[HN Gopher] Private equity is buying everything from vet offices...
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Private equity is buying everything from vet offices to tech
conglomerates
Author : Brajeshwar
Score : 295 points
Date : 2023-06-13 17:54 UTC (5 hours ago)
(HTM) web link (www.theverge.com)
(TXT) w3m dump (www.theverge.com)
| awaythrow483 wrote:
| If you want to understand what went wrong with America, start
| with private equity
| thrawa8387336 wrote:
| Nah, many countries have it. If people have a damn it would be
| a different story but in the US, cheaper is always better. See
| architecture, food, housing, hotels...
| hospitalJail wrote:
| Lobbying/Bribery seems more egregious than investing.
|
| At least investing has some economic forces that cause people
| to conserve resources and allocate them better than prior.
|
| Lobbying/Bribery is just pure corruption. The medical industry
| is so extravagant because they are among the top lobbyists of
| all time. Only the entirety of real estate or all US
| businesses(chamber of commerce) can even compete with merely
| the American Medical Association or AHA. Heck, combining all of
| medical and the lobbying is worse than every other industry
| including all US businesses
|
| https://www.opensecrets.org/federal-lobbying/top-spenders?cy...
| jtode wrote:
| Private Equity is the most destructive and bad-faith-
| operating version of investing, in much the same way that Kim
| Jong Un is the most destructive and bad-faith-operating
| version of a politician. The capital that one would define as
| the "investment" is in fact just a viral delivery mechanism,
| so the parasite can infest the host, devour its innards, and
| leave its husk to dry up.
| ARandomerDude wrote:
| Don't forget teachers unions and the Dept of Ed.
|
| They bleed taxpayers dry because they are "helping the
| children" and everybody knows a nice teacher who isn't part
| of the problem but will be held out as a defense of govt and
| union corruption.
| ambicapter wrote:
| > At least investing has some economic forces that cause
| people to conserve resources and allocate them better than
| prior.
|
| Not when the money is basically free, e.g. the last decade of
| money policy. PE has always been around, so why is it hated
| now? Probably the forces that would normally keep it in
| check, namely, a cost to capital and a competitive business
| environment (as opposed to monopolies and natural monopolies
| all over the place) haven't been present in the last decade.
| khuey wrote:
| PE has been hated since at least the 1980s, when capital
| was very far from free.
| Veliladon wrote:
| Yep. When Carl Icahn was doing it they just called it
| "asset stripping" and "corporate raiding" instead of
| using the term private equity.
|
| Fucker made squillions off the backs of misery for
| hundreds of thousands of people.
| garbagecoder wrote:
| I mostly agree with this. I would say a lot of what is wrong
| with America is that corporation laws allow this kind of thing.
| There are other ways. Nobody thinks Germany is an economic
| backwater and they require, I believe in large companies, for
| employees to have a role in the management of the company [1].
| There are also co-ops like the Mondragon Coop in Spain[2]. Some
| states have co-op laws but are mostly used by farmers and a few
| other niche things.
|
| Interesting, most professional firms must be managed by their
| professionals, so law firms are partially "worker owned" too.
|
| But I think the German model is probably the best. Equity
| interests and employee interests can both be short-term, but
| usually the best way to balance them is with long-term
| thinking.
|
| I'm not sure that would save the world, but I think it would
| improve the lives of working people.
|
| [1] https://en.wikipedia.org/wiki/Codetermination_in_Germany
| [2] https://en.wikipedia.org/wiki/Mondragon_Corporation
| earnesti wrote:
| What I know about PE firms in Europe, they mostly operate the
| same way as in the US. There are plenty of PE firms and in
| general to me it feels like they are more popular here than
| US actually, as with LP's they are perceived as lower risk.
|
| What I don't understand from the article, is how the PE firm
| is able to shift the debt from the buyer to the firm. That
| shouldn't be possible in any jurisdiction I know a little bit
| of, and I highly doubt that it is easy to do in US.
| garbagecoder wrote:
| >I highly doubt that it is easy to do in US.
|
| There are many such cases. The book in the article
| "Barbarians at the Gate" was probably the most famous
| instance until AOL took over Time Warner.
| coastermug wrote:
| Leveraged buyouts. I've seen them explained like a
| mortgage, except that doesn't work in my head either.
| ahzhou wrote:
| It's basically the acquisition (buying out) a company
| using debt-financing (leverage). The typical plan is
| usually to use business revenue to finance the interest
| payments, optimize the business via cost-cuts or roll-
| ups, and flip it for a profit in 5-7 years. Like most
| things, PE can be helpful or destructive depending on the
| execution and the exact strategy for flipping.
|
| At its best, it's bringing in experienced operators and
| maturing a company into something that is stable, before
| selling it to an acquirer or IPO.
|
| At its worst, it's saddling a weak business with debt,
| hiring terrible execs, and making unsustainable cost cuts
| to stave off an implosion.
|
| The strategy matters a lot. Some funds specialize in
| "distressed assets", for example and are very good at
| carving up dying company and selling it for parts.
| coastermug wrote:
| Thank you, this is a balanced and detailed response. I
| don't personally "buy" the narrative that all LBOs are
| destructive. After all there are entire funds devoted to
| LBOs and how would these PE outfits carry on getting
| loans if their companies constantly defaulted?
| ahzhou wrote:
| Thats right. At the end of the day, PE investors need to
| make their returns and blow-ups like Toys-R-Us did not
| make good returns. That said, there are systematic
| problems with the incentives involved.
|
| 1. PE investors tend to be VERY financially savvy, but
| sell to less skilled investors. If they see that they
| have the chance to sell one of their assets at a great
| price, they don't have any issue with anyone holding the
| bag. There were at least a few IPOs/SPACs that left the
| (relatively less-savvy) public holding the bag.
|
| 2. PE investors tend to be be finance-minded, not
| operations-focused. That means that their planned
| optimizations think about the financial health of a
| company, not the "real" health. Culture can suffer
| because of this, for example.
|
| 3. PE is very interest rate dependent, and low interest
| rates / bad investors can (and probably did) make the
| tech bubble worse.
| lazerpants wrote:
| I am not a PE expert but I will try to explain using the
| mortgage analogy. This is drastically simplified. The
| shoehorned part of the analogy is that a bank won't
| exactly lend as described below.
|
| You take out a mortgage for a property you intend to
| cashflow by posting it on AirBnB. You open an LLC to do
| so. You put down a fraction of the price of the home,
| let's say 5-10% and then you do some upgrades, but you
| borrow against the price of the home for the upgrades,
| not against your own credit. Now, you start AirBnBing
| this very nice house out for absolute top dollar. It's
| nice and people love it, you have great reviews. Every
| time you get a payment from AirBnB, you take most of the
| money and move it to your personal bank account as a
| "management fee" or a "bonus" and you put the smallest
| amount possible into the mortgage and the second mortgage
| (the one you used to upgrade the house). Now, as the
| house gets more use, or you cut costs, say on having the
| pool cleaned, or on yard maintenance, the house goes down
| in quality pretty significantly, but your original AirBnB
| ratings are there and people are willing to pay
| significant sums so you continue to rake in cash, and you
| try to avoid maintenance as much as possible.
|
| Eventually, the place is a run down heap, and people are
| leaving terrible reviews, so you stop having
| bookings/cashflow. Okay, now you just send the keys to
| the bank and say "it's your problem". They get a rundown
| house that has barely repaid its mortgage, and you get to
| keep the cash. The trick is to have moved a lot more cash
| into your account than you lose in the mortgage down
| payment.
|
| Edit: I should add that PE firms aren't always trying to
| extract value at the cost of the business (sometimes they
| absolutely are). However, they are always incentivized to
| make cash flow and take maximum business risk for
| potentially even larger payout.
| JumpCrisscross wrote:
| > _Every time you get a payment from AirBnB, you take
| most of the money and move it to your personal bank
| account as a "management fee" or a "bonus" and you put
| the smallest amount possible into the mortgage and the
| second mortgage_
|
| Correction: you pay your debt first. Then you take the
| money and spend it on yourself versus investing in the
| business, upgrading the home.
| Veliladon wrote:
| Debt can be acquired so long as there's a counterparty
| willing to lend it. Banks can be convinced to pony up a lot
| the cash because the business will often have scrap value
| if all else fails and they can secure themselves a very
| senior tranche to get that scrap value if everything goes
| belly up. The unsecured tranches are often marketed
| directly by PE firms to suckers otherwise known as
| investors. They like to do lots of little things to make
| the investor feel better like being able to convert debt to
| equity at highly attractive rates ("if we IPO you'll make
| squillions!") but for the investor they might as well be
| buying a lottery ticket.
| MandieD wrote:
| We also have very effective unions in a lot of sectors,
| particularly manufacturing. They're usually one of the main
| factions in a Betriebsrat, so do a lot of negotiating long
| before problems rise to the level of a strike.
|
| We employees vote for our Betriebsrat members, and in very
| large firms like mine, the candidates organize themselves
| into faction lists (kind of like parties), and it works
| basically like electoral politics do in the national and
| state parliaments. At my company, our Betriebsrat elections
| are every four years. You can go to the Betriebsrat, either
| individual members or the council as a whole, with things
| Americans would (reluctantly) go to HR for.
|
| The top members of a large company Betriebsrat (but not all -
| our Betriebsrat is way too large for that) are then part of
| the board of directors during their elected term.
|
| A former IT colleague of mine is currently serving as a full-
| time Betriebsrat member after years of being involved, still
| receiving his full salary; he will go back to working in IT
| again at the end of the current term. Another colleague is a
| lower-ranking member (different faction, too) and just gets a
| certain number of paid hours per month to do Betriebsrat
| stuff.
| hn8305823 wrote:
| > That's a great point, and I'm always adamant about pushing back
| slightly on the story of Toys"R"Us. Toys"R"Us was profitable the
| last year before it declared bankruptcy. The challenge was that
| it had so much debt that it was servicing that rather than being
| able to expand its operations, and it had advantages that Amazon
| didn't have in terms of physical stores.
