system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: Private equity or hedge funds that buy successful brands and drive them to bankruptcy within a few years. What do they gain by doing this?

Just thinking about JCrew, Toys R Us, Payless, Sears, Neiman Marcus and more were all bought out by funds seemingly trying to bankrupt them. Isn't the point of buying a business trying to get them to succeed?
gpt
This isn't always the case but when that's the plan, it goes as follows:


    - Borrow money and buyout the company.

    - Have the company massively go into debt and use the money to pay yourself an enormous dividend. 

    - Use the dividend to pay back the money you (not the company) borrowed.

    - The company is way over leveraged, defaults on the debt and declares bankruptcy.



Here's where it gets interesting, the bankrupt company now sells off it's assets (brand name, plant, etc.) and defaults on its union contracts, pension obligations (which screws the retirees and the taxpayer funded PBGC), etc. The corporate lenders are now basically the owners of a new unencumbered company with a much higher profit margin. Hostess Bakeries is a good example of this.