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Private equity bought America's essential services

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Re: Private equity bought America's essential services

#41

Post by tw04 »

itake wrote: post #31
b3lvedere wrote: post #17

[flagged]

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…

Out of the gate you need $27.5m in cash flow with $2.2m in profit. I doubt there are many single practice dentists doing that kind of volume.

You can’t just IPO because you want out of the business. There’s lots of reporting and regulatory requirements to ensure you aren’t screwing investors.

Re: Private equity bought America's essential services

#42

Post by consp »

amazingamazing wrote: post #21

Seems strange to me: 1. No one forced these people to sell. Is the idea that you can’t sell to an entity with more money? If you block that good luck with the world economy. 2. If above is ok is the idea that the new owner is inherently worse because they have more money, whereas as the smaller would be OK then where are the new entrants? 3. Going to the article it is clear enough. These industries just are not lucra…

> but this only works because people complain instead of starting rival business.

This reads like fiction. When they corner the market it's of course trivial to just jump in and take that share. No way they will try to be disruptive to you or sue you to hell and back and of course the bank will loan you the pile of money to start a new company since there is no giant corporation to compete with who can squeeze you out in an instance.

Re: Private equity bought America's essential services

#43

Post by wffurr »

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?

Run a small business for 20 years, work yourself to the bone, and then contemplate a big check from a buyout offer.

Re: Private equity bought America's essential services

#44

Post by amazingamazing »

dd36 wrote: post #2

End consolidation. Go back to pre-1980s antitrust policy. Encourage competition and bust the trusts.

How will that work - for example Y Combinator classes. They cannot be acquired? What about acquihires? Cant stop that - employees have their own agency.

Re: Private equity bought America's essential services

#45

Post by brainwad »

ses1984 wrote: post #27
bko wrote: post #10

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…

Let’s compare two hypothetical companies. They are equal in every way except one has a $4.5b backlog and one has a $0 backlog. Which company would you rather own?

The way to get to a backlog is by not having made sales you could have made in prior years. So they shouldn't be equal in every way - the one with $0 backlog should have more cash, and that is probably preferable unless your business has diseconomies of scale.

Re: Private equity bought America's essential services

#46

Post by bko »

ses1984 wrote: post #27
bko wrote: post #10

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…

Let’s compare two hypothetical companies. They are equal in every way except one has a $4.5b backlog and one has a $0 backlog. Which company would you rather own?

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 your production, even though it would likely mean higher marginal costs.

Overall no one wants a backlog. It's not good business

Re: Private equity bought America's essential services

#47

Post by graemep »

lumost wrote: post #29
sega_sai wrote: post #3

I simply don't understand why leveraged buy-out(LBO) is allowed in the first place. It is like paying for the company with the money from the company you are buying.

It provides liquidity to business owners. As a business owner, if you want cash today because you are done with a business. You could go to a bank and get a loan to pay dividends. This is a bad deal for the bank as you have no incentive to operate the business after you cash out the loan. A private equity firm comes in and operates the business on the model that they still keep some of the profits after the loan valu…

That in itself is reasonable. However governments choose to encourage it with tax systems that mean you pay less tax by increasing debt. This is the main thing that breaks capital structure irrelevance: https://moneyterms.co.uk/capital-structure-irrelevance/

> As a business owner, if you want cash today because you are done with a business. You could go to a bank and get a loan to pay dividends.

If you are a business owner you could borrow yourself using the business as security.

Re: Private equity bought America's essential services

#49

Post by jgalt212 »

amazingamazing wrote: post #44
dd36 wrote: post #2

End consolidation. Go back to pre-1980s antitrust policy. Encourage competition and bust the trusts.

How will that work - for example Y Combinator classes. They cannot be acquired? What about acquihires? Cant stop that - employees have their own agency.

I think 5-15 person employee businesses do not concern trust busters.

Re: Private equity bought America's essential services

#50

Post by amazingamazing »

consp wrote: post #42
amazingamazing wrote: post #21

Seems strange to me: 1. No one forced these people to sell. Is the idea that you can’t sell to an entity with more money? If you block that good luck with the world economy. 2. If above is ok is the idea that the new owner is inherently worse because they have more money, whereas as the smaller would be OK then where are the new entrants? 3. Going to the article it is clear enough. These industries just are not lucra…

> but this only works because people complain instead of starting rival business. This reads like fiction. When they corner the market it's of course trivial to just jump in and take that share. No way they will try to be disruptive to you or sue you to hell and back and of course the bank will loan you the pile of money to start a new company since there is no giant corporation to compete with who can squeeze you ou…

Your comment is the one that seems like fiction. You are saying PE is unbeatable? Per the article there is a backlog of orders. What is stopping one of the previous owners from creating another company and taking them?

Sue for what exactly? Of course they will be disruptive, that is what competing means.

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