|
| Push back more strongly. My partner at the time had been working
| at a Toys'R'Us store for many years. She said right up to the
| last day store traffic was as strong as ever - think last minute
| shopping for your kid's friend's birthday party, buying toys for
| your own kid's birthday etc. They had significant traffic and
| sales throughout the year, not just holiday season. Buying a
| bicycle for our kid? You're going to want to do that in person.
| You're a mediocre parent that wants to placate your "annoying"
| kid? take them to Toys'R'Us and let them shop for something.
| People really underestimate how well TRU was thriving as a brick-
| and-mortar store.
|
| Also, contrary to what the article says about not figuring out
| online shopping and logistics, she said associates spent a
| majority of their time pulling online orders for same-day in-
| store pickup, and that business was steadily increasing.
|
| Too much debt killed Toys'R'Us, not Amazon. I don't know if it
| was all acquisition debt, or if they loaded up afterwords to
| strip-mine value but either way it was the debt period.
| crazygringo wrote:
| > _She said right up to the last day store traffic was as
| strong as ever... People really underestimate how well TRU was
| thriving as a brick-and-mortar store._
|
| To be fair, that doesn't mean thriving at all. It's easy to
| have tons of customers but be making zero profit because all
| your revenue is eaten up by costs. It's common for stores to be
| busy up to the moment they go bankrupt -- because the problem
| is they're stuck where they can't raise prices (shoppers will
| evaporate) and they can't lower costs.
|
| > _contrary to what the article says about not figuring out
| online shopping and logistics, she said associates spent a
| majority of their time pulling online orders for same-day in-
| store pickup_
|
| That sounds like _not_ figuring it out to me. Store employees
| pulling orders for in-store pickup is generally a _losing_
| proposition and has never been sustainable. Big warehouses
| handle online orders efficiently. Retail stores don 't at all,
| generally speaking.
| madballster wrote:
| Ballou's criticism of PE fund managers being skilled in finance
| but not in operations or engineering is missing the point. A good
| PE fund manager understands the ins and outs of capital
| allocation and its long-term effects on corporate performance. A
| typical engineer or product company founder does not, and those
| who do are the exception. PE companies are never operators of
| businesses. They find (ideally) competent management teams and
| advise them in capital allocation. Ballou alleges PE buys to
| pillage and throw away the corpse. In truth, PE buys to sell,
| that's the only way to make good returns.
|
| In a perfect world, they'd buy an under-managed, undervalued
| company, where necessary throw out management, bring in competent
| management, perform bolt-on M&A where it makes sense, improve
| KPIs, then sell a rejuvenated and much more competitive company
| 5-10 years later at a much higher multiple. Examples? Ingersoll-
| Rand, Brenntag, SS&C. Unfortunately, Ballou does not talk about
| the positive outcomes because they don't make headlines.
| toast0 wrote:
| Private equity leveraged buyouts are an option for companies to
| change their fate. Typically, they're on a long path towards an
| slow death. With the buyout, current shareholders get a return,
| and the company is on a 3-7 year path towards a crisis
| bankruptcy.
|
| It's good for the current shareholders, and it's good for the
| private equity company. It's not good for the business, but if
| the old owners and the new owners like the deal, who's really got
| standing to object? How do you force a business to continue to
| operate in spite of the business being unsustainable and
| ownership wanting out?
|
| Employees don't like it, but the business is already on a path to
| death, so whatcha gonna do there? It's probably better for
| employees if Toys R Us closes stores every year for many years,
| instead of all of them at once, but those jobs are on borrowed
| time either way. I'd imagine vendors don't like it, because
| they're going to lose in bankruptcy, but after PE takes over your
| client, that's a good time to reevaluate their credit and put
| them on a shorter leash.
| linuxftw wrote:
| The problem lies in where the money comes from the execute
| taking the company private. A big bank will issue the debt,
| then peddle the debt as AAA rated into all of America's 401k's
| via their friends at the brokerages. You think the banks are
| just sitting on those debts hoping to make it to maturity?
|
| And it's never the PE firm that owes the debt, they're able to
| get paid back by the thing they buy, and that shell owes the
| debt. The losses are socialized among the public.
| Aunche wrote:
| Sorry, but you have no idea what you're talking about.
| There's no way debt from a leveraged buyout is going to be
| rated anywhere close to AAA. The leveraged buyouts of Twitter
| and Toy's R Us were funded by junk bonds.
|
| https://www.bloomberg.com/news/articles/2022-10-31/twitter-s.
| ...
|
| https://www.moodys.com/credit-ratings/Toys-R-US-Inc-Old-
| cred...
| linuxftw wrote:
| Don't worry, the banks figured out how to solve this
| problem decades ago, they're called CBOs:
| https://thebusinessprofessor.com/en_US/investments-
| trading-f...
|
| Basically, you take a bunch of junk, package it up, and
| like magic, it's investment grade.
| Invictus0 wrote:
| You think the banks are so stupid that they just let PE firms
| saddle them with a bunch of debt and walk away? Bank PE loans
| are almost always senior loans, meaning the loan has to be
| completely repaid before you can start distributing
| dividends.
| linuxftw wrote:
| If the banks have sold the debt, they don't care if it's
| paid or not, they're already paid.
| AlexandrB wrote:
| 2008 proved that banks are plenty stupid, especially if
| they think they can sell the bad debt to someone else
| before it explodes.
| oatmeal1 wrote:
| > A big bank will issue the debt, then peddle the debt as AAA
| rated into all of America's 401k's via their friends at the
| brokerages.
|
| Do you have any links about this? I'd like to learn more
| about how this scheme works.
| linuxftw wrote:
| https://debtexplorer.whitecase.com/leveraged-finance-
| comment...!
|
| I don't think that's going to walk you through all the
| steps, but it shows you there's a market for buyout bonds,
| aka, the bonds that pay the PE firms back so they saddle
| the buyout debt onto the companies themselves.
|
| There's no shortage of 'funds' that buy this garbage. When
| a bond has a certain credit rating, it's going to get
| sucked up into the funds, and those funds aren't
| capitalized by Warren Buffett, they get cash from Joe and
| Jane Doe's 401k.
|
| That's how it works.
| [deleted]
| verteu wrote:
| > who's really got standing to object?
|
| Other stakeholders, such as government regulators or the extra
| patients killed when PE takes over their hospitals and nursing
| homes [1].
|
| [1] https://www.nber.org/papers/w28474
| paxys wrote:
| If the business is (seemingly) on the path to death and current
| owners are done with it, but employees still want to stay, then
| the obvious best outcome for the business is to be handed over
| to the employees. The downside is that there's less money in
| that for the shareholders and the PE fund, but let's not try to
| change the narrative to "PE buyouts are best for the business"
| when they clearly aren't. They are a way to squeeze out as much
| capital as possible from a company before tossing its carcass,
| nothing more.
| mucle6 wrote:
| This assumes that the current company has no valuation, or
| the current employees can fund a purchase. And it assume that
| the employees are more apt to run the company than PE
| paxys wrote:
| Yeah employees would probably never be able to match the
| money offered by PE, but is assuming the second part too
| much of a stretch?
| CPLX wrote:
| Who has standing to object? How about the people that get
| ripped off.
|
| It's looting. They're asset stripping.
|
| They are _literally_ doing this:
|
| https://youtu.be/ZPtjyqgZAUk
|
| It's not a metaphor what is happening is _actually_ the same as
| a common organized crime scheme. They are stealing from
| creditors.
| basch wrote:
| Plants get pruned and brought back to life. I think there is an
| argument to be made that PE could be caretakers and stewards
| that unlock the good trapped by rot, but that might take time,
| so instead they extract the value immediately but destroy the
| life in the process. If corporations are people, my friends,
| they deserve some human rights of their own.
| d136o wrote:
| One of the Montessori schools in SF (across the street from blue
| bird hq) was bought by some Miami PE fund... that and some other
| data points informed our decision to pass on it.
| koromak wrote:
| I fucking hate the financial system
| Dowwie wrote:
| Well, to be fair, doctors sold themselves out. In New Jersey and
| New York City, I have to explicitly state that I only want to
| meet with an MD and not an assistant physician or nurse
| practitioner. As to how this is even legal is probably explained
| by insurance company lobbying efforts for cost control.
| alistairSH wrote:
| That hasn't been quite my experience.
|
| I've used PAs/NPs when it was appropriate (annual physical,
| etc) - I don't need an MD to take a blood sample, run a blood
| pressure check, and read of a standard checklist of questions.
|
| And I've seen MDs when that was appropriate (specialist
| procedures, things that aren't "a cold", etc).
|
| There's room for both.
| [deleted]
| legitster wrote:
| Well, there is a nationwide (potentially global) doctor
| shortage.
|
| It's not like doctors are sitting in a room twiddling their
| thumbs because insurance companies in the US are cheap.
|
| Residency programs are kept artificially low through successful
| efforts of the AMA to intentionally limit the number of doctors
| in the US.
| screye wrote:
| Doctors are a cartel. Every organization that artificially
| controls the number of doctors is run by doctors.
|
| Ofc, no individual doctor is malicious, but their continued
| support of what's effectively a 5-10 year hazing is at the
| core of the issue.
| KerrAvon wrote:
| Instant Pot just got knifed by PE.
|
| https://www.theverge.com/2023/6/12/23758602/instant-pot-bank...
|
| > The other reason it's absolutely got to keep growing is that
| there are expectations placed upon it by Cornell Capital, the
| private equity firm that acquired the Instant from its founder in
| 2019 and merged it with Corelle Brands, which makes all the Pyrex
| and CorningWare products you probably heat up leftovers in. ... >
| Sometimes you don't have to grow at all costs. You can just be
| very good at one thing
| letsdothisagain wrote:
| PE is just a rebrand of Corporate Raiders. The fact that this
| worked is a testament to just how much of our media is directly
| controlled by Wall St.
