There’s an old platitude that goes something like this: “When one door closes another opens.” I’m on the run today but felt a need to address this issue after reading a magazine article. I will also share a potential business opportunity with you. (Please excuse the quickie job on this post.)
A Door Closes
Here’s another article, this time from The Economist, on a worrisome megatrend that started back in the late 1970s. That’s when wages began stagnating as American companies started offshoring production. Roughly around the same time technology began enabling companies to replace people with software and robots.
Here are a few highlites from All Around the World, Labour is Losing Out to Capital:
Buyout Firms Combing U.S. for Sky-High Sums to Invest
Private-equity funds are in a mad dash for cash.
Across the country, nearly 2,000 private-equity firms are making pitches to state retirement systems, corporate pension funds and wealthy investors in the hope of raising nearly three-quarters of a trillion dollars for their next, new funds — more than what was raised over the last two years combined. The push is part of the life cycle of the private-equity industry, which raises investment pools from large institutions and others that typically last about 10 years. Buyout firms combine the money with borrowed cash to acquire companies over the first five or six years and then sell those companies or take them public — at a profit, if all works out — before the 10 years are over.
How Did Tycoon Meshulam Riklis Make His Fortune?
Money is to look at, not to use. – Meshulam Riklis
One of the questions that I get asked on a regular basis is about the possibility of following the tycoon growth strategy without employing debt. The answer is that it is possible to do so. Over the years I have participated on the buy-side in a number of deals with debt averse buyers. One Russian transportation company comes to mind. The management team had basically been given the company for free by the Russian government shortly after the collapse of the USSR in 1991. The managers then threw themselves fully into growing the company internationally, including in the USA. However, their steadfast rule remained “no debt.” Every acquisition had to be financed with internally generated cash.
The downside to avoiding debt is that it will take longer to get started and, thereafter, growth will be slower. However, some people just prefer to avoid the use of debt. In the Playbook we focus on those who utilize well-managed debt to grow because it’s easier to start that way and the growth rate is far higher. If you are starting out without a large war chest, it’s imperative to be creative about financing. If you wait for the heavens to drop your grubstake into your lap, you will be waiting forever. The lesson is start small and fast, then build momentum.
Canadian tycoon Paul Desmarai of Power Corporation of Canada died on October 8, 2013
Paul Desmarai (January 4, 1927 – October 8, 2013) was a high profile tycoon and empire-builder in Canada for many decades. According to Forbes, he was the 4th wealthiest person in Canada and the 235th wealthiest in the world with an estimated net worth of $4.4 billion. Demarai was born into a family with business interests in the Sudbury, Quebec region. This was a tough blue-collar nickle mining area similar to the Apalachian coal mining region in the USA back in the 1950s.
Here’s a chilling summary of the past 30 years from the NY Times. While a few of us have been tracking this trend for a long time, many people seem oblivious to what’s going on.
America’s Sinking Middle Class
On Tuesday, however, the Census Bureau reminded me how for most Americans 1988 still looks a lot like yesterday: last year, the typical household made $51,017, roughly the same as the typical household made a quarter of a century ago.
The statistic is staggering — hardly what one would expect from one of the richest and most technologically advanced nations on the planet.
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