Private equity bought America's essential services • Hacker News Board

Re: Private equity bought America's essential services

#301

Post by giraffe_lady » Wed, May 27, 2026, 3:32 PM UTC

darkwater wrote: post #200

giraffe_lady wrote: post #117

Earlier quoted context omitted.

> Hard-working founders should be able to cash out Why? Operating a successful business should be remunerative on its own, or else it's not successful. Owners who don't want to do it anymore can let it become worker owned. If they don't want it, it can dissolve. What else do you need? The very concept that the end of a successful business is a big payday for its creator is itself the poison here. There is no end just…

I generally agree, but this point of view shifts the blame from one big, evil, soulless PE firm to thousands of small shops owners that just wants to "retire comfortably". It's not easy to sell because one can easily sees oneself as that small owner, but not as a big evil PE. It's the same with gentrified zones: yes there are some dark patterns going on as well, but mainly is previous, smaller owners that want to mak…

Sorry you're right, I should have been more careful with the phrasing there. The structures, risks, and incentives that make business owners believe and act like this are real, and that's the poison I was pointing at.

I'm not trying to put all of the blame on individuals responding to the pressures being applied to them. But neither am I accepting their abdication of the responsibility to act with honor and courage in the face of those pressures.

Re: Private equity bought America's essential services

#302

Post by bs7280 » Wed, May 27, 2026, 3:32 PM UTC

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…

I've been saying pensions should not exist, as they are contradictory to our political system. Some politician 40 years ago can promise everyone the moon, and never force the next generation to figure it out. I'm from Chicago which has a nightmare pension system that's keeping me from ever buying a home in the city I love, because my property tax increases just go to retired people who moved to Florida.

I really appreciate this perspective as It helps fill in gaps in my mental model of where our economy has gone wrong the last 50 years. Unrelated but - I've read an interesting paper on how allowing private banks to create money has led to the infinite profit growth goose chase...

Re: Private equity bought America's essential services

#303

Post by bombcar » Wed, May 27, 2026, 3:34 PM UTC

aidenn0 wrote: post #230

FuriouslyAdrift wrote: post #186

Earlier quoted context omitted.

Pension funds still exist?

Many government employees have pensions. Most of the ones I know are also ... skeptical of the future solvency of those funds by the time they retire.

Most (if not all) gov't pensions still have the defined benefit part as the "optimal" choice even when they offer defined contribution plans.

They can also offer some really nice benefits like accessing your pension income at 55 which can be a substantial portion of your last year's salary, and you can keep working elsewhere if you want.

Re: Private equity bought America's essential services

#304

Post by bombcar » Wed, May 27, 2026, 3:36 PM UTC

Aurornis wrote: post #198

randusername wrote: post #98

Article doesn't really dig into the angle I personally find most horrifying, strip-mining social capital. In my area PE is gobbling up mom-and-pop apartment complexes, plumbing companies, restaurants, and generally making customers and employees alike pretty miserable. Hard-working founders should be able to cash out, but there has to be a better system than this one. Succession, maybe. Not that we should push an unm…

> Hard-working founders should be able to cash out, but there has to be a better system than this one. Succession, maybe. The large PE buyouts that came from the ridiculous ZIRP period could deliver better financial stability than handing the business down. I know two families with businesses that attracted huge PE offers in the past few years. One of them took the buyout and the family members slowly left their jobs…

I knew of a family-run hoagie shop that sold to "investors" (not sure if it was PE, probably was) three times, each time they ran it to shit amazingly quickly, and they were able to buy it back for a song and fix the damage.

Re: Private equity bought America's essential services

#305

Post by MisterTea » Wed, May 27, 2026, 3:37 PM UTC

yardie wrote: post #195

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…

One of the tools we use was bought by PE last summer. When it was time to renew our support contract had tripled in price. I use it across 10 projects so our costs went from $200k to $500k. I let our account manager know this was unacceptable but even his hands were tied. Cancelled those contracts and let them know we were retooling with a competing tool and opensource to fill those gaps. The impression I got was we…

> When it was time to renew our support contract had tripled in price.

