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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

#151

Post by tucaz »

jarym wrote: post #51

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 sti…

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?

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

#152

Post by JumpCrisscross »

lazerpants wrote: post #39
coastermug wrote: post #20

Earlier quoted context omitted.

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

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…

> 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.

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

#153

Post by vkou »

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…

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.

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

#154

Post by yasman »

JumpCrisscross wrote: post #136

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…

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

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

#155

Post by busterarm »

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…

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.

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

#156

Post by linuxftw »

Aunche wrote: post #106
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…

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...

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.

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

#157

Post by JohnFen »

mbesto wrote: post #88
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…

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.

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.

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

#158

Post by ideamotor »

derefr wrote: post #115
dmix wrote: post #89

Earlier quoted context omitted.

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…

Brutal

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

#159

Post by BeetleB »

vault_ wrote: post #111
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 patient…

> 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?

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

#160

Post by BeetleB »

vkou wrote: post #147
legitster wrote: post #92

Earlier quoted context omitted.

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 haircu…

> 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…

> 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.

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