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I think it’s time for me to read Bryan Burrough’s great book “Barbarians at the Gate” again.

A great read on high frequency trading: Barbarians at the Gate

https://queue.acm.org/detail.cfm?id=2536492

Leveraged Buy Out. You use the value of the company you are acquiring to guarantee junk bonds that you sell to raise the money to buy the company.

Barbarians at the Gate is a popular book that goes into the details while telling the story of a large LBO.

You should read "Barbarians at the Gates" if you haven't already. It's a fascinating read about the takeover of RJR Nabisco and gives a good insight into how large corporations can act in schizophrenic ways.

Thanks kmavm. I love a good business page-turner (think 'Den of Thieves' and 'Barbarians at the Gate' as classics in this category)... but also appreciate books I can learn from so I can apply those lessons to my own business. Sounds like I might get something out of The Facebook Effect.

You shouldn't skip it - it's an excellent book that I believe in the long term will become a Silicon Valley staple similar to what Barbarian at the Gate is for Wall Street

It's also a breezy read - I tore through it in a couple of sittings.

"Leveraged buyout". I.e. borrow cash to buy out a company, using the company's own assets as security for the debt. Gotta love these innocuous sounding financial engineering terms.

Barbarians at the Gate is a classic business book about such a case (the takeover of RJR Nabisco).

If you really want to understand how buyout happen, "Barbarians at the Gate: The Fall of RJR Nabisco" is a really good book.

http://www.amazon.com/Barbarians-Gate-The-Fall-Nabisco-ebook...

Barbarians at the Gate is a - surprisingly good - movie about the hostile takeover & leveraged buyout of RJR Nabisco. The events depicted became the poster child for the corporate greed of the 80s.

There is never a bad time to read Barbarians At the Gates to understand how the incentives work in these deals and to help judge for yourself whether they're going to work out or not.

Spoiler / Hot Take: if you're overloading the company up with debt (even cheap, short-term stuff) and taking out cash based on "revenue projections" or "realized synergies" it's probably not gonna work out so hot when the loan comes due.

Most of the books I read are usually business profiles/bios of founders/companies.

1) iCon Steve Jobs: The Greatest Second Act in the History of Business

2) The Google Story

3) The Perfect Store: Inside eBay

4) Paypal Wars

5) Barbarians at the Gate (not tech-related but one of the best business books of all time)

Having just read both Liar's Poker and Barbarians at the Gates, the concept of CLOs sounds awfully familiar.

Loaning money to high-risk companies? Bundling a whole bunch of said loans into securities? High returns despite the risk of a significant fraction of defaults? Sounds like the world has been here before.

If this was a B-flick, it might well be called the return (or revenge) of the junk bond monster.

I think the journalist rule is good for books that go deep into a topic, like many of the ones you've cited here. On the other hand, I would expand your caveat around biographies to say that journalists are generally very good when it comes to writing about events.

Barbarians at the Gate is a good example of this - it required authors who were able to dig deep into _what_ happened. There's obviously some info on why things happened there as well, but the primary purpose of the book is to inform the reader of what occurred, which is a good use of the journalistic skill set.

If you're interested in what investment bankers do in a 95-hour week then check out the book "Barbarians at the Gate." Events took place in 1988 so you don't have things like PowerPoint but there are a lot of good examples of how it becomes "necessary" to put in so many hours. "Necessary" in quotes because it's not a matter of life or death but it really does become required to win the deal. With the amount of money involved in these deals it becomes ultra-competitive and more hours pretty directly translates to a better chance of winning the deal. Especially once you have short deadlines that are intended to get everyone to come forward with their best & final offer, you might just have one weekend to put together a whole pitchbook + all the deal terms to try to win the business.

Because the hours worked translate so directly into increased chances of winning the deal, it really does become a prisoners dilemma amongst all the firms. If they could all stick to 40 hour weeks then no one would have an advantage based on hours worked, but all it takes it one firm to defect and it's game over, welcome back to 100 hour weeks.

So much for the S-1. Interesting move. If your goal is to work on software this seems like a pretty good deal for the CEO - 51% of the new spin-off and a bunch of cash and 10 years of "guaranteed" license revenue. Was this an LBO or straight cash? Anybody know? Been reading Barbarians at the Gate lately and have taken a new interest in management agreements and payouts in these things.

I might be misremembering but I'm pretty sure that when reading "Barbarians at the gate", they referred to these eighties' physical worksheets also as spreadsheets. The spreading of the sheet in the table is, in fact more physical than digital...