Currently in PE hell myself. Company I work for was bought out few years ago when the owner cashed out. Right out of the gate it was a numbers go up game. New sales person was hired and their first order of business was - drum roll please - triple prices! Customers balked. Some walked. In addition, some employee benefits evaporated, vacation time cut drastically, shitty health insurance switch, employee perks like the monthly pizza Fridays were canned as if ~$500/mo in pizza was going to bankrupt the company. Meanwhile, employee morale is at an all time low and quality has faded.

Perhaps there is good PE out there. Somewhere. All I see are vampires.

Re: Private equity bought America's essential services

#306

Post by ryandrake » Wed, May 27, 2026, 3:37 PM UTC

rocketpastsix wrote: post #280

ryandrake wrote: post #199

Earlier quoted context omitted.

The vast majority of people can’t just go out and buy a machine shop or laundromat and then start running the business. It’s a risky asset, not like a house where you put down 20% and any bank will loan you the rest. I’d love to own a small franchise restaurant or something in my town but they cost millions that I don’t have. And that’s before you even make it to the question of “can the person that manages to buy it…

sure but a restaurant is always going to be a risky asset. I am thinking more in terms of a plumbing business. It's a business that will always have a need, no matter the economy because a bursting pipe doesnt care if its a recession or a booming market. I guess what I would like to see is a pathway to making it easy to buy or start up crucial businesses like a plumbing business, HVAC company, etc. As the current gen…

I wonder what would make it easier for a regular person to buy a mom-n-pop plumbing business, besides financial help? If the owner wants $5M for it, and you (or a PE firm) walk up to him with $5M, it's yours. The mechanics of buying the business aren't particularly hard--the hard part is obtaining the capital.

Re: Private equity bought America's essential services

#307

Post by bombcar » Wed, May 27, 2026, 3:38 PM UTC

rocketpastsix wrote: post #280

ryandrake wrote: post #199

Earlier quoted context omitted.

The vast majority of people can’t just go out and buy a machine shop or laundromat and then start running the business. It’s a risky asset, not like a house where you put down 20% and any bank will loan you the rest. I’d love to own a small franchise restaurant or something in my town but they cost millions that I don’t have. And that’s before you even make it to the question of “can the person that manages to buy it…

sure but a restaurant is always going to be a risky asset. I am thinking more in terms of a plumbing business. It's a business that will always have a need, no matter the economy because a bursting pipe doesnt care if its a recession or a booming market. I guess what I would like to see is a pathway to making it easy to buy or start up crucial businesses like a plumbing business, HVAC company, etc. As the current gen…

The thing is those businesses can't really be "sold" because they make enough money to support a few families, but they can't do the same AND carry the debt-load necessary to buy it.

So they can only really be inherited or given away (and they often are).

But if it's not to kids on death, it's moderately difficult to give away a business that has "paper value".

Re: Private equity bought America's essential services

#308

Post by bko » Wed, May 27, 2026, 3:39 PM UTC

ses1984 wrote: post #145

bko wrote: post #46

Earlier quoted context omitted.

Not sure. On one hand, a huge backlog means they're not meeting their demand. Operations may not be in order. Everything else is the same so sales and everything else is equal so I guess money is just deferred? Also huge backlog encourages competition and if you can't deliver, you're going to lose. But such a big backlog suggests that they're underpricing. So it may be as simple as increasing price and ramping up you…

Have you ever heard the phrase ceteris paribus? It means all other things being equal. It's a phrase economists use to discuss things in the ideal, sort of like, "imagine a spherical cow in a vacuum" but for economics. The point of the exercise is not to suppose what other things could have been different to allow these two hypothetical companies to end up in the described state. The point is to actually freeze every…

The all things being equal makes no sense in this regard.

It's like me saying "all things being equal except you're a duck"

You can't be a duck and have all things equal. Same way a company can't be equal to another company and have a $4bn backlog. This isn't an independent variable like the color of your logo.