| monnok wrote:
| I sold my house to PE. I work for a conglomerate that was
| captured by a vulture capitalist and immediately flipped to PE.
| I've been thinking a lot about PE.
|
| I think PE is this decade's banks bailout. Bank balance sheets
| were severely unhealthy in the face of fixed rate loans and
| skyrocketing inflation. Easy credit was eagerly extended to
| anyone crooked enough take on variable rates and capture real
| assets.
|
| The LLCs that the smart firms financed for their small captures
| (like houses) are going bankrupt while the revenue they booked
| is already packaged into REITs and held by corporations as part
| of their supposed inflation hedges (or timebombs).
|
| Meanwhile, the reckless PEs owning multiple corporations are
| either going to flip them to international bag holders, or
| drown under the operating costs of servicing 100% debt-financed
| equity themselves.
|
| When catastrophe comes, and bagholders go under, rotten assets
| will revert to the banks... and taxpayers will bailout the
| banks to protect hundreds of PE-owned corporations and
| thousands of "innocent" corporations saddled with toxic REIT-
| backed instruments and each other's default swaps.
|
| All of which means, if you were priced out of a home in the
| last three years, it might have been your future tax paying
| self who outbid you... on behalf of the banks who will
| indirectly own that home.
| jrochkind1 wrote:
| I feel like private equitys game plan is generally to make a good
| profit while making employers and customers both miserable. So...
| this is _great_ for our society.
| ranting-moth wrote:
| I don't know if it was PE change, but I remember the last time I
| went to Toys R Us. The whole shop was full of expensive garbage
| toys. I didn't buy anything and left feeling like someone had
| just tried to scam me.
| JumpCrisscross wrote:
| I have a pet theory: there are managerially-minded university
| graduates who value prestige more than power or pay. In the post-
| War era, they became beige-suited company men. In my generation,
| they went corporate finance. Today, they work for private equity.
|
| Banking was great. Everyone-from liberal arts to engineering
| majors-could putz around for years in a pre-defined and
| prestigious path with moderately above-market pay and the
| potential to become rich. (Most don't.) It was also a field that
| could absorb a lot of grunt work, because most of what these
| folks did was format PowerPoints and populate Excel templates.
|
| After the GFC, bulge-bracket finance became less prestigious
| right when technology lowered the industry's hunger for grunts.
| Silicon Valley took up some slack, but at least until the
| pandemic hiring boom, there was a _modicum_ of technical gating
| factors.
|
| The entire time, corporate and industrial America needed
| administration. But working at a chemical plant in Baton Rouge
| isn't sexy. You know what _is_ sexy? Working for KKR.
|
| So KKR's partners buy the plant, hire the college grad, give them
| a few weeks' training and "deploy" them to Baton Rouge. That will
| be their "project" for years. There are perks: they get to fly in
| from a city, for instance. But overall, the partners can acquire
| this labor cheaper than their portolio companies. (Ask anyone who
| isn't a partner at a private equity firm what they do, and it's
| on a spectrum between administrative assistance and middle
| management in a random business.) It's what consulting did in
| another era, re-branded for what young people willing to take
| less pay and power predict their peers and parents find
| prestigious (and what they consider safe).
| courseofaction wrote:
| The banality of evil.
| paxys wrote:
| PE fund managers and associates aren't on the ground managing
| factories. Very, very far from it.
| TrackerFF wrote:
| Yes, they are called "Insecure overachievers". They are the
| bread and butter of investment banks, management consulting
| firms, big law firms, etc.
|
| They are also the reason that partnerships still thrive. A
| couple of years ago I was talking with this (big law) partner
| at a dinner, and we came in on the topic around partnership -
| and he just said it straight: The competition / rat race
| towards partnership is 100% skewed to the firms advantage. They
| get dozens of highly motivated, highly competent professionals
| competing against each others to prove their worth. They'll be
| on call 24/7/365 to show that they're worthy of partnership.
| Even if they become partners, most won't be rainmakers - and
| many would have made the same amount of money if they struck
| out on their own, opening a small boutique firm.
|
| Prestige is a powerful motivator.
| JohnFen wrote:
| > Prestige is a powerful motivator.
|
| I know this to be true because I've seen so many people given
| BS titles instead of raises and be happy about it as if they
| got something of real value.
|
| But I don't understand it at all. Apparently, I lack the
| "prestige" gene.
| tiffanyh wrote:
| My favorite title bump is "Head of X".
|
| Because rarely the person is ever the actual head.
| notacoward wrote:
| That sounds like the "elite overproduction" which is commonly
| held to be one of the two factors increasing likelihood of a
| revolution (the other being popular immiseration).
|
| https://www.theatlantic.com/ideas/archive/2023/06/us-
| societa...
|
| As much as I like the idea of PE scum putting their own necks
| into the guillotines, though, I'm skeptical of whether this
| theory really works.
| yasman wrote:
| There's a book called "Excellent Sheep" that explores this idea
| as well. It's been a while since I read it but roughly the
| premise was that all these "prestigious" organisations (they
| focused more on McKinsey et al) are another, maybe final, stage
| on a long ladder of structured excellence. AP/Extracurricular
| -> Ivy League College -> Consulting (or PE/IB) -> MBA -> ?
|
| The path is well defined and optimises for essentially
| racehorses. The path is defined at each step, you bring the
| sweat and hours. Hope to make it through the filter to the next
| level.
|
| The book ends with the question of what to do after the last
| rung of the ladder? How do deal with the existential crisis? To
| be on the ladder is to adopt an external value system. How to
| find yourself now? Liberate yourself from the golden handcuffs?
|
| Interesting read
| jazzkingrt wrote:
| A friend of mine is VP (not partner), and he seems to spend
| most of his time on deals. Market research, building financial
| models for a potential LBO, or for the sale of a portfolio
| company.
|
| From what I understand, the on-the-ground management work after
| acquisition is outsourced to specialized executives with whom
| the firm has a relationship. They can bring expertise in a
| specific industry, and the deal structure pays them with large
| performance incentives.
| jfidbfidvdid wrote:
| too complex. world is simple.
|
| boom-bust cycles enable capital to buy everything in the bust
| period. every thing.
|
| legal entities keep shifting to join news tax avoidance tricks.
| it's not a static game.
| relativty wrote:
| [dead]
| coastermug wrote:
| I've pushed back on previous discussions on here about PE because
| of lack of detail about wrong doings, however this article is
| excellent. "dividend recapitalization" seems absolutely insane
| for anyone running a business.
| Footkerchief wrote:
| Yes: https://www.rollingstone.com/politics/politics-news/greed-
| an...
|
| > Romney and Bain avoided the hostile approach, preferring to
| secure the cooperation of their takeover targets by buying off
| a company's management with lucrative bonuses. Once management
| is on board, the rest is just math. So if the target company is
| worth $500 million, Bain might put down $20 million of its own
| cash, then borrow $350 million from an investment bank to take
| over a controlling stake.
|
| > But here's the catch. When Bain borrows all of that money
| from the bank, it's the target company that ends up on the hook
| for all of the debt.
|
| > This business model wasn't really "helping," of course - and
| it wasn't new. Fans of mob movies will recognize what's known
| as the "bust-out," in which a gangster takes over a restaurant
| or sporting goods store and then monetizes his investment by
| running up giant debts on the company's credit line. (Think
| Paulie buying all those cases of Cutty Sark in Goodfellas.)
| When the note comes due, the mobster simply torches the
| restaurant and collects the insurance money. Reduced to their
| most basic level, the leveraged buyouts engineered by Romney
| followed exactly the same business model. "It's the bust-out,"
| one Wall Street trader says with a laugh. "That's all it is."
| coastermug wrote:
| What I want to know, is how do the banks keep lending to PE
| outfits? They are surely the losers in this situation?
| motohagiography wrote:
| I've turned down interviews with several companies after finding
| out they were PE managed. If you need the job take it, but
| otherwise find something with hope. After looking them up on
| crunchbase or the public filings, a decline on sight policy on PE
| owned companies has saved me a lot of time and, I think, career
| suffering.
| Avshalom wrote:
| Just bankrupted instant pots and pyrex too
|
| https://edition.cnn.com/2023/06/13/business/instant-brands-b...
| pierat wrote:
| > Instant Brands was purchased by private equity firm Cornell
| Capital in 2017.
|
| And although https://cornellcapllc.com/investments/ provides
| the shell companies they own, who knows what's under each of
| those shells, and under those shells.
| mperham wrote:
| There's an effective tactic for dealing with Wall St control:
| unionize.
| briandoll wrote:
| A friend of mine is a Vet at a place recently sold to a PE firm.
| If your wait times are crazy long, if you can't get through on a
| phone, if you realize your vet's office has parted ways with the
| great vet you used to see -- that's the PE firm counting beans
| and destroying the service for customers in an effort to squeeze
| every dollar out of the system.
|
| As a specific obviously bad example -- Vet services in California
| are kinda seasonal. More visits in summer than winter, due to
| more time outdoors, etc. A PE firm looked at visits on a weekly
| basis and saw a downward trend in the winter and decided to re-
| set staffing based on that. Now that summer has arrived they are
| severely short staffed, have parted ways with great vets, and now
| wait times are horrific.
|
| Thanks PE!
| epups wrote:
| Why wouldn't your friend just open up a practice and compete
| with this dysfunctional company?
| singleshot_ wrote:
| Maybe because now that the retail vet is destroyed and rich
| people need vets who are not pathologically inconvenient and
| terrible, there is a brisk market for retained private vets.
|
| This is a trend I've noticed that goes along with
| "enshittification" wherein the normal thing (let's take
| grocery stores as an example) become either so downmarket-
| oriented (e.g., Dollar General) or aggravating (e.g., self-
| checkout lanes, poor inventory management, objectionable
| customer service) that they abandon the middle market and
| become intolerable.
