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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

#121

Post by coastermug »

Footkerchief wrote: post #33
coastermug wrote: post #16

I’ve pushed back on previous discussions on here about PE because of lack of detail about wrong doings, however this article is excellent. “dividend recapitalization” seems absolutely insane for anyone running a business.

Yes: https://www.rollingstone.com/politics/politics-news/greed-an... > Romney and Bain avoided the hostile approach, preferring to secure the cooperation of their takeover targets by buying off a company’s management with lucrative bonuses. Once management is on board, the rest is just math. So if the target company is worth $500 million, Bain might put down $20 million of its own cash, then borrow $350 million from…

What I want to know, is how do the banks keep lending to PE outfits? They are surely the losers in this situation?

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

#122

Post by Dwolb »

legitster wrote: post #104
Dwolb wrote: post #80

Earlier quoted context omitted.

Agreed. Had a family member receive an LOI at 10x EBITDA so they decided to sell (not sure where they closed). They mentioned that if a doctor would have purchased the practice, it would be 1x or 2x at best. Related: they would have been interested to scale up, but didn't know how and were afraid of the complexity of trying to manage a 3rd location.

Another thing to keep in mind is that it was a completely different regulatory environment when most of these private practices started. 50 years ago you could run a cash business with yourself, a receptionist, and a nurse. Incumbent practices could keep up with the times and add billing staff, but you would have to be insane to start a new practice today. I'm all for healthcare reforms, but it's a pity that we didn'…

Right.

Seems like there’s opportunity to be the backend operating system to scale these practices.

That’s what PE is supposed to be anyway, but they don’t run it like an owner-operator would.

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

#123

Post by [deleted] »

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…

[deleted]

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

#124

Post by bee_rider »

dmix wrote: post #89
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…

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.

If PE ruined 5 companies for every success but that one success paid back 10x, someone would do it.

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

#125

Post by coastermug »

ahzhou wrote: post #95
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.

It’s basically the acquisition (buying out) a company using debt-financing (leverage). The typical plan is usually to use business revenue to finance the interest payments, optimize the business via cost-cuts or roll-ups, and flip it for a profit in 5-7 years. Like most things, PE can be helpful or destructive depending on the execution and the exact strategy for flipping. At its best, it’s bringing in experienced op…

Thank you, this is a balanced and detailed response. I don’t personally “buy” the narrative that all LBOs are destructive. After all there are entire funds devoted to LBOs and how would these PE outfits carry on getting loans if their companies constantly defaulted?

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

#126

Post by johneth »

gibspaulding wrote: post #63
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…

The PE firm has managed to charge more, clean less, AND bring in enough customers that the gym is overcrowded? I'd be looking elsewhere too, but from a business perspective that sounds like a roaring success.

> I'd be looking elsewhere too, but from a business perspective that sounds like a roaring success.

Short term, yeah. Long term, it's a big opportunity for someone else to come in and provide the original superior service and eat their lunch.

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

#127

Post by Jeslijar »

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…

They come in, reduce costs as much as possible, keep revenue coming in as long as they can while having huge dividends to said PE until they get so far into debt they are not sustainable. They'll swap to service providers that they either own or get a cut from and pay themselves.

Then their purchased company gets bankrupted, sells their assets to cover their debts (including said PE's 'debts' of services provided.)

They probably make 200-300% of their initial investment back by paying for the initial purchase with debt that is tacked onto the purchased organization and simply drain them dry. PE doesn't make a ton of money by being dumb, they make a ton of money using any and all tactics necessary to make big stacks in short time. Obviously not all PEs operate like this and there are likely many loopholes and strategies.

They bankrupt it by basically pumping it full of debt while taking money out and dumping it once it's out of money - zero liability with a LLC right?

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

#128

Post by legitster »

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…

Well, keep in mind that from the perspective of the rest of the healthcare industry, private practices are kind of dinosaurs at this point. They don't play well in our modern system, and the last 50 years of healthcare legislation has done everything short of outright banning them.

New doctors are not trained or expected to run businesses. Getting money from medicare or insurance is a nightmare. Patients want access to more services than ever before. The entire idea of a private practice is anathema to modern ideas of healthcare oversight and access equity. Even getting private malpractice insurance is almost impossible now.

There is a reason almost nobody is starting private practices anymore. So to give the doctors a bit of credit this is a chance to slip quietly into the night.

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

#129

Post by andix »

fnimick wrote: post #96
andix wrote: post #28

Earlier quoted context omitted.

Was it at least a good deal for the founder? I feel your pain about what happened. I've seen comparable things a few times first hand. My learning was: just leave once the change starts, only stay if you're getting something out of it. It's not my company, I'm only in charge of my life, I'll find something better soon. I think I would not recommend to run once PE is mentioned, it can also change for the better, but i…

> 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…

For me a job is a job, my emotional attachment is limited. It can be awesome, but how the company changes is not in my power, if I don't own an substantial amount of equity.

Usually if a company fails, it happens in slow-motion. As an employee you can often spot that years before it makes the news. Just move on before it makes the news.

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

#130

Post by atourgates »

legitster wrote: post #92
dwallin wrote: post #59

Earlier quoted context omitted.

"there is no one else right now who would buy it." You are missing a qualifier: "at the current market price." If you prevent or disincentivize PE from buying these types of businesses, the price would drop to the level of its new adjusted demand.

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…

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 depreciates on the used market).

It could be sustainability more, but that’d be a nice bonus, not something we can count on, or that any physician should count on for their retirement planning.

No retiring physician is owed anything for the “value” of their practice. And while on a personal level a PE buyout would be a nice bonus at the end of my spouse’s career, not getting it wouldn’t have affected either her decision to go into private practice, or her ability to.

Far and away the biggest factor preventing more privately owned physician practices is the fact that hospital-owned practices are often reimbursed around double for the same procedure as independent practices. This has shifted somewhat with the shift from “pay for service” to “value based care” models, but both put independent physician-owner practices at a tremendous disadvantage to large hospital systems.

And it’s a damn shame because private physician owned practices are a much more efficient way to care for patients.

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