EDIT: This article: https://news.ycombinator.com/item?id=8526319

I suggest anyone read "Barbarians at the Gate" about the fall of RJR Nabisco if you believe that stock ownership actually means you have an influence on the company.

I'll give you my 3 favorites of the year:

- The Destiny of the Republic, by Candice Millard. The shooting of Garfield is the framing of this book. It covers a time period I knew such little about (~1880s), so I learned so much reading it. Just a crazy, interesting story in many ways.

- The Forever War, by Filkins. Sort of a series of vignettes by a reporter covering Afghanistan, then Iraq during the war. I still don't know what to think / feel about it, but I've recommended the book several times.

- Barbarians at the Gate, by Burroughs, Helyar. A classic that I put off reading for years because I thought it would be a slog (it's sort of long), but I finished in a week. I love business history / case study books, and this is one of the most famous, for good reason. If you like this also check out Predator's Ball, which I read this year. It's about Milken and the junk bond era.

Spanish real estate has been tanking. Over 1.5mm units unsold. I think it's a good time to buy, perhaps towards the end of the year.

My wife is a self-employed travel agent catering to the Russian market (I'm Russian/Cuban). I she would love to go into property management, specially if the property is ours.

I'm reading about LBOs in "Barbarians at the gate" and I think it's a bit like that. You need to figure out the potential rental income of a property and convince the bankers that it's enough to service the mortgage debt. All the while putting as little of your own money in as possible.

It's hard to find books about ethical behavior, except maybe good behavior in extremis. Man bites dog is a story, not the other way 'round, after all. And "dog nicely licks hand" is certainly not a story. I have a lot of books, and I wonder if I could find five that don't discuss unethical behavior if only as counterexample illustrations. Certainly no novels that don't.

Among the best though: Barbarians at the Gate, Enron: The Smartest Guys in the Room, most books concerning the history of medicine and any Trump biography published after he leaves office, no doubt. Any Jobs biography. The story of NeXT - his European head committed fraud that brought the company down.

Years ago I read an excellent biography of John D. MacArthur, the Insurance giant that would suit you well. Famous now for the "Genius Grants" given out by the MacArthur Fellows Program. John D. Rockefeller (who would argue his own virtues, of course.) Wolf of Wall Street.

On my list to read:

Images of organization Paperback – Jan 1997
by Gareth Morgan (Author)
https://www.amazon.ca/Images-organization-Gareth-Morgan/dp/0...

The Organization Man
by William H. Whyte
http://a.co/2kRfJHA

The above 2 books said to be consistent with The Gervais Principle:

https://www.ribbonfarm.com/2009/10/07/the-gervais-principle-...

Plus
The Prince of War: Billy Graham's Crusade for a Wholly Christian Empire
by Cecil Bothwell
http://a.co/17NKkDg

and

MOTHER TERESA: The Untold Story
by Aroup Chatterjee
http://a.co/hqumhdA

Plus a small pile of (contemporary) books about slavery, and slavery as a business, most in the public domain, now.

One problem you might encounter is that sociopaths often do very well in business, but are not always interesting in a story-sense because their self-concern is so predictable. Mere lack of empathy isn't a motive, so wrapping a detailed story around that is pretty hard.

"How great do Yahoo's investors feel that their CEO is spending her time on trying to be designer instead of"

Agree. There was a story in a book regarding Henry Kravis of KKR (I think it was Barbarians at the Gate) where he fired the President of a hotel chain he had acquired when he merely asked him his opinion of the new signage (or logo don't remember exactly but it was something like that).

Private equity companies exist to purchase existing companies from their current owners and then run them better/extract more value from them. The canonical example of this is purchasing a public company by acquiring all outstanding shares.

This is often a fantastically expensive enterprise that requires that the new owners raise tons of money. The new owners do this by structuring a deal where the company will take out a ton of debt (basically its entire market capitalization of the company, plus a premium) to purchase the outstanding shares. This is known as a leveraged buyout (LBO).

So if a public company has $100M in outstanding shares and zero debt before they go private, by going private the private company will now have $100M of debt (rough numbers, illustrative but not necessarily realistic). That's why going private often results in dramatic sell offs and cost cutting- the new company needs to get the debt load down, and fast.

Definitely read Barbarians at the Gates, it's a great book and explains a lot about private equity from a dramatic case in the 80s.

I think the base of the problem you're describing is the small population base and (less so) tyranny of distance.

