>This to me is wrong because the new owners have almost no incentive to build the business for the long term—EA is a strong operator but face layoffs and LOB closures just to service the new debt. They have very strong incentive because debt holders have first dibs on the assets if EA goes belly up. Equity owners (ie. PE) are the last to get paid, so it's very much in their best interest that EA doesn't even lose a t…
You’re assuming, or insinuating, the PE firms don’t immediately start paying themselves outsized management fees, bonuses, and the like.
Or they can do things like buy VMWare, gut the support/engineering/sales staff, hound and threaten their install base, and ultimatley profit greatly by stripping down and destroying a perfectly healthy if relatively late stage business.
That was Broadcom and not a PE fund?
True, though Broadcom operates in a very similar manner in this regard.
> Think about it, if a business is fairly priced and well run, PE firms have no incentive to buy it because where do they generate returns? PE has access to business models unavailable to the original owner. - Buy all local dentist clinics at an enticing markup then increase rates. - Buy businesses and migrate them to tech where the PE firm holds an advantage. For example, a PE firm that runs its own payment gateway.…
Right, which implies that the business was not run well, or at the least didn't reach its full potential.
None of those situations imply the business was poorly run.
Private equity hoovers up existing businesses that are mostly well functioning. If they fail, we suffer as those businesses we depend upon fail and disappear. Everything from big national chains to your local doctors office can be destroyed in this way. But if private equity succeeds, we also suffer. Private equity is… private. Normal people have our savings invested in public markets. We can’t easily invest in priva…
> Private equity hoovers up existing businesses that are mostly well functioning. There's many flavors of private equity, but the predatory ones tend to buy businesses that are slowly failing, and turn them into something that hits a brick wall and completely fails. If it was a mostly well functioning business with good prospects, likely the current ownership would be less interested in selling or a sale to similar o…
There are predatory ones that corner the market on something (pet care, dentistry) in an area to jack up prices and make a killing.
>I don't like PE firms but there's no doubt that they force businesses to operate better, and ultimately that benefits people like you and me... They do not force businesses to "operate better." They force businesses to operate at a higher EBITDA, purely for their own benefit. Sometimes by chance this results in improvements for the employees or customers, but more often it ultimately results in a worse experience fo…
Believe it or not, businesses don't exist to provide you a "good service" they exist to make money. So yes, they do in fact force firms to operate better when they attain a higher EBITDA. Until the definition of why a business exists changes, you can purely measure a business success over how much money it makes for the owner, legally. Should that be the case? No, I don't agree. But as it currently stands, that's how…
>Believe it or not, businesses don't exist to provide you a "good service" they exist to make money.
This is a common misconception. Businesses actually exist to serve the public interest, which is why some kinds of businesses are illegal. The premise of capitalism isn't that it maximizes individual wealth, but that it maximizes the general welfare of the population.
Believe it or not, businesses don't exist to provide you a "good service" they exist to make money. So yes, they do in fact force firms to operate better when they attain a higher EBITDA. Until the definition of why a business exists changes, you can purely measure a business success over how much money it makes for the owner, legally. Should that be the case? No, I don't agree. But as it currently stands, that's how…
>Believe it or not, businesses don't exist to provide you a "good service" they exist to make money. This is a common misconception. Businesses actually exist to serve the public interest, which is why some kinds of businesses are illegal. The premise of capitalism isn't that it maximizes individual wealth, but that it maximizes the general welfare of the population.
Only some fringe definitions meet that. Maybe Adam Smith and Stiglitz. I deeply wish more westerners talked about Adam Smith and Stiglitz. But modern definitions of capitalism omit the words people, public, and welfare.
>Believe it or not, businesses don't exist to provide you a "good service" they exist to make money. This is a common misconception. Businesses actually exist to serve the public interest, which is why some kinds of businesses are illegal. The premise of capitalism isn't that it maximizes individual wealth, but that it maximizes the general welfare of the population.
Only some fringe definitions meet that. Maybe Adam Smith and Stiglitz. I deeply wish more westerners talked about Adam Smith and Stiglitz. But modern definitions of capitalism omit the words people, public, and welfare.
Definition and description do not necessarily include purpose. You could define a hammer very precisely without ever mentioning that its purpose is to drive nails. And since it's in the best interest of capital to minimize the original purpose of capitalism, and capital increasingly dominates public and political discourse, it's not surprising that the public interest angle would be increasingly ignored. But corporations and private property, the cornerstones of capitalism, are both purely creations of government, and both are subject to regulation in the public interest. We just need the political will to do so.