|
| At that point the upper part of the market diverges, and
| something like personal shoppers becomes the norm for anyone
| who can afford it.
|
| On one hand, people in the middle class get squeezed by
| salary, and on the other hand they get squeezed because they
| hate Dollar General and they can't afford a butler to shop
| for them.
|
| Real nice system we have here.
| failuser wrote:
| This is not a stupid question. I would only guess that start
| up capital is not available and the market is not big enough
| for another practice. And all that before considering
| licensing.
|
| Most professions have a gulf between the wealth of business
| owners and workers. You can't start a business working hand
| to mouth.
| JohnFen wrote:
| Starting a business requires a certain sort of personality
| and interest. Most people don't fit that mold, and most of
| those people are fully aware of that.
| petsfed wrote:
| And take on all the overhead of running a company, when they
| already have a maybe 1:1 ratio of patient contact hours to
| unbillable admin?
|
| And anyway, even the doctors of veterinary work aren't
| rolling in money. Private practices sell to investors because
| they have the mountains of cash that the sole proprietor does
| not. Its just the devils bargain people strike all the time.
| quickthrowman wrote:
| Some vets just want to practice veterinary medicine instead
| of running a business.
|
| Start to finish, a vet clinic buildout is going to run you
| $1M+, and any lender is going to want a personal guarantee
| that uses your home and other personal assets as collateral
| if they're lending to a new business owner.
|
| You could certainly find investors, but then you'll have
| people wanting an ROI.
|
| I could come up with more reasons, but those two are probably
| the main ones.
|
| My grandfather opened and ran two veterinary clinics in the
| 1970s. He sold both of them in the 1980s, one of them is
| still around. The other one closed after the buyer, another
| veterinarian, killed himself after the building and land were
| eminent domained for a freeway expansion and he felt he
| wasn't paid enough for the land by the government.
| ProjectArcturis wrote:
| [flagged]
| snapetom wrote:
| My wife is a vet for a corporate owned hospital and our circle
| of friends are naturally very vet centric. They run the gamut
| from PE vets, corp vets, and private owners. We know GPS,
| specialists, dogs and cats only, large animal, exotics. What
| you are describing is not PE specific.
|
| Staffing issues, primarily technicians, have hit everyone
| across the board. It's a combination of wages, training,
| quality of life. Moreover, COVID caused a dramatic demand in
| vet services but protocols decreased the amount of patients
| seen. Only now is there starting to be some relief on that.
| Maybe PE reacted in a way that was not the wisest in your
| friend's opinion, but everyone scrambled and few succeeded.
| pc86 wrote:
| I dated a vet tech several years before COVID and it sounded
| like a horrendous job. $20/hr was considered good pay, you're
| constantly bending over, pickup up things (sometimes things
| that definitively do _not_ to get picked up), and you 're
| literally dealing with some of the shittiest parts of animal
| care.
| TylerE wrote:
| Better than doing the same work with heavier patients in
| nursing homes for $12/hr.
| slimsag wrote:
| The level of mental trauma endured by vets I doubt is
| matched by elderly care nurses.
| primax wrote:
| My wife worked in aged care. There are plenty of nasty or
| racist old people in aged care that make their job awful
| moomoo11 wrote:
| PE is only good for PE and privileged shareholders.
|
| I think they have a place, maybe in hell?
|
| My dad used to work somewhere that got taken over by PE. He was
| immigrant so can't really change jobs easily esp in that
| environment. Fuck those asswipes for making his work life a
| nightmare that eventually permeated into family life because he
| was always stressed out.
| lapcat wrote:
| Some highlights (lowlights?) of the interview:
|
| > the model is that often businesses that service working-class
| people are attractive because poorer customers don't have
| alternatives, so you can raise prices, you can cut quality care
|
| > Private equity firms have donated something like $900 million
| since 1990 to federal candidates. They have a bench of employees
| that include former cabinet members, secretaries of state,
| treasury, defense, chairman of the FCC, SEC.
|
| > it's almost impossible for a private equity firm to be held
| legally responsible under common law veil-piercing arguments
|
| > They executed a sale-leaseback, which means they sold the
| underlying assets of the nursing home chain and had the chain
| lease it back for a quick hit of money, but now they've got a
| long-term obligation. They executed what's called a dividend
| recapitalization, so ManorCare had to borrow money to pay Carlyle
| and the other investors a profit.
| SNosTrAnDbLe wrote:
| I have firsthand experience of how PE ruins startups. We were a
| small startup and unfortunately our founder decided to go with a
| PE firm rather than a VC firm for a round of funding. The latter
| were upfront about job cuts but the PE firm did not say anything
| until them took over. The founder got a good paycheck but we were
| left holding the bag.
|
| There was a bloodbath and they ruined the culture, the product
| and the morale. I never realized the meaning of a "cutthroat"
| culture until that time. It was personally the most stressful
| period of my employment.
|
| From then on, the moment that I see PE mentioned anywhere, I know
| its time to run.
| hotpotamus wrote:
| I believe they prefer the term "sharp-elbowed", but either way,
| you can imagine why so many were not interested in having Mitt
| Romney as a national leader.
| andix wrote:
| Was it at least a good deal for the founder?
|
| I feel your pain about what happened. I've seen comparable
| things a few times first hand. My learning was: just leave once
| the change starts, only stay if you're getting something out of
| it. It's not my company, I'm only in charge of my life, I'll
| find something better soon.
|
| I think I would not recommend to run once PE is mentioned, it
| can also change for the better, but it can be a red flag to
| look more closely.
| fnimick wrote:
| > Was it at least a good deal for the founder?
|
| This doesn't make it any better for the, you know, entire
| rest of the company.
|
| It's important to remember that this startup industry relies
| on selling dreams to idealistic young grads who will usually
| end up under the bus while the higher-ups walk away with the
| profit, if there is any. And a lot of us here are complicit,
| because we rely on cheap labor and false promises to get the
| next company off the ground.
|
| Once you see your first exit where the CEO walks away with
| $10+ million and every single other employee's stock (even
| the first few engineers) was made worthless in backroom
| dealings, you get jaded about the way this entire business
| operates.
| twiddling wrote:
| It's strictly business. You keep your CV up to date and
| move on.
| BizarreByte wrote:
| Nah, I'm tired of this. It's not simply business, some of
| us actually give a damn and care.
|
| PE fucks up everything most of the time, hurts the
| majority, and I hope I never encounter it again in my
| working career.
| andix wrote:
| For me a job is a job, my emotional attachment is limited.
| It can be awesome, but how the company changes is not in my
| power, if I don't own an substantial amount of equity.
|
| Usually if a company fails, it happens in slow-motion. As
| an employee you can often spot that years before it makes
| the news. Just move on before it makes the news.
| SNosTrAnDbLe wrote:
| Thanks! It was a really sweet deal for the founder as he left
| as far as I know and I suspect for their direct reports as
| well.
|
| Its been a while but it still brings out some bitterness. I
| did leave after an year but the damage had been done by then.
| JohnFen wrote:
| > My learning was: just leave once the change starts
|
| As a customer, rather than an employee, that's what I learned
| too. If a PE firm buys a company that I do business with, the
| best thing for me to do is to stop doing business with them.
| api wrote:
| A major difference is that VCs (good ones at least) specialize
| in startups in a given sector and have some understanding of
| the sector, the product, the market landscape, the culture,
| etc. They also operate in that sector long term which means
| they really want to maintain a decent reputation among
| founders, employees, and even customers. VCs really don't want
| to get their name associated with "OMG run away!" since it
| could adversely affect their deal flow in the future.
|
| PE usually doesn't have any special connection to your sector
| or community. They just buy stuff and try to run it according
| to bog standard MBA rules.
| vdqtp3 wrote:
| > PE usually doesn't have any special connection to your
| sector or community.
|
| I know you said usually, but it really does depend. Thoma
| Bravo would be an example of one that is tech sector focused.
| Not that I like TB, just saying that doesn't always apply.
| snapetom wrote:
| I am inadvertently part of a PE cleanup, being a PM hired by a
| guy PE brought in.
|
| I am of the opinion if PE destroyed this company's culture and
| strip/sell it off, it's certainly deserves it and will be
| better for everyone involved.
|
| This place worked for decades as a cost center. It never made
| money, routinely losing $10-$40 million a year. Multimillion
| dollar deals were negotiated and made with handshakes, biting
| is in the ass. The engineers spent their time making shit, over
| engineered products with no regards to the little customers we
| had. Our suite of products have no interoperability. Just last
| week i again repeated why to a couple of "top engineers" why
| having single sign on across Our products makes a good customer
| experience.
|
| PE is a tech boogeyman here on HN and Reddit. But now I
| wholeheartedly believe that's Sometimes PE needs to come in and
| shut things down.
| enlyth wrote:
| It's not all black and white, at least from my experience
|
| A similar thing to what you described happened at a software
| company where I used to work at, culture destroyed, many people
| let go. I will name and shame the PE firm - it was Hg Capital
|
| However currently, I've been at a company for a few years who
| is owned by Morgan Stanley Capital Partners, and it's a
| completely different story. The culture is great and hasn't
| changed at all
| rcoveson wrote:
| Morgan Stanley Capital Partners: The middle-market private
| equity platform that cares.
| lisasays wrote:
| _I will name and shame the PE firm - it was Hg Capital._
|
| Always appreciated and very helpful. Nothing in this comments
| suggest that it deserves any downvotes.
| curiousllama wrote:
| It REALLY matters what kind of PE you're talking about.
|
| Bought by a growth equity fund? Probably fine. Bought as part
| of a roll up? Probably screwed.
|
| PE is like tech: similar tools, but very different firms.
