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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

#111

Post by vault_ »

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…

> 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.

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

#112

Post by MandieD »

garbagecoder wrote: post #8
awaythrow483 wrote: post #3

If you want to understand what went wrong with America, start with private equity

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 f…

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.

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

#113

Post by TearsInTheRain »

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…

"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

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

#115

Post by derefr »

dmix wrote: post #89
eli wrote: post #85

Earlier quoted context omitted.

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 dr…

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.

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.

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

#116

Post by version_five »

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?

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

#117

Post by GartzenDeHaes »

bell-cot wrote: post #11
S_A_P wrote: post #6

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?

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.

More like zombies overrunning the last defenses of civilization and consuming the few remaining survivors.

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

#118

Post by linuxftw »

oatmeal1 wrote: post #90
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…

> 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.

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.

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

#119

Post by paxys »

mucle6 wrote: post #107
paxys wrote: post #83

Earlier quoted context omitted.

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…

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

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?

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

#120

Post by madballster »

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.

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