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Private equity bought America's essential services

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Re: Private equity bought America's essential services

#161

Post by sokoloff »

nyeah wrote: post #72
sokoloff wrote: post #39

Earlier quoted context omitted.

Exactly. That is largely how commercial lending is underwritten: by ensuring the DSCR (debt service coverage ratio) is over 1.0.

Sure that is commercial lending.* And the acquirer owes the debt. But that's not how LBOs work. In an LBO the target owes the debt. *Coverage of 1:1 is an accident waiting to happen, but otherwise sure.

That's not especially different from the typical LLC/SPE holding structure where individual properties in a large real estate portfolio are not held directly, but rather by a single-purpose entity that holds each property and then is owned by a larger but distinct entity. You don't want an issue in a single company/property to be able to take down your entire holding company. If someone will lend you money without cross-collateralization, why wouldn't you prefer that?

If PE firm A wants to buy company C using an LBO, it could do so by having C borrow money and then A purchase C, or by creating an entity B that borrows money and then purchases C. Whether B or C owns the debt doesn't change anything meaningful for A, and it's pretty clear that you're allowed to form company B (and really hard to imagine how you'd make that illegal without effects that would be worse than current).

Re: Private equity bought America's essential services

#162

Post by matheusmoreira »

WarmWash wrote: post #142

Run from investing in PE, run as fast as you can. I (and leaders at my PE-owned company) cannot say enough bad things about private equity. How anyone who managed to make money in their life decides PE is a good investment blows my mind. We are now on our 5th PE firm in 10 years, and just completed a "PE lifecycle" of buy -> merge -> sell -> part out -> merge. None of these PE firms bring anything to the table. Even…

Looting is a rather apt word. What really breaks me is the fact that these are the people who are making it. Destructive people who extract every last cent of value from everything in sight are winning. Society actively rewards this. Constructive people who are actively trying to add value to the world face many more risks and difficulties.

Re: Private equity bought America's essential services

#163

Post by elevation »

yread wrote: post #147
elevation wrote: post #88

Earlier quoted context omitted.

How would you phrase this though? Plenty of PE firms have the funds to buy your local veterinary clinic or auto body shop with cash; the leverage comes later, when they direct the business that they own to get a loan. How can you make it illegal for the business to get a loan?

> How can you make it illegal for the business to get a loan? That would also be legal. But if you take the assets out of the daughter company you would go to prison for https://web.archive.org/web/20141030194421/http://www.sfo.go...

The daughter company would presumable be allowed to purchase goods and services. What prevents those goods and services from being supplied (at a hefty markup) by another company under PE control?

Re: Private equity bought America's essential services

#165

Post by pelotron »

skinfaxi wrote: post #16
Brushfire wrote: post #5

Why is there so much attention paid to the buyer (private equity) and no attention paid to the folks who sold the businesses to them?

What would that attention look like? "Long-time pillar of the community local pediatrician retires and sells their practice"? How would you know this attention is getting paid or not unless you are consuming local news from the places this is happening?

"Long-time pillar of the community pediatrician unveils true self by selling practice to Devil"

Re: Private equity bought America's essential services

#166

Post by matheusmoreira »

spyckie2 wrote: post #118

The irony is that PEs exist largely because of pension funds. So to sum it up (not so nicely) we are transferring value from our current standard of living to pay for retirement checks for our old folks. Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent. If they do not have the higher PE returns, they basically go out if cash in 10 years and everyone w…

Interesting perspective. I had never considered that before.

Re: Private equity bought America's essential services

#167

Post by zdragnar »

miltonlost wrote: post #129
amazingamazing wrote: post #107

Earlier quoted context omitted.

It did not work though. Bell and Standard Oil are notable examples. What else?

[flagged]

> Companies can be bought and sold but not if it creates concentrations of economic power that allow them to dictate prices to vendors or customers.

The policy in question (as stated) should have prevented Ma Bell and Standard Oil from getting to the point of being broken up.

Re: Private equity bought America's essential services

#168

Post by [deleted] »

spyckie2 wrote: post #118

The irony is that PEs exist largely because of pension funds. So to sum it up (not so nicely) we are transferring value from our current standard of living to pay for retirement checks for our old folks. Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent. If they do not have the higher PE returns, they basically go out if cash in 10 years and everyone w…

[deleted]

Re: Private equity bought America's essential services

#169

Post by mghackerlady »

tavavex wrote: post #139
mghackerlady wrote: post #55

Earlier quoted context omitted.

free market capitalism will always end like this though. the end goal of capitalism is the consolidation of all things into a megacorporation or oligarchy that controls everything, creates nothing, and earns infinite money

Why is this downvoted? To me, it seems like a self-evident conclusion. Even the supporters of the current system would probably agree with it. When you have a system that encourages endless growth at absolutely all costs, while placing no limits at the amount of power a single entity can hold, what other outcome can there be but the biggest players absorbing everything into themselves and using their influence over p…

(I agree, but generally commenting about downvotes isn't something we do here from what I've seen)

Re: Private equity bought America's essential services

#170

Post by halfcat »

spyckie2 wrote: post #118

The irony is that PEs exist largely because of pension funds. So to sum it up (not so nicely) we are transferring value from our current standard of living to pay for retirement checks for our old folks. Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent. If they do not have the higher PE returns, they basically go out if cash in 10 years and everyone w…

> we are transferring value from our current standard of living to pay for retirement checks

Isn’t this just what happens when you have an inverted pyramid (older population is larger than the younger population)?

> One can argue that PEs make the business more efficient

I’ve never seen it (I agree with you). To improve something they’d have to understand the business and do a bunch of work. Mostly they show up at quarterly meetings and want spreadsheets that measure some number that will go up (regardless if that number means anything).

> if you wanna fix or ban PE, solve pensions

How does one solve pensions?

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