| chiph wrote:
| A previous firm I worked at was bought as part of a roll-up
| (market segment consolidation). If you're the firm that
| they're rolling all their acquisitions into, that's great &
| exciting. If you're one of the roll-ees, not so much.
|
| They bought us not for our technology but our customer
| base. They intended to convert them all to their other
| firm's product. Little did they know that a lot of our
| customers had left the other firm for us because we treated
| them better.. So what happened is in addition to the back
| office staff & sales staff being laid off, they laid off
| the developers & testers too (they kept a few managers for
| a year for continuity). I realized this when the folks they
| sent to town refused to go to lunch with us in an rather
| awkward moment.
| SNosTrAnDbLe wrote:
| That is funny as the exact thing happened in my startup
| as well (we were one of the roll-ees) We got some suits
| sent by the PE after the funding round.They politely said
| that they had other plans when we invited them for lunch.
| eli wrote:
| PE acquired us and was a great partner. Allowed us to do larger
| M&A deals than we otherwise could have. Supportive but mostly
| stayed out of the way. Never suggested any cuts or anything
| that would impact culture. Ultimately led to us being acquired
| by a strategic a few years later in what I think was a good
| outcome for everyone.
|
| These are all just anecdotes. My experience doesn't override
| yours, but I'd be careful drawing broad conclusions.
|
| I think sometimes PE gets a bad rap because they can be a
| "buyer of last resort" for companies that are already
| struggling.
| dmix wrote:
| If PE ruined more businesses than it helped then people
| wouldn't be doing PE (either the finance guys or the
| companies).
|
| So technically there should be more wins than not. At least
| on paper. How that looks for lower level employees may be
| different but often PE is there for a reason.
| bee_rider wrote:
| If PE ruined 5 companies for every success but that one
| success paid back 10x, someone would do it.
| majormajor wrote:
| Eh, you'd expect that trend to take something like decades
| to fully percolate and result in behavioral change, if
| ever.
|
| You could apply your first sentence pretty directly to
| MLMs, for instance.
| derefr wrote:
| You can turn a low-profit "boutique" business that pays the
| salary of 100 people, into a high-margin marque for an
| acquiring larger-sized corp where every one of those
| employees get thrown out on their asses because they're
| redundant post-consolidation.
|
| If you built the boutique business to get a payday, maybe
| you'd consider that a win. The market certainly would.
|
| If you built the boutique business because the megaco had a
| monopoly and was stagnating and awful and you believed in a
| vision where you can do better -- then the PE firm just
| forced you to take an L by selling to that same megaco and
| hollowing out your business to just become another head of
| its behemoth.
|
| If you built the boutique business to work with your
| favorite people in a non-hellish work environment and
| ensure they all get to live comfortably -- you've probably
| developed cirrhosis from all the regret you're drinking
| away.
| ideamotor wrote:
| Brutal
| SNosTrAnDbLe wrote:
| Maybe PE firms are ok and mine was an extreme example but I
| got burned pretty badly. If I do have to work on a place
| backed by a PE firm for some reason, I would start out as a
| contractor and then see how it plays out before committing to
| be a full time employee.
| jfidbfidvdid wrote:
| do you tell this often? i could swear I've read this exact
| comment before (pe acquired, great partner, enabled m&a,
| ultimately acquired by a strategic)
| mbesto wrote:
| My firm supports 100's of PE acquisitions every year and I
| can tell you that your experience is far more the norm than
| what the parent comment has suggested.
| icelancer wrote:
| The idea that PE comes in and sets eight figures of their
| own money on fire and ruins a business, shooting themselves
| in the foot makes no sense, yet every other story online is
| about them doing exactly that.
|
| Of course there are LBO scams going on (more historically
| rather than currently) but these billion dollar firms don't
| come in and lose a ton of their own money along with money
| of their outside investors on a regular basis.
| mbesto wrote:
| > yet every other story online is about them doing
| exactly that.
|
| That's because this strategy is only normally utilized by
| the biggest PE firms (Apollo, KKR, etc.) who acquire
| large businesses (Toys R Us, Instant Brands, etc.) and
| those sell headlines. Net on net returns, it's much
| harder to turn a $1B biz into a $2B, versus a $10M
| business into a $20M business. So the large funds
| typically do a ton of creative financing to achieve
| returns and hence how they essentially bankrupt the
| companies. Sub $1B acquisitions usually this strategy
| doesn't make much sense.
| FormerBandmate wrote:
| PE firms are brutal to journalists because journalism
| doesn't make any money anymore (which is tragic).
| Journalists as such hate them
| BeetleB wrote:
| > The idea that PE comes in and sets eight figures of
| their own money on fire and ruins a business, shooting
| themselves in the foot makes no sense, yet every other
| story online is about them doing exactly that.
|
| On How I Built This, they frequently talk to companies
| that were bought out by PE. Some had negative
| experiences, but the majority were positive.
| r00fus wrote:
| Isn't LBO the norm in industry? Where they charge from
| the acquired company and the acquired company takes on a
| huge loan?
| JumpCrisscross wrote:
| > _Isn't LBO the norm in industry?_
|
| No, it's one of many PE strategies. Almost all private
| equity firms utilize leverage in some form, but it's not
| universal and certainly not as extreme in all cases as
| the LBO shops.
| mbesto wrote:
| LBO != debt ("huge loan")
|
| LBO is how the PE firm finances the acquisition. Think of
| almost exactly like a mortgage. The bank ( = investment
| bank) doesn't want to maintain/manage the house ( =
| company) so they help fund the acquiring cost. Typically
| it's 50/50 (50% the PE firm uses its own fund and 50% it
| uses a loan from an investment bank "mortgage).
|
| Post close, they might utilize a credit facility (usually
| a bank loan) where they can put debt on the company's
| books for specific initiatives (add-on acquisitions,
| hiring, etc.). There are some huge advantages to this
| because they usually can get loans at way better rates
| than a company could get if they went to a bank and got
| an SBA loan, venture debt, etc.
| [deleted]
| eli wrote:
| To be fair, I think there are also some PE firms that
| simply aren't that good at their job.
| mbesto wrote:
| This is very, very true. There is a huge proliferation of
| PE firms now too and many who are very unsophisticated,
| especially when dealing with smaller, family run
| businesses.
| Jeslijar wrote:
| They come in, reduce costs as much as possible, keep
| revenue coming in as long as they can while having huge
| dividends to said PE until they get so far into debt they
| are not sustainable. They'll swap to service providers
| that they either own or get a cut from and pay
| themselves.
|
| Then their purchased company gets bankrupted, sells their
| assets to cover their debts (including said PE's 'debts'
| of services provided.)
|
| They probably make 200-300% of their initial investment
| back by paying for the initial purchase with debt that is
| tacked onto the purchased organization and simply drain
| them dry. PE doesn't make a ton of money by being dumb,
| they make a ton of money using any and all tactics
| necessary to make big stacks in short time. Obviously not
| all PEs operate like this and there are likely many
| loopholes and strategies.
|
| They bankrupt it by basically pumping it full of debt
| while taking money out and dumping it once it's out of
| money - zero liability with a LLC right?
| AlphaSite wrote:
| Who's the one offering them the debt in the first place?
| You'd think if it were so easy people would wise up to it
| and stop offering debt to PE owned firms.
| JumpCrisscross wrote:
| Growth equity blurs the line between traditional PE, on one
| hand, which spans buying and responsibly operating good
| companies to LBOs, which require cuts, and venture capital,
| on the other hand, which is more hands off but also more
| brutal if you don't look like you're flying moonwards. This
| ambiguity as to what "private equity" is might be clouding
| the data.
| mbesto wrote:
| That's true. I equate Growth PE with "minority interest,
| positive profitability", VC as "minority interest, growth
| at all costs" and PE is simply "majority acquisition,
| typically profitable".
| JohnFen wrote:
| Not that I don't believe you, but my personal experience
| dealing with outfits (as a customer) that have been
| acquired by PE firms is that they have ruined the thing
| they acquired approximately 100% of the time.
| tracerbulletx wrote:
| Same thing happened at a company I worked at, they also
| constantly tell you how they are investing in the future of the
| company and will not be doing all of the culture destroying
| things that they are definitely going to do. So if you are in
| this position and they say it will be different, don't believe
| them.
| SirMaster wrote:
| It's not always like this.
|
| A PE bought a majority stake in the company I work for which
| for 40 years was a family owned company.
|
| They said they were financial partners only, non-operational
| and they bought because they liked how we were.
|
| It's been years since and things have only gotten better as
| far as I am concerned. I mean they were pretty great
| originally when the family owned it and I had no complaints,
| but the culture and engagement and such has only gotten
| better, and the company is growing faster and becoming even
| more profitable than ever before as well.
| mistrial9 wrote:
| that is the Warren Buffet model.. who can complain? not
| everything goes that way.. congrats on the successful
| transition
| SirMaster wrote:
| Just from what I hear it seems like most go bad. Though I
| have to assume it's also a case of people are more
| inclined to complain when things go poorly.
|
| I mean why would people write comments about how such a
| thing went smoothly and well. People do now and again but
| not usually spontaneously.
|
| Part of why I felt I should share my own experience. Hard
| to know what % of PE acquisitions the workers end up
| liking vs. hating, but I bet it's not as many bad cases
| as it seems from media or online comments.
| mbesto wrote:
| YMMV. Really depends on which PE firm it is. The large cap ones
| are notorious for what you are describing.
|
| The PE clients I work with are very growth orientated and
| understand that culture is important for growth, so I don't
| believe you can paint the whole space with one brushstroke.
| rhino369 wrote:
| I can't speak to Toys R Us specifically, but if the underlying
| business was solid, it would reemerge under chapter 11.
| thedangler wrote:
| Don't forget the amazing track record of BCG leading companies
| into bankruptcy. Yes BCG consulted for Toy's R Us. Maybe there is
| more too it...
