Private equity firms ravaged Simmons, could they do the same to banks?


A big cover story in Monday's New York Times looks at how Simmons Bedding Company, a 133-year-old firm, was driven into bankruptcy by private equity firms. The story is alarming in a number of ways, not least for implication that private equity can be a powerfully destructive force in the "real," productive economy.

Could these same firms use similar techniques to push troubled banks over the edge? Now that the FDIC has voted to allow private equity firms to buy troubled banks, we could be looking at another tsunami of bank failures several years in the future.

Let's first take a look at how private equity firms drove Simmons to bankruptcy while making $750 million in profits over the years. The current owner, Thomas H. Lee Partners netted about $77 million in profits collected as special dividends and fees for buying and running the company. Wall Street investment banks also made millions arranging for numerous takeovers of Simmons since its first sale in 1991 when the company had just $164 million in debt.

Originally published