> PE would probably be satisfied to make half the profit and double the margin, especially if it also happens to position the company for a more favorable sale. Would you rather buy a business that's at 5 or 10% margin?

So PE doesn't maximize profit but instead maximizes profit margin? This makes no sense. Why?

Re: Private equity bought America's essential services

#309

Post by strgcmc » Wed, May 27, 2026, 3:40 PM UTC

ses1984 wrote: post #145

bko wrote: post #46

Earlier quoted context omitted.

Not sure. On one hand, a huge backlog means they're not meeting their demand. Operations may not be in order. Everything else is the same so sales and everything else is equal so I guess money is just deferred? Also huge backlog encourages competition and if you can't deliver, you're going to lose. But such a big backlog suggests that they're underpricing. So it may be as simple as increasing price and ramping up you…

Have you ever heard the phrase ceteris paribus? It means all other things being equal. It's a phrase economists use to discuss things in the ideal, sort of like, "imagine a spherical cow in a vacuum" but for economics. The point of the exercise is not to suppose what other things could have been different to allow these two hypothetical companies to end up in the described state. The point is to actually freeze every…

Ceteris paribus can be stretched to the point of absurdity though. A startup with $4.5b of qualified leads, vs one with zero? Come on now...

For the sake of argument, we're imagining both startups have equal levels of investing/funding secured, equally talented founders and employee, equal access to equal networks (i.e. I'm imagining something like defense or aerospace, to make it a little easier to imagine a startup getting $4.5b in qualified leads), equal technology or IP, equal EVERYTHING as per your hypothetical... and yet somehow one startup has $4.5b in qualified leads and the other does not.

I truthfully would rather buy into the one with zero leads, because presumably, under ceteris paribus conditions, that startup must be priced at a discount to the other one, since it has no leads... and yet, EVERYTHING ELSE is equal (equally strong team, equally good tech, equal networks, etc.), and so it seems to me, that I would be able to buy a larger equity stake for a discounted price, and have EQUAL odds of winning future business since this startup is EQUAL in all other respects expect for the odd qualified leads backlog.

Would you rather buy shares in NVIDIA, or buy shares in another company that is equal to NVIDIA in every way (same talent, same tech, same everything), but just happens to have no backlog of confirmed orders? I think I'd like to buy this shadow-clone of NVIDIA, because I would buy into the thesis that there is more room for growth, vs buying the incumbent... after all, ceteris paribus, right?

Re: Private equity bought America's essential services

#310

Post by cameronh90 » Wed, May 27, 2026, 3:41 PM UTC

mcphage wrote: post #269

cameronh90 wrote: post #236

Earlier quoted context omitted.

This is just the design of a PE fund. They run on a fixed cycle, so early on they heavily invest into their portfolio with the aim of resolving that risk and maximising the sale value by the end of the cycle. In principle, I don't think there's anything wrong with this. All investment expects a ROI over some time horizon. Public companies do the same thing. Anyone who founds a start-up is doing it too. The only real…

> how successful they have become at aggressively optimising for market value They use money to turn value into money, which they then use to turn more value, into more money. And in the end, they have a lot of money, and all of the value is gone.

That's only possible if the financial system is valuing things systematically incorrectly.

IFF a company is truly, honest to god, less valuable than the sum of its parts, then it (or the subset that would have more value to someone else) SHOULD be dismantled, and those resources sold and reallocated to more productive use. You probably make these sorts of decisions in the capacity of your own personal finances without even thinking about it.

On the other hand (and what I believe is likely happening is) if cynical financial engineering is allowing you to turn a useful company that's valued poorly by the market into a useless company that's is paradoxically highly valued by the market, in the short term, and that keeps happening over and over again, then the tools used to calculate the market value are wrong.

This is illustrated by how PE commonly trashes trusted brands. A brand doesn't show up in your EBITDA. If you trash a brand quickly enough by cutting costs and quality, some institutional sucker will buy the company because they haven't clocked that the current EBITDA is elevated due to asymmetry in how quickly the costs come off and how quickly the revenue falls off after burning the brand.

They've simply valued the company wrong.