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Private equity is buying everything from vet offices to tech conglomerates

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Re: Private equity is buying everything from vet offices to tech conglomerates

#91

Post by hn8305823 »

> 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.

Re: Private equity is buying everything from vet offices to tech conglomerates

#92

Post by legitster »

dwallin wrote: post #59
legitster wrote: post #40

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…

"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.

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.

Re: Private equity is buying everything from vet offices to tech conglomerates

#93

Post by lisasays »

enlyth wrote: post #61
SNosTrAnDbLe wrote: post #5

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 mo…

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…

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.

Re: Private equity is buying everything from vet offices to tech conglomerates

#94

Post by meepmorp »

mistrial9 wrote: post #44
legitster wrote: post #40

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…

sorry, thirty years ago I could have subscribed to "and keep retiring doctors happy" but now, no way Jose

why the change, out of curiosity?

Re: Private equity is buying everything from vet offices to tech conglomerates

#95

Post by ahzhou »

coastermug wrote: post #20
earnesti wrote: post #10

Earlier quoted context omitted.

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 b…

Leveraged buyouts. I’ve seen them explained like a mortgage, except that doesn’t work in my head either.

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.

Re: Private equity is buying everything from vet offices to tech conglomerates

#96

Post by fnimick »

andix wrote: post #28
SNosTrAnDbLe wrote: post #5

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 mo…

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 i…

> 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.

Re: Private equity is buying everything from vet offices to tech conglomerates

#97

Post by uni_rule »

hotpotamus wrote: post #62
SN76477 wrote: post #35

Earlier quoted context omitted.

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…

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.

I think that means we're doing as well socioeconomically as 1800s Prussia.

Re: Private equity is buying everything from vet offices to tech conglomerates

#98

Post by AlexandrB »

Invictus0 wrote: post #69
linuxftw wrote: post #56

Earlier quoted context omitted.

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 owe…

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.

2008 proved that banks are plenty stupid, especially if they think they can sell the bad debt to someone else before it explodes.

Re: Private equity is buying everything from vet offices to tech conglomerates

#99

Post by 4rd »

thedangler wrote: post #65

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 t…

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"

Re: Private equity is buying everything from vet offices to tech conglomerates

#100

Post by IX-103 »

bequanna wrote: post #42
bena wrote: post #27

Earlier quoted context omitted.

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.

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 tha…

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...

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