If you're in the US and come up with a product there are lots of options for accessing new markets fast. If you're in Japan then you have a much larger audience, captive, most of it in close proximity. Australia has low population. It's heavily concentrated in the cities, but they're a significant distance apart.

I became aware of this when I read "Barbarians at the Gate". Early on, it describes the rise of RJR Reynolds. I found it amazing that you could just get on your horse and ride on to the next city with your capital and ideas and make acquisitions and expand.

Australia could chase edge by becoming a low-tax or low-red-tape capital. But never does :)

I mean it’s been a huge thing that people have known about for decades. Romney was one of them. Barbarians at the Gate is a popular book on KKR in particular and was made into a movie.

As to why it’s not illegal... there’s both the realpolitik “who are friends with congresspeople” as well as the wonky “how do you make it illegal? It’s just combining a lot of elements of capitalism”

The way you make it illegal, of course, is preventing stuff like directors being able to get paid big bonuses for buyouts (basically bribes to accept LBOs), by properly classifying such movements as stealing assets from the company

Have you, by chance, read Barbarians at the Gate?

The book Barbarians At The Gate about the leveraged buy out of Nabisco.

Buying a company with borrowed funds and using the company's cash flows or assets to repay the loan is known as a Leveraged Buy Out (LBO) [0]. It was very trendy in the 1980s but has recently made a comeback.

A good book to read on one of the most notorious examples of an LBO is Barbarians at the Gate [1][2] which dealt with the takeover of RJR Nabisco, a large American food and tobacco company.

For lighter fare, re-watch the 1990 movie Pretty Woman [3][4] but this time ignore the fluffy romance and focus on Richard Gere's character, Edward Lewis, as he goes about negotiating the LBO of a shipbuilding company. Edward Lewis was modeled on a real-life LBO guy, Reginald Lewis, who bought Beatrice International Foods from Beatrice Companies in 1987 in an LBO worth $985 million [5].

[0] https://en.wikipedia.org/wiki/Leveraged_buy_out

[1] https://en.wikipedia.org/wiki/Barbarians_at_the_Gate:_The_Fa...

[2] http://amzn.com/0061655554

[3] https://en.wikipedia.org/wiki/Pretty_Woman

[4] http://www.imdb.com/title/tt0100405/

[5] https://en.wikipedia.org/wiki/Reginald_Lewis

The Four Steps To The Epiphany - Steve Blank

Neuromancer - William Gibson

Predictable Revenue - Aaron Ross, Marylou Tyler

The Fountainhead - Ayn Rand

The Ultimate Question 2.0 - Fred Reichheld‎

The Singularity is Near - Ray Kurzweil

Moonshot! - John Sculley

Zero To One - Peter Thiel

Republic - Plato

Meditations - Marcus Aurelius

Nineteen Eighty-Four - George Orwell

Fahrenheit 451 - Ray Bradbury

The Mysterious Island - Jules Verne

Discipline of Market Leaders - Michael Treacy, Fred Wiersema

False Memory - Dean Koontz

NOS4A2- Joe Hill

Revival - Stephen King

Barbarians At The Gate - John Helyar and Bryan Burrough

Into Thin Air - John Krakauer

How To Measure Anything - Douglas Hubbard

and any collection of the works of H.P. Lovecraft.

Does anyone recommend Barbarians at the Gate? Useful to startup founders or another big business story?

Well, to be fair, leveraged buyouts can be a useful tool to take over a company when there is a bad management team or an opportunity to generate a synergy when it is bought by another player in the same segment. For example this was recently the case with Dell and Hilton.

But generally the high amount of leverage implies aggressive cost cutting, which negatively impacts the employees and in some cases R&D, which in turn means risking the future sustainability of the company for short term profits.

If you're interested in the topic, "Barbarians at the Gate" is a great book to understand the in and outs of LBO's. The writing style also makes it fun to read.

By definition, the more leveraged the company, the more of it is owned by creditors. So if the company later does go belly-up, it is the creditors (banks, bondholders, etc.) who lose most on a percentage basis.

This simplistic analysis however ignores that before the buyout the company might have been a prosperous self-sustaining entity fully capitalized by common stock with little debt. That common stock, made into a small percentage of the capital structure by the buyout, is often wiped out too in the event of bankruptcy - indeed it is usually at the bottom of the totem pole in that capital structure. So although they may no longer be majority owners, bankruptcy is typically an unhappy event for long-time stockholders of the company such as founders, employees holding company stock in their 401ks, etc.

