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Private equity bought America's essential services

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Re: Private equity bought America's essential services

#331

Post by MobiusHorizons »

mcphage wrote: post #270
thijson wrote: post #158

Earlier quoted context omitted.

I wonder if this creates opportunity for spinning up competitors to these PE owned companies. If they are underinvesting in their products in order to extract value eventually their offerings will not be competitive.

> eventually their offerings will not be competitive. How so?

If you read the article it provides a good example. Fire truck businesses with a 4 year backlog and high margins. This is less competitive than the situation prior to PE consolidating it when it had much lower backlog and ~3% margins. Seems like a clear market opportunity.

Re: Private equity bought America's essential services

#332

Post by ryukoposting »

MichaelZuo wrote: post #286
derf_ wrote: post #254

Earlier quoted context omitted.

> So if you wanna fix or ban PE, solve pensions. We solved pensions. People have defined-contribution plans now. I would expect insurance float to dwarf pensions as a source of PE funding. The real reason PE exists is because it charges high fees. The financial industry does not make products to serve customer needs, though by happy accident that sometimes happens. It makes products to charge fees. Index funds remove…

Huh? Don’t many jobs still have gold plated pensions? Like millions upon millions? They need to be paid out somehow.

> many jobs... millions upon millions

...no. It doesn't even matter what the rest of the words in the question are. Just no, lol.

> They need to be paid out somehow.

No they don't. Lots of pensions, especially the not-gilded ones, go bankrupt.

In fact, that's precisely what happens to pensions of companies that are acquired by PE. The company gets stripped for parts, it goes bankrupt, and PBGC covers a fraction of the affected pensioners' payouts.

In other words, with or without PE, bloated pensions ultimately end up being the taxpayer's burden.

Re: Private equity bought America's essential services

#334

Post by bombcar »

DoneWithAllThat wrote: post #122
elevation wrote: post #113

Not all PE problems are existential; they will be outcompeted. What keeps a newly graduated Veterinarian from opening her own clinic and undercutting the PE competition? With no massive loans on her books, she can profitably offer lower prices than PE can. She may even drive the local PE clinic out of business.

Yet there is no evidence of this happening in any industry or area where PE has become the dominant player. Why not? What you’re saying is nice economic theory but it’s clearly not happening.

Because the pain is bearable and not too much.

If it becomes too much, things actually happen.

(This is the dark side of financialization, as it can be used to maximize human misery.)

Re: Private equity bought America's essential services

#335

Post by generic92034 »

MisterTea wrote: post #305
yardie wrote: post #195

Earlier quoted context omitted.

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…

Yes, that is typical for a certain kind of management. Only costs that are visible and easily measurable are taken into account. Invisible costs or costs that are hard to measure are ignored, even though they may amount to a whole lot, up to the ruin of the company. Employee motivation is one example for the second type of costs, while the 500 bucks per month for pizza were easily seen and cut.

Re: Private equity bought America's essential services

#336

Post by antasvara »

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…

A plumbing business doesn't have "assets" though; it's valuable because the owner is good at their job. You can't durably "sell" that brand value unless the new owner is also known to be great at their job, at which point they don't really need to buy your business.

Family businesses handle this by slowly getting the next generation involved, such that the intangible value has been transferred by the time the owner wants to retire. That works less well with a stranger. You really need high levels of trust to make that work fairly for both parties.

Re: Private equity bought America's essential services

#337

Post by spyckie2 »

jmyeet wrote: post #228
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…

This reads as apologia, blame-shifting, "I was just following orders". People have to eat. They need water. They need a roof over their head. Nobody has to buy out all the veterinarians in an area at rates they can't say no to, have them sign non-competes and them jack up all the prices by 300% because, hey, you now own all of them. Nobody has to buy up all the trailer parks, which are normally peopple's last stop be…

To clarify the main point is it is wrong but because it affects old people no one wants to crusade against it. It has the perfect moral excuse to hide behind.

Re: Private equity bought America's essential services

#338

Post by protonbob »

dpkirchner wrote: post #318
protonbob wrote: post #312

Earlier quoted context omitted.

Yes they did say it would. https://thehill.com/homenews/sunday-talk-shows/553773-fauci-... Also you don’t know anything about me and what media I consume. You can’t quote me on something I didn’t say. They did say it would stop transmission.

Your source clearly says that the likelihood of transmission is reduced, not eliminated.

‘“So even though there are breakthrough infections with vaccinated people, almost always the people are asymptomatic and the level of virus is so low it makes it extremely unlikely — not impossible but very, very low likelihood — that they’re going to transmit it,” Fauci said.‘

Extremely unlikely is a lot stronger than reduced. Calling it breakthrough implies that the norm is prevention. Obviously nothing is 100%.

Re: Private equity bought America's essential services

#339

Post by bombcar »

ryandrake wrote: post #328
bombcar wrote: post #307

Earlier quoted context omitted.

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".

Yea, I occasionally go to estate sales, and a machine shop going out of business popped up on my radar. Went down there to buy a few power tools, chatted up the elderly owner, and asked him why he was selling everything. The shop had everything, and would have been a really cool business to own and operate! He said 1. his adult kid had no interest in running the business, and 2. he couldn't find anyone willing and ab…

Yep, and if you're starting on your own, you might as well get new equipment and such built and made for you.

Same thing happened with a restaurant - nobody wanted to buy the business so it shut down, even though you could have bought the whole business for the cost of the building, basically.

(There's a path for entrepreneurial "youngsters" - identify these businesses 10 years before, and become a valuable employee in such; I've seen them given away for a song to such. Of course, in some of them they also ended up with the daughter, so ...)

Re: Private equity bought America's essential services

#340

Post by Aurornis »

bombcar wrote: post #304
Aurornis wrote: post #198

Earlier quoted context omitted.

> 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.

Yep! These situations are annoying for the customers, but an amazing opportunity for people trying to run good businesses. Let the bad operators run a company into the ground and then buy the pieces at an amazing discount.
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