Asset strippers aimed for quick returns, dismantling companies and flipping parts for a fast profit.

Now: PE firms typically aim for a 3-7 year holding period, during which they work on improving performance before exiting through a sale or IPO.

Restructuring and Downsizing:

Then: Raider takeovers often led to mass layoffs and restructuring as non-core assets were sold.

Now: PE firms also often restructure - cutting costs, selling divisions, or relocating operations. While more strategic and polished today, layoffs and cost-cutting remain common.

Controversy and Criticism:

Then: Corporate raiders were seen as predatory, dismantling industry.

Now: PE firms face similar criticism, especially in industries like retail and healthcare, where aggressive cost-cutting and debt loads can lead to bankruptcies, job losses, and diminished service.

Financial Engineering:

Then: The goal was to unlock hidden value, often through breaking up conglomerates and monetizing undervalued assets.

Now: PE firms still engage in financial engineering, but also incorporate sophisticated strategies, including tax optimization, management incentives, dividend recapitalizations.

Influence Over Management:

Then: Raiders often replaced management with their own teams or forced changes.

Now: PE firms take board seats, install new leadership, and actively manage strategy. They’re deeply involved, just with a friendlier tone.

Rick’s Commentary

Different Eras, Familiar Playbooks.

While the sharp suits and slick language of today’s private equity firms may seem worlds apart from the brash corporate raiders of the 1970s, the underlying philosophy remains strikingly similar:

Identify undervalued assets, restructure for profit, and exit strategically.

What has changed is not the core intent, but the packaging and precision of execution.

Whether it’s a sprawling pastoral enterprise picked apart for land value, or a modern veterinary hospital optimized for earnings before interest, taxes, depreciation and amortization (EBITDA) growth, the dance between capital and control continues, albeit to a different rhythm.

Understanding this lineage isn’t just a history lesson; it’s a lens through which to view how business reshapes itself to suit the times, while often playing the same old tune.

Same Song, Different Dance.

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