|
| There is a conspiracy theory BCG is tied to SHF to lead companies
| into bankruptcy with help of negative news narratives and help
| from MM to internalize buy orders and place sell orders on lit
| markets driving stock prices down.
|
| No concrete evidence yet but who knows when all they get is a
| fine and it's business as usual.
|
| BCG also consulted for:
|
| Blockbuster
|
| OfficeMax
|
| Pizza Hut
|
| KLM Air France
|
| K-Mart
|
| Neiman Marcus
|
| Pier 1 Imports
|
| Sears
|
| Toys R Us
|
| Circuit City
|
| JC Penny
|
| Radio Shack
|
| Texaco
|
| Chrysler
|
| MF Global
|
| Conseco Inc.
|
| CIT Group
|
| GM
|
| WorldCom
|
| Washington Mutual
|
| Lehman Brothers
|
| GameStop - Fired avoided bankruptcy
|
| PulteGroup - Fired and avoided bankruptcy.
| vkou wrote:
| Which of these brands do you think were healthy, prior to
| hiring consultants? Which of them had healthy future prospects,
| and did not deserve to have 'their stock prices driven down'?
|
| I'm not saying that the consultants provided any value add, but
| if a priest gets hired to say last rights over a terminal
| patient, it's hard to accuse the priest of _killing_ the
| patient.
| 4rd wrote:
| Isn't there significant sample bias here though? I imagine
| companies in dire circumstances would be more likely to bring
| on consultants to help "right the ship"
| lordnacho wrote:
| I literally tasted a PE takeover once.
|
| Those of you in Britain might remember a burger chain called Ed's
| Easy Diner. They had a shop in Soho, served really good
| "American" burgers and shakes. So good I used to yearn for them
| after I left the country.
|
| I came back after a few years, and found they had expanded. I
| excitedly took my family to eat at one of the new branches.
|
| I took one bite of what appeared to be my old favorite, spat it
| out, and immediately reached for my phone. The burger was now
| made of gristle instead of meat, other ingredients were worse,
| and the shake was not too nice either.
|
| Indeed, it had been bought out not long after my previous visit.
| jarym wrote:
| Not just in the US either - in the UK my local gym (part of a
| national chain) that I've been with for over a decade got bought
| by a PE firm. In 18 months the fees went up over 60%. They used
| to give out regular guest passes - now only 1-2 passes once a
| year and they're valid for less time than they used to be.
| They've also doubled the charges for bringing a guest.
|
| All these price increases and while the staff are still nice, the
| gym is now overcrowded and many times there isn't any equipment
| available. Also, there is dust on almost all the equipment - like
| a thick layer, clearly the only thing being regularly cleaned is
| the floor.
|
| Naturally, I am looking to go elsewhere but my impression of PE
| as a consumer based on my personal experience is quite negative.
| gibspaulding wrote:
| The PE firm has managed to charge more, clean less, AND bring
| in enough customers that the gym is overcrowded?
|
| I'd be looking elsewhere too, but from a business perspective
| that sounds like a roaring success.
| johneth wrote:
| > I'd be looking elsewhere too, but from a business
| perspective that sounds like a roaring success.
|
| Short term, yeah. Long term, it's a big opportunity for
| someone else to come in and provide the original superior
| service and eat their lunch.
| tucaz wrote:
| This is weird.
|
| - Prices went up - Way more people are going to the point where
| it's overcrowded - But still dust accumulates on the equipment?
| S_A_P wrote:
| I don't know the answer here, so Im asking hoping that someone
| may. Couldn't private equity be seen as the "ants" of the
| economic landscape? Scraping the skeleton companies of the world
| for the last bits of meat on the bone and then move on to the
| next?
| bell-cot wrote:
| PE is more like a flock of buzzards, cleaning up the bodies at
| train wrecks. A very clever, malicious flock of buzzards -
| who've learned how to hack the switches & signals, to ensure an
| ample & growing supply of train wrecks.
| GartzenDeHaes wrote:
| More like zombies overrunning the last defenses of
| civilization and consuming the few remaining survivors.
| ekanes wrote:
| Yes. That's perfect. Except that the animal they're eating
| wasn't necessarily dying, it might have just been growing
| slowly.
| oneplane wrote:
| I'd say more like some slimy poison frog, toxic, nasty and only
| care about themselves while smearing themselves all over the
| place. Looks great from a distance tho.
|
| Or, they are a self-aware trolley that eats run-over people
| after choosing to switch tracks to where a bunch of people are
| tied down.
|
| I think more similar descriptions can be found, but as for what
| they really are: definitely not the economy immune system
| cleaning up the remains of dead companies. They are just
| predatory wealth hoarders. But it's all legal and I'm sure the
| people making lots of money don't emphatise with the rest of
| the humans, otherwise they might not be doing it.
| zactato wrote:
| Frogs are notorious for their selfishness.
| arcanemachiner wrote:
| > Or, they are a self-aware trolley that eats run-over people
| after choosing to switch tracks to where a bunch of people
| are tied down.
|
| This is pure poetry.
| KerrAvon wrote:
| No -- the companies in question aren't usually basket cases --
| if they were, they wouldn't have the assets to make the PE
| takeover profitable in the first place. In most cases, they're
| growing at a fine, steady rate, or even better. It's just
| whatever the PE vultures can get away with.
| busterarm wrote:
| It's interesting reading all of the stories of PE firms destroy
| businesses.
|
| I've had those experiences, but I've also had the opposite
| experience. I used to work for a regional internet service
| provider/cable/phone company that was owned by PE. They poured a
| ton of resources into the business, improved our processes and
| standardized things so that we could expand to more regions.
|
| Then they sold us for a nice chunk of money (for themselves, but
| employees got better pay and benefits under the new company). The
| new parent used our practices as the model to use across the
| whole business.
|
| It was a good deal.
| wmaiouiru wrote:
| I am curious if there is a database of all the companies that are
| being run by a PE firm to bring transparency around the track
| record of PE firms.
| [deleted]
| scarface_74 wrote:
| I am not anti-capitalists by any means and I think much of the VC
| industry is a Ponzi scheme. But at least some good comes out of
| it occasionally.
|
| But private equity is pure evil. I worked for a number of VC
| backed companies and the only one that failed completely was just
| not able to pivot to a changing mobile landscape as much as we
| tried.
|
| We had a years long head start on mobile devices/field services
| with Windows CE and Microsoft imploding in mobile and the rise of
| iPhones and cheap Android devices was too much of a sea change.
|
| On the other hand, the slice and dice and look good for the
| public market that I saw first hand from a PE firm when I was the
| tech lead was too much. They wouldn't hire any permanent people
| for a massive migration/integration effort as they were
| consolidating the market and forced me to use contractors.
| mjcohen wrote:
| Private equity buying goods that should be public (e.g.,
| hospitals, schools) is a disaster that is crippling society. It
| should be banned.
| addflip wrote:
| It's a shame what's happened to my local HVAC contractor. It used
| to be a great local operation where a real person picked up when
| you called. But lately, after a private equity group took over,
| it's all automated calls and foreign call centers. The personal
| touch is gone and, sadly, their service quality has taken a
| noticeable hit. It's just not the same anymore.
| bombcar wrote:
| I knew some local guys that basically made a living doing that
| - start an HVAC company, get it working good, sell it to a
| equity group, they destroy it pretty quickly, everyone quits,
| then one of the other original guys starts a new HVAC company,
| gets it working good, sells it ...
| bhewes wrote:
| Oil and Gas field services does the same thing and only
| difference is they buy the company back and then flip it
| again.
| SN76477 wrote:
| A few years back I had to run door dash orders to pay the
| bills. I noticed then that distribution of labor removes a lot
| of the spirit and purpose behind the work.
|
| No one at the call center is enjoying the satisfaction of a job
| well done, it is complete detached. I'm sure the laborers are
| pushed hard to high quotas and have zero time to follow up with
| customers.
|
| I think we need to back to owning the entire system if we are
| going to have better services, better profits and satisfied
| employees.
| hotpotamus wrote:
| Easy there comrade, you need to watch that talk about
| alienation of labor and ownership of the means of production.
| But it is interesting how a brief trip through the gig
| economy will start someone talking like Marx even if they
| (presumably) haven't read him.
| thrawa8387336 wrote:
| Like Marx or the Unabomber
| uni_rule wrote:
| I think that means we're doing as well socioeconomically as
| 1800s Prussia.
| alistairSH wrote:
| The worst "foreign call center" experience I've had lately...
|
| Hotel check-in. Walked in, lady at desk is read a novel, I ask
| "can I check in?", she directs me to a video-conference kiosk
| across the room, which is actively in-use by a high-maintenance
| customer who, in addition to changing her reservation details,
| can't understand a fairly light Indian accent. 15 minutes of
| waiting later, this other customer is still going around-and-
| around with the call center guy (who's being nothing but
| patient and trying his best with the system provided), the lady
| at the desk, rolls her eyes, harrumphs, and asks if I want to
| check-in with her instead.
| d136o wrote:
| Which hotel?
| alistairSH wrote:
| It was the Quality Inn in Kill Devil Hills, Outer Banks,
| NC. Typical mediocre beach hotel in that area.
| legitster wrote:
| Despite the directions the interviewer tried steering this
| conversation into, this is a really interesting interview.
|
| But when it comes to the private equity roll-ups, I think
| everyone is missing the forest for the trees. If you are a doctor
| looking to retire and sell your business _there is no one else
| right now who would buy it_. The same goes for every category of
| "mom and pop" business in the US. Even if you could find someone
| experienced enough and interested in running it - that person
| could not afford the business.
|
| So there is kind of a double problem happening right now. One is
| simply demographic - experienced business owners are retiring at
| a much faster rate than they are being replaced. Secondly, there
| is the capitalization problem. A doctor knows what his practice
| is worth and wants every cent he can get out of it - but the next
| generation of doctor is not going to be able to compete with debt
| financing what a PE cash-buyer can get.
