A private equity buyer could make money off of BlackBerry, even if it fails

August 9, 2013
August 9, 2013

Troubled technology firm BlackBerry is open to the idea of going private, as a way to turn itself around behind closed doors, according to Reuters. BlackBerry could be attractive to a private equity buyer since it throws off a decent amount of cash—it had more than $2.8 billion in cash on its balance sheet as of June 1. But that doesn’t mean BlackBerry’s outlook would improve.

The company already isn’t in good shape, with disappointing sales of its new BlackBerry 10 line, layoffs and executive departures. An opportunistic buyout suitor could run it into the ground without any intention of improving the company.  It’s a strategy known in the private equity world as the “strip and flip” model: take on a lot of debt, and make money off of paying yourself dividends or other payments and collecting management fees.

That said, the private equity industry has been trying to change its image to something kinder and gentler, especially after the last US presidential campaign, which—sparked by Republican nominee Mitt Romney’s involvement in private equity firm Bain Capital—portrayed the sector as greedy job destroyers that drive companies into bankruptcy. Spurring BlackBerry’s demise wouldn’t help boost the industry’s image as source of job creation and help for ailing companies.

On the other hand, a private equity buyer could see BlackBerry as a good fixer upper, but analysts are mostly down on the likelihood of a BlackBerry comeback. That would make it hard for a private equity owner to sell the company or take it public in the future. And if banks don’t believe in BlackBerry’s turnaround, it could also be hard to raise financing for such a deal. But again, if you are a strip and flipper, then you might not even care.

BlackBerry hasn’t made any decisions yet on its future, and the Canadian government, which has seen the company as a national treasure, will also probably have a say in any potential new owner. Meanwhile, BlackBerry doesn’t have the upper hand to negotiate a sale since it’s already being squeezed by investors. Beggars can’t be choosers.

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