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I don't get why sellers are selling to PE. Can these services not "IPO"? Why do these companies need to sell?
When PE takes over medical practices, my understanding is there just isn't enough capital available for a dentist to "cash out". The options are either they find another dentist to buy it, the close the practice, or they sell the private equity...
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One thing I don't see is the other side of this story: the sellers. I don't get why sellers are selling to PE. Can these services not "IPO"? Why do these companies need to sell? When PE takes over medical practices, my understanding is there just isn't enough capital available for a dentist to "cash out". The options are either they find another dentist to buy it, the close the practice, or they sell the private equi…
Talking to a single buyer is easier than arranging an IPO and I would imagine the diligence far less onerous.
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Earlier quoted context omitted.
It is not analogous because if you sell your house and the sale money is not enough to cover your mortgage you are still on the hook for what's left of the principal. A leveraged buyout is exclusively on the purchased company's books, so if the company goes to zero the PE parent company is not on the hook for a single penny.
What I don't understand is how the cost of banks repossessing these companies in case of default don't make the math unviable. Unless the company have a lot of fairly stable semi-liquid assets (like real estate) banks should be charging fairly high interest on these loans which would make most of these business unprofitable. Which would increase the rate of defaults (if they are authorized in the first place) and in…
And everyone gets their management fees until people start asking their money back...
Earlier quoted context omitted.
It is analogous to a mortgage, you put down X% and the house itself secures the loan, along with PMI if your equity is below 20%. The assets of the business secure the loans in the same way a house secures a mortgage.
It is not analogous because if you sell your house and the sale money is not enough to cover your mortgage you are still on the hook for what's left of the principal. A leveraged buyout is exclusively on the purchased company's books, so if the company goes to zero the PE parent company is not on the hook for a single penny.
End consolidation. Go back to pre-1980s antitrust policy. Encourage competition and bust the trusts.
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I am somewhat more inclined to some socialist policies now though.
Earlier quoted context omitted.
You understand mortgages, though, right? Even 3% or 0% down mortgages?
LBO's are like buying a rental property where the mortgage is approved based on expected future rental income from the property. That's why the parent is saying "It is like paying for the company with the money from the company you are buying.".
The premise is that PE firms invest in companies, load them up with debt, and maximize profit. And it's especially nefarious in industries where people have "no choice but to pay" > The result is a backlog that reads like a financial opportunity in earnings calls and a crisis in every fire station in the country. As of 2025, REV Group’s backlog stands at $4.5 billion. Wait times for a custom fire truck run to four ye…