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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

#171

Post by mbesto »

r00fus wrote: post #135
icelancer wrote: post #108

Earlier quoted context omitted.

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 re…

Isn’t LBO the norm in industry? Where they charge from the acquired company and the acquired company takes on a huge loan?

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.

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

#172

Post by mbesto »

icelancer wrote: post #108
mbesto wrote: post #88

Earlier quoted context omitted.

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.

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 re…

> 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.

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

#173

Post by mbesto »

JumpCrisscross wrote: post #143
mbesto wrote: post #88

Earlier quoted context omitted.

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.

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.

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".

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

#174

Post by mbesto »

eli wrote: post #138
icelancer wrote: post #108

Earlier quoted context omitted.

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 re…

To be fair, I think there are also some PE firms that simply aren't that good at their job.

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.

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

#175

Post by taeric »

legitster wrote: post #139
atourgates wrote: post #130

Earlier quoted context omitted.

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 d…

> 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 superio…

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.

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

#176

Post by jazzkingrt »

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…

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.

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

#177

Post by BizarreByte »

twiddling wrote: post #102
fnimick wrote: post #96

Earlier quoted context omitted.

> 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…

It's strictly business. You keep your CV up to date and move on.

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.

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

#178

Post by slimsag »

TylerE wrote: post #170
pc86 wrote: post #144

Earlier quoted context omitted.

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.

Better than doing the same work with heavier patients in nursing homes for $12/hr.

The level of mental trauma endured by vets I doubt is matched by elderly care nurses.

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

#179

Post by SNosTrAnDbLe »

chiph wrote: post #86
curiousllama wrote: post #68

Earlier quoted context omitted.

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.

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 ot…

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.

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

#180

Post by quickthrowman »

epups wrote: post #169
briandoll wrote: post #79

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…

Why wouldn't your friend just open up a practice and compete with this dysfunctional company?

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.

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