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Private equity bought America's essential services

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Re: Private equity bought America's essential services

#71

Post by nyeah »

cj wrote: post #24
sokoloff wrote: post #8

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.".

LBOs are much worse than that. It's like buying a rental property where the mortgage is owed by the a shell corporation that owns the property. The shell corporation, not the purchaser, owes the debt.

It's like taking out a mortgage on a house, but letting the house owe the debt.

Re: Private equity bought America's essential services

#72

Post by nyeah »

sokoloff wrote: post #39
cj wrote: post #24

Earlier quoted context omitted.

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.".

Exactly. That is largely how commercial lending is underwritten: by ensuring the DSCR (debt service coverage ratio) is over 1.0.

Sure that is commercial lending.* And the acquirer owes the debt. But that's not how LBOs work. In an LBO the target owes the debt.

*Coverage of 1:1 is an accident waiting to happen, but otherwise sure.

Re: Private equity bought America's essential services

#73

Post by sokoloff »

adampunk wrote: post #51
sokoloff wrote: post #8

Earlier quoted context omitted.

You understand mortgages, though, right? Even 3% or 0% down mortgages?

Yes, those exist in industrialized countries as a result of public policy decisions. We do not have 3 or 0% mortgages because that’s what the market naturally bears or produces: we have it because mortgage debt is backstopped by the state. It’s possible to “understand” mortgages by understanding that conditions for stable home markets don’t arise by themselves—we collectively make them possible because the outcome is…

In residential real estate, I think stems in large part from a desire to help people who don’t come from money to own personal real estate (which is one of the best ways to go from $0 or negative net worth to positive six figure net worth).

Not only is that politically attractive, I think it’s more good than bad as public policy.

Turning back to PE/LBOs:

Having limited liability entities (companies) also serves good public purposes. Having companies being able to borrow money also does. Having companies being able to own other companies also does. I think that’s the only three ingredients you need for the PE model to operate and I don’t think that the public is helped by barring any of those three things.

Re: Private equity bought America's essential services

#74

Post by amazingamazing »

toomuchtodo wrote: post #70
amazingamazing wrote: post #65

Earlier quoted context omitted.

Given the vagueness it is no surprise nothing happens.

> Given the vagueness it is no surprise nothing happens. Lots of success during the last admin for those paying attention. https://www.ftc.gov/news-events/news/press-releases/2025/01/... https://www.economicliberties.us/press-release/lina-khans-tr... https://www.economicliberties.us/our-work/factsheet-the-ftc-...

Most of these are not blocking merges or sales. What is your point? We are talking about the original comment which advocates ending consolidations.

Re: Private equity bought America's essential services

#75

Post by brookst »

energy123 wrote: post #18
kokken wrote: post #9

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.

> so if the company goes to zero the PE parent company is not on the hook for a single penny. Sounds like a problem for whoever is providing the financing. Not really my concern unless you're saying there's some systemic problem it causes like with mortgage securitization during 2007. The lender will charge a high interest rate if what you're saying is true.

It’s the shareholders of the purchased company that provide the financing, in the form of debt in the company’s books. Then they exit, and the company lays off people to service the debt, and you and I as taxpayers cover unemployment and other social harms.

It’s literally a way to extract revenue from our broader social institutions by spreading the pain across so many people that individuals don’t complain (or, in some cases, don’t even understand how it harms them).

Re: Private equity bought America's essential services

#77

Post by goda90 »

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…

People aren't starting competitor businesses because the hassle has become astronomically expensive, also largely due to rent seekers[0]. You need a space, but real estate is absurdly inflated. You need trained employees, but education is absurdly inflated and also poorer quality for the baseline. You need to pay a living wage and give healthcare benefits to attract labor, but cost of living and healthcare are skyrocketing.

Ultimately the influence of rent seekers has grown and the category of people who can take risks by starting a business was the first to collapse, leaving only the wealthy who don't care and the people who can't risk their own survival.

[0]https://en.wikipedia.org/wiki/Rent-seeking

Re: Private equity bought America's essential services

#79

Post by amazingamazing »

AndrewKemendo wrote: post #67
amazingamazing wrote: post #50

Earlier quoted context omitted.

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.

> What is stopping one of the previous owners from creating another company and taking them? You will not find any investors. The investors that want to invest in fire trucks already invested in the PE fund and will give them money over any new start That’s the point There’s no money elsewhere.

How did the original businesses start to begin with? Also where is this information coming from? It isn't in the article.

Re: Private equity bought America's essential services

#80

Post by estearum »

amazingamazing wrote: post #52
jgalt212 wrote: post #49

Earlier quoted context omitted.

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

Whats the connection between the number of employees and anti trust? Also, there are plenty of YC companies with far more than 15 employees.

Generally you don't hold a market dominant position in any sector that anti-trust regulators care about at 15 employees?

Frankly this stuff is impossible to talk about in the abstract. The details of every individual case matters. If you're actually curious (instead of just playing a shell game), you can go look up the types of analysis that FTC does to evaluate market dominance and whether a given transaction will excessively consolidate a market.

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