|
| In addition, there is a problem specific to medical practices -
| you can't just hand them over to your kid! (unless they also
| happened to pursue the exact same medical training you did). _And
| in addition to this_ medical schools (as I have been told) are
| really underprepared new doctors for running a business.
|
| Keep in mind owner-operators already get a huge income and tax
| incentive over PE firms. It's kind of a perfect storm that makes
| medical clinics such a special target vs plumbers or landscapers
| or whatever.
|
| If you want clinics to stay independent _and keep retiring
| doctors happy_ , we are going to have to carve out special
| programs or tax breaks for young doctors to buy up these
| businesses with debt. And keep in mind, these would be
| essentially subsidies for millionaires.
| mistrial9 wrote:
| sorry, thirty years ago I could have subscribed to "and keep
| retiring doctors happy" but now, no way Jose
| meepmorp wrote:
| why the change, out of curiosity?
| paxys wrote:
| The partnership model exists for exactly this scenario and has
| thrived for centuries in every sector. If a doctor wants to
| retire they are obligated sell their share of the business to
| other partners, not outside entities. When a new partner is
| promoted they have to buy their way in. All of these problems
| are solved. If PE firms are getting involved it is due to
| either greed or mismanagement (or both), not some inherent flaw
| in the system.
| CryptoBanker wrote:
| I don't know where you get the idea that private medical
| practices are unsellable... It is very common for retiring
| doctors to sell their client base/practice to other doctors in
| the same field.
| busterarm wrote:
| Doctors are an exception and specifically because of the
| regulatory issues.
|
| If you look at other boring "mom and pop" businesses out there,
| like laundromats, gas stations, car washes, liquor stores,
| mailbox stores, etc...there's a tons of "acquisitions"
| entrepreneurs out there buying these things up like crazy and
| tons of influencers out there (codie sanchez, etc) telling them
| to do so.
| dwallin wrote:
| "there is no one else right now who would buy it."
|
| You are missing a qualifier: "at the current market price."
|
| If you prevent or disincentivize PE from buying these types of
| businesses, the price would drop to the level of its new
| adjusted demand.
| legitster wrote:
| Sure! But that cuts into the "keeping retiring doctors happy"
| piece. If your practice is worth $15 million but you only get
| 50c on the dollar because there is no buyer pool, you might
| be pretty grumpy.
|
| To the broader picture though, this is a double edged sword
| _if_ you want more private family practices. Less doctors are
| going to go through the work and cost of starting their own
| business if they have to take a haircut on its net worth at
| retirement.
| atourgates wrote:
| Then your practice isn't worth $15-million.
|
| I'm married to a physician in private practice, who owns
| their practice.
|
| From the beginning, we've always been aware that when she
| retires in 15-25 years, we have literally no idea what if
| anything the sale of her practice might bring.
|
| It could be essentially nothing (aka, the used value of the
| equipment, and it's shocking how quickly even very
| expensive medical equipment depreciates on the used
| market).
|
| It could be sustainability more, but that'd be a nice
| bonus, not something we can count on, or that any physician
| should count on for their retirement planning.
|
| No retiring physician is owed anything for the "value" of
| their practice. And while on a personal level a PE buyout
| would be a nice bonus at the end of my spouse's career, not
| getting it wouldn't have affected either her decision to go
| into private practice, or her ability to.
|
| Far and away the biggest factor preventing more privately
| owned physician practices is the fact that hospital-owned
| practices are often reimbursed around double for the same
| procedure as independent practices. This has shifted
| somewhat with the shift from "pay for service" to "value
| based care" models, but both put independent physician-
| owner practices at a tremendous disadvantage to large
| hospital systems.
|
| And it's a damn shame because private physician owned
| practices are a much more efficient way to care for
| patients.
| legitster wrote:
| > No retiring physician is owed anything for the "value"
| of their practice.
|
| Not saying you are wrong, but this makes private practice
| different than any other small business. Pretty
| universally most businesses are evaluated by their capex.
| (If the medical industry is unique it's because there is
| _no_ business to evaluate without a practitioner)
|
| But 100% to everything else you said. Private practices
| are clearly superior in every regard except rent-seeking.
| taeric wrote:
| I think they meant more that you don't get some magic
| pass for years of service, kind of thing. If you have
| built up a paying customer base, odds are high that you
| can leverage that to another owner, no? No need for PE to
| get involved. Unless you are trying to maximize every
| penny you can get on that sale alone.
| atourgates wrote:
| It's more complicated than that.
|
| TL;DR: To a larger degree than most businesses, the
| physician _is_ the value in a medical practice.
|
| Let's say you're a dermatologist in Lincoln, Nebraska.
| You want to live there because of family reasons or
| whatever. You build a great thriving practice. You're
| clearing $1m in profit annually.
|
| (A high, but doable number for a dermatologist with a
| good private practice)
|
| Now it's time to retire.
|
| First of all, you can't sell a patient. Patients go where
| they want to. You also can't sell medical records.
| Because laws. Nor really would you want to.
|
| All you can do is sell patient habits, and tangible
| assets.
|
| But of course the biggest asset is the physician
| themselves. And they don't come with the practice when
| they retire.
|
| Now sure. There are ways of driving non-directly-
| physician-derived lines of revenue in a practice. Maybe
| you have a nurse that does aesthetics. Maybe you sell
| skin creams or whatever. But generally, those lines of
| revenue are still broadly dependent on the physician.
|
| So what you need is a physician who wants to move to
| Lincoln, Nebraska at the same time you want to retire,
| and buy your practice.
|
| But even if another dermatologist _did_ want to practice
| in Lincoln at the right time, why should they pay a bunch
| of money to you for _your_ practice? They could just
| start up next door.
|
| Sure, they'd have to buy some equipment and hire and
| train staff, but there's a good chance they'd have to do
| some of that even buying your practice.
|
| And truth be told, they know you're retiring anyway, so
| why not just wait it out?
|
| Plus, medical specialists are in short supply. Especially
| those who want to move to Lincoln at that very moment.
| (I'm being hard on Lincoln. I went there once and it was
| nice. I just don't imagine it's a destination most highly
| qualified medical specialists dream of moving to.)
|
| So probably the actual value of your practice is "the
| number that makes it less of a hassle to buy you out than
| for another specialist to start up their own practice."
| Assuming there _is_ a specialist who wants to move to
| where you're selling.
|
| And remember, if such a practice already exists, they
| already own the most valuable asset of your practice: a
| qualified medical specialist.
|
| So in a traditional medical practice sale scenario, your
| valuation almost certainly isn't going to be a multiple
| of your revenue or profit like a more traditional
| business.
|
| And the location can be a real challenge too. I know
| classmates of my spouse who turned down salary offers in
| the $800k range in the rural Midwest (with the potential
| to earn much more in the future through
| partnership/ownership) in order to make less than half
| that in the cities they wanted to live in.
|
| Even if your practice is in a desirable location, most of
| these issues still apply. It's just much more likely
| you'll find someone to buy your practice and not have to
| shut it down and sell it for parts.
| vkou wrote:
| > If your practice is worth $15 million
|
| What on Earth makes a single-doctor practice worth $15
| million _when that doctor leaves_? Or even $5 million, or
| even $1 million?
|
| The patient list? It's a zero-sum game! Are these patients
| just going to stop getting medical treatment when their
| doctor retires? Or are they just... Going to go to the next
| clinic over?
|
| There's something rotten here, and it's not PE buying
| practices. It's that the practice is worth much _beyond the
| value of the particular physician working in it_! If you
| 're wondering why medical costs are ballooning in this
| country, shit like this is one of the contributors!
| BeetleB wrote:
| > What on Earth makes a single-doctor practice worth $15
| million when that doctor leaves? Or even $5 million, or
| even $1 million?
|
| He just pulled a random number. But to answer your
| question for $1M - equipment for one thing...? The
| business likely has a fair amount of debt on the
| equipment.
| tiedieconderoga wrote:
| If you remove the premium offered by people who just want
| to scrap the business for parts, and no prospective owners
| can afford it at your target price, is the business
| actually worth that much as a going concern?
|
| It sounds to me like your hypothetical doctor might
| actually be upset that they can't get $2 on the dollar by
| selling to an unscrupulous party. You could view the PE
| premium as a way for the good doctor to benefit twice from
| all the tax benefits that they accrued over the years as
| incentives to keep their business around.
| vault_ wrote:
| > A doctor knows what his practice is worth and wants every
| cent he can get out of it - but the next generation of doctor
| is not going to be able to compete with debt financing what a
| PE cash-buyer can get.
|
| In my opinion, the physician in this example is a monster.
| Profit maximization is a choice, not some kind of moral
| imperative. Am I supposed to have any respect for somebody
| selling out their employees and patients to vampires so they
| can retire to a beach or whatever?
|
| The solution I'd want to see for situations like this is to
| find a way to sell to the people who have a continuing interest
| in how the business is run: employees and customers. The "exit"
| that does right by all interested parties would be something
| like having a newly formed employee coop gradually buy out the
| founder's ownership stake. To make a tech analogy, you don't
| have to sell your 0-day to foreign government just because they
| pay more than the bug bounty program! You don't have to sell
| out your community to vampires because they're the highest
| bidders! This is a choice that somebody is making.
| BeetleB wrote:
| > In my opinion, the physician in this example is a monster.
| Profit maximization is a choice, not some kind of moral
| imperative.
|
| They've had a career of treating patients. I think they've
| satisfied the moral imperative already. And selling to PE
| doesn't necessarily equate to "profit maximization". It could
| just mean "decent sale". As the OP said, often there simply
| isn't anyone available to buy it out at the timeline it needs
| to be bought out.
|
| > The solution I'd want to see for situations like this is to
| find a way to sell to the people who have a continuing
| interest in how the business is run: employees and customers.