Perversely this is the kind of company PE outfits typically go after - in their worldview it is a waste of leveraging potential not to apply debt to such a company. I recommend reading "Barbarians at the Gate" if you are interested in this topic.

I've been trying to learn a lot about investment finance in the last 18 months. I find that I probably learn more from light, non fiction texts like Barbarians at the Gate and Liar's Poker. Why? Because all the strange abstractions of finance are easier to grasp when you have a sense for why they needed to be created. You get the story behind them.

I would recommend you read "Barbarians at the Gate: The Fall of RJR Nabisco"

It's an eye-opening book about just how removed upper management of a public company can be. Although I don't have much anecdotal experience to back it up, I think people who start their own companies and grow them are much more likely to be honorable than employees who worked their way up to become CEO. Being upper management of a large corporation is generally a golden ticket. Even if you do a horrible job, you will probably still receive millions in pay and stock options. In fact, because the organization is so large, it will probably take a couple years for people to figure out if you are doing poorly. By that time, you already have your money.

Because of the incentives, I would think that people trying to get into these types of positions would be much more ruthless than people who generated their wealth through their own means.

Like I said, I don't have much experience with this but it is how I imagine things are.

Pick up a few books like Liar's Poker, When Genius Failed, and Barbarians at the Gate. That'll give you an engaging intro. Then you can start reading sites like FT, seekingalpha, Bloomberg, etc.

A few pieces of advice: under no circumstances do you want to get caught in the weeds of technical analysis, similarly stay away from the gold bugs, and finally learning is good, but don't jump in unless you are prepared to lose your shirt.

The Four Steps to the Epiphany - Steve Blank

Steve Jobs - Walter Isaacson

Artificial Life - Steven Levy

On Writing - Stephen King

Machine Learning for Hackers - Drew Conway and John Myles White

How Doctors Think - Jerome Goopman

Cholesterol Clarity: What The HDL Is Wrong With My Numbers? - Jimmy Moore & Eric C. Westman

Barbarians at the Gate: The Fall of RJR Nabisco - Bryan Burrough & John Helyar

One of my favorite Microsoft stories is of Windows for Pen Computing. A company named GO had brought out a product based on Pen interfaces (this was around the time of Windows 3.1). Microsoft feared they'd lose their monopoly so they rushed out Windows for Pen Computing 1.0. It stunk and so it failed pretty quickly.

In the book Barbarians at the Gate one of the co-creators of "Pen Windows" tells the story of that failure and what he told his fellow co-creator. Here's a quote from the book...

[Begin Quote]

"Greg, Look. This wasn't a thing about making money. This was all about 'Block that Kick.' We were on the special team. We were preventing GO from running away with the market. That was our job.

Look, your background is in applications, you have to ship the application. My job is in systems. Systems, for much longer on, has been completely 'Don't let anybody else steal DOS from us.' That's all we're doing. We weren't trying to sell software, we were trying to prevent other people from selling software.

From my view, Pen Windows was a winner. We shut down GO. They spent $75 million pumping up this market, we spent $4 million shooting them down. They're toast!"

[End Quote]

Sorry for the long winded post but I wanted to point out how old this strategy is. .Net wasn't a product to make money it was a product to block Java. By making it the default Windows development environment they were able to do so without flushing money down the toilet (as was done in the example above)

So, as Miguel De Icaza says in the piece, Microsoft really doesn't love .Net the way Xamarin does. They still want people developing for Windows alone. Their developers just happened to create a great tool while management was paying lipservice to cross platform development.

For anyone interested in reading about a scenario like this, the book "barbarians at the gate" is very good.

Here's a question: all these big old companies are in the market for startups that they can buy to fix their business. Why not buy the big old company instead, build the product there, and keep more of the value generated? I think we'll see much more of this over the next few years: PE going after old guard tech cos like yahoo (or amd) OR going after old guard non-tech and automating everything.

Yeah the article goes through the mechanism, but it's not a new story that private equity firms buy companies with debt that the target company ends up owning. It's a little bit interesting to read about how it's done but it's basically the same thing you can read about in Barbarians At the Gate. It's not that they wanted or didn't care about Remington going bankrupt -- if Remington doesn't pay back those loans, it'll be harder for Cerberus to fund the next LBO, Cerberus would prefer that the hedge funds who loaned the money make back their money -- it's that it's highly leveraged and very risky. They assume it won't work every time, but the law of averages isn't comforting to the people working at Remington.