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August 10, 2007 LBOs Gone Bad
The most recent issue of Business Week focuses on the well publicized problems of the housing market, which is definitely fascinating. Yet, there is a short article on page 40 on the plight of Spectrum Brands, which is a must read. The article highlights the 12 year history of Spectrum and the growth through leverage acquisitions that has left the company with a mountain of debt. Spectrum followed the lure of acquisition and added new brands to build itself into a consumer brand powerhouse. As the article reveals on page 42, "...Spectrum might have been able to handle the ups and downs relatively well if it didn't also have to deal with so much debt." Its easy to wonder what might well happen to the `Spectrum's' of today's private equity market over the next decade. Carrying debt of 9 times operating profit is "unmanageable" for most companies and is a lot like living pay check to pay check. Everything is alright until your car breaks down.
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