| The "exit" that does right by all interested parties would be
| something like having a newly formed employee coop gradually
| buy out the founder's ownership stake.
|
| I don't doubt that this can work (it has for other
| businesses!). However, a given doctor wants to retire soon.
| Can you point him to a _concrete_ plan to set this up? As in
| a firm that will have said plan ready, does all the legal
| work, and manages the terms with the existing employees
| /customers? The doctor already has his hands full treating
| patients and running the business.
|
| If you cannot point him to such a resource, then do you see
| why he'd just sell to PE?
| JumpCrisscross wrote:
| > _Am I supposed to have any respect for somebody selling out
| their employees and patients to vampires so they can retire
| to a beach_
|
| Nobody else will buy it. The alternatives are shutting down
| the practice or forcing oneself to keep working. Particularly
| in medicine, the latter is dangerous.
|
| > _solution I 'd want to see for situations like this is to
| find a way to sell to the people who have a continuing
| interest in how the business is run_
|
| Sounds like a buy-out strategy! Seriously. Berkshire Hathaway
| could negotiate good deal terms by making this promise.
| pitaj wrote:
| > Nobody else will buy it. The alternatives are shutting
| down the practice or forcing oneself to keep working.
| Particularly in medicine, the latter is dangerous.
|
| Can't you just hire a "CEO" who will take over all
| management responsibilities?
| legitster wrote:
| Well, keep in mind that from the perspective of the rest of
| the healthcare industry, private practices are kind of
| dinosaurs at this point. They don't play well in our modern
| system, and the last 50 years of healthcare legislation has
| done everything short of outright banning them.
|
| New doctors are not trained or expected to run businesses.
| Getting money from medicare or insurance is a nightmare.
| Patients want access to more services than ever before. The
| entire idea of a private practice is anathema to modern ideas
| of healthcare oversight and access equity. Even getting
| private malpractice insurance is almost impossible now.
|
| There is a reason almost nobody is starting private practices
| anymore. So to give the doctors a bit of credit this is a
| chance to slip quietly into the night.
| JohnFen wrote:
| This explains quite a lot about why health care has been
| noticeably getting worse over the last several years -- for
| everybody.
|
| In my part of the US, you can't even find a doctor that is
| taking new patients at all, private practice or otherwise.
| Talking with some doctors, it's clear that being a doctor
| these days is a very undesirable job. I know I wouldn't
| want to do it.
| Dwolb wrote:
| Agreed.
|
| Had a family member receive an LOI at 10x EBITDA so they
| decided to sell (not sure where they closed).
|
| They mentioned that if a doctor would have purchased the
| practice, it would be 1x or 2x at best.
|
| Related: they would have been interested to scale up, but
| didn't know how and were afraid of the complexity of trying to
| manage a 3rd location.
| legitster wrote:
| Another thing to keep in mind is that it was a completely
| different regulatory environment when most of these private
| practices started. 50 years ago you could run a cash business
| with yourself, a receptionist, and a nurse. Incumbent
| practices could keep up with the times and add billing staff,
| but you would have to be insane to start a new practice
| today.
|
| I'm all for healthcare reforms, but it's a pity that we
| didn't pursue a simple voucher or cash-based system over our
| insanely complex system.
| Dwolb wrote:
| Right.
|
| Seems like there's opportunity to be the backend operating
| system to scale these practices.
|
| That's what PE is supposed to be anyway, but they don't run
| it like an owner-operator would.
| TearsInTheRain wrote:
| "In addition, there is a problem specific to medical practices
| - you can't just hand them over to your kid!"
|
| - Doctors partner with the person that will take over their
| practice for years before retiring. PE is destroying this
| system and the latest crop of doctors will lose out on
| mentorship and the opportunity to run a practice. Everything
| will become big corporate offices and everyone will suffer
| BeetleB wrote:
| > Doctors partner with the person that will take over their
| practice for years before retiring. PE is destroying this
| system and the latest crop of doctors will lose out on
| mentorship and the opportunity to run a practice. Everything
| will become big corporate offices and everyone will suffer
|
| Of all the doctors I personally know, only _one_ was
| interested in working in such a practice (let alone owning
| one). Where is the existing doctor going to find other
| doctors to partner with? Especially when they can get paid
| more to work elsewhere?
| bena wrote:
| > When KKR buys Toys"R"Us or when Carlyle buys the nursing home
| chain ManorCare, the debt is held by the company that they bought
|
| That right there is what should be made illegal. Somehow. There's
| probably all sorts of technicalities wherein KKR didn't buy it
| directly, but as the majority of the board of TRU, authorized the
| self-purchase or something like that. But you shouldn't be able
| to force a company to essentially buy itself, pay you a lot of
| fees to do so, then fuck off while it drowns in the debt you
| forced on it.
|
| If you have authority over something, you are also responsible
| for it. Both the good and the bad.
| bell-cot wrote:
| Old, old school solution: Nobody is stupid enough to buy the
| mountain of debt (junk bonds, whatever) - debt which will only
| be paid off if everything goes exactly perfect for many years
| to come.
|
| Perhaps the SEC and DoJ should be considering fraud charges
| against the ratings agencies, investment banks, brokers, etc.
| who (in effect) represented that debt as worth ~100 cents on
| the dollar?
| Veliladon wrote:
| PE doesn't go through rating agencies. Their deals are by and
| large unrated and the debt for the most part is not traded on
| the secondary market because of that. That's why they can
| pull off so much shady shit.
| 8note wrote:
| It should incur some tax in that you took out debt with one
| entity, then another entity paid off your debt and it on its
| own. The PE has been paid the amount of the loan by the company
| they just bought as some kind of return
| bequanna wrote:
| Well, they aren't really forcing the company to do anything.
| The original owners agree to the sale which is financed by debt
| that is secured by the business.
|
| The other non-owner stakeholders (employees, customers) may not
| enjoy this new deal but that is the reality with any new owner
| of a business.
|
| Of course, it is crappy when this results in negative
| experiences for them but at the end of the day, employees are
| free to work elsewhere and customers are free to buy elsewhere.
|
| That last sentence is mostly meant as a warning to the new
| owners: screw up the business too badly and you won't have
| clients or employees.
| bena wrote:
| So you're saying that _technically_ , it isn't what it looks
| like it is. That _technically_ , TRU is buying itself. That
| _technically_ KKR isn 't actually the new owner.
|
| Technically, it's still predatory.
| bequanna wrote:
| The business isn't "buying itself" any more than a house
| does when you purchase it. The debt is just placed against
| the assets (real assets and cash flow). The business has
| owners. It doesn't "own itself".
|
| I don't think it is predatory at all. A leveraged buyout is
| a pretty fundamental and common strategy across all
| business types and sizes.
|
| Don't hate the strategy of buying a business with debt,
| hate the players that execute it like assholes.
| IX-103 wrote:
| When I buy a house, the house serves as collateral on the
| mortgage, but ultimately I'm responsible for the loan. So
| I'm liable for the loan amount and am legally obligated
| to pay.
|
| A leveraged buyout is similar except the "house" is
| responsible for the mortgage and will suffer reputational
| damage if it fails to pay. But no person or collection of
| people are obligated to pay (ignoring the collateral).
|
| One of the benefits of corporations is that the
| limitations is liabilities allow them to take risks that
| would be prohibitive for individuals. Originally
| corporate charters required direct intervention by the
| government chief executive or legislature. Corporations
| were limited to tasks that served a public benefit as
| that government wanted to incentivize.
|
| Leveraged buyouts where the buyer doesn't intend to
| continue the business long term or true to drain value
| from the company instead of focusing on it's main
| business seem like an abuse of the trust the public has
| invested in these companies when it gave them a corporate
| charters.
|
| Of course, nowadays you can get a corporation with little
| to no documentation at low cost, so maybe the government
| doesn't actually give a shit what they do...
| klabb3 wrote:
| > Don't hate the strategy of buying a business with debt,
| hate the players that execute it like assholes.
|
| The purpose of a system _is_ what it does. Players take
| whatever they can get away with, in this case a good old
| mafia bust-out, but laundered legal. In the shadowy world
| of PE, there's even less transparency and accountability
| than the usual near-zero amount. I mean, you could just
| wait for the mob justice of a fully fledged revolution to
| do its magic but I think most of us would prefer toothful
| regulation.
| KerrAvon wrote:
| It's literally the legality of the strategy that enables
| the players to behave like assholes in this particular
| incredibly destructive way. The use of debt financing
| needs to be made illegal or have stronger constraints,
| for the health of the country in general.
| rocket_surgeron wrote:
| >If you have authority over something, you are also responsible
| for it. Both the good and the bad.
|
| Cool your jets, there, commie.
|
| We can't be burdening Job CreatorsTM with silly little things
| like that. Their control over the total pool of capital might
| decrease by several percentage points!
| mark_l_watson wrote:
| I think that smart money understands that the US dollar is going
| to lose a lot of purchasing power or value so they want to buy up
| "real things."
| version_five wrote:
| Curious hot take:
|
| There's really dumb money, i.e. public markets
|
| Then there's dumb money, i.e. VC
|
| Then there's smart-ish money, where I'd place PE, that basically
| wants to strip mine any value away from companies
|
| And it must be some kind of food chain - people get rich from
| dumb public investors, dupe some companies investing in venture
| funds, pillage some veterinary clinics or dentists or whatever.
| But then what?
|
| Is there really smart money somewhere making good, sustainable
| investments in stuff, to secure generational wealth? Some pension
| funds maybe? And some family offices?
| fzeroracer wrote:
| Vulture capitalists are bad, but at least sometimes they can fund
| something decent. PE is full of scammers and criminals that
| honestly should be behind bars because their entire existence
| involves destruction. It should be blatantly illegal to buy a
| company and saddle it with the debt you used to buy it.
| penguin_booze wrote:
| Freakonomics had a couple of related episodes:
| https://freakonomics.com/podcast/should-you-trust-private-eq....
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