5 ms·

> Every time I’ve seen a company bought by private equity, it spells the beginning of the end. I regularly work with PE firms. You can't paint the whole indus

• downWidOutaFite 5y ago
  > the rest of the market may have been willing to wait in 15 minute lines for $10 bottles of water Yep, I can definitely believe you've worked with PE firms.
• blululu 5y ago
  > While you might have had a poor experience, the rest of the market may have been willing to wait in 15 minute lines for $10 bottles of water. If you disagree with PE, the easiest way to "stick it to them" is to vote with your wallet. Simply stop going to Sea World and you'll see PE change their tune pretty quickly. Ironically this is exactly the sort of attitude that the parent is complaining about. You could never grow a business with this mindset, but you can coast and cannibalize one just fine. Nobody likes 15 min lines or $10 water bottles; they tolerate them because there are other experiences that are worthwhile along the way. You remove these experiences and you are basically just screwing people who are going off outdated information about the quality of the experience. Voting with dollars is fine but there is a big information asymmetry and a hysteresis effect of having a quality brand reputation (built over years of not trying to screw people). Any voting with dollars is years removed from the results.
  • eru 5y ago
    Why? I've never been to SeaWorld, and it's really easy for me to look up up-to-date reviews before I plan a trip. Easier than ever, in fact. The hysteresis effect you mention requires that people would stupid when spending their own dollars. > Nobody likes 15 min lines or $10 water bottles; they tolerate them because there are other experiences that are worthwhile along the way. You remove these experiences and you are basically just screwing people who are going off outdated information about the quality of the experience. Perhaps other people just have different preferences from you and make different trade-offs?
  • mbesto 5y ago
    > Ironically this is exactly the sort of attitude that the parent is complaining about. And this attitude would exist regardless of whether PE is involved. When you get the $1B+ market cap size, these entities are not benevolent entities - they are profit seeking machines.
• xzel 5y ago
  In respect to Sea World the more realistic strategy is either run at a minor loss until the real estate is profitable or squeeze dry ASAP and sell. Or the timeless play of load it with debt, payout themselves and declare bankruptcy. Of course there are other PE businesses that are ran with only minor changes. I have a friend whose firm invests in dermatology offices and has created a network of small offices nation wide. From my understanding they really do try to keep the same staff on and mostly do back office changes but that’s his word so take it for what it is. I personally find large scale PE work pretty soulless but there are definitely firms that care about the companies they take over.
  • eru 5y ago
    > Or the timeless play of load it with debt, payout themselves and declare bankruptcy. Well, as long as they sell the bonds only to consenting adults, what's wrong with that?
    • njarboe 5y ago
      "consenting adults" By that did you mean "the Fed"?
      • eru 5y ago
        No, I did not mean the Fed. Why? The Fed mostly buys government debt, don't they? Have they recently taken to buying private equity debt?
        • njarboe 5y ago
          They started buying them during the pandemic but, looking into it in more detail, it looks like it was only a few tens of billions, so not that much.
    • Frondo 5y ago
      This model is not good for society as a whole.
• antasvara 5y ago
  The issue is that a company purchased by PE often has built up a positive image of their brand. Sea World probably has thousands of positive reviews online; by the time the online consensus catches up to the reality of the experience, it's very easy to be fooled. That's where the money is made: when costs are cut but the brand still has a positive perception. PE doesn't have to change their tune; by the time consumers realize that the product has changed, the firm has already made their money.
  • mbesto 5y ago
    Any business can do this regardless of whether PE is involved. What's your point?
    • antasvara 5y ago
      The difference is incentive structure. Running a business successfully is hard, and getting one to profitability is difficult. The easiest way to make money on a purchased business is to cut costs while people perceive it positively, ride that wave until the business isn't perceived positively, then sell the remaining assets. This method, given that it happens frequently, seems to be the easiest and most reliable way to turn a profit from a business over a period of 3-7 years, with no regard for the survival of that business moving forward. Given that PE is generally looking for profits over the 3-7 year time period, this would line up with their goals. Other businesses could absolutely have the same incentives. We see similar acquisitions from Google, Facebook, etc. where products are absorbed into the parent company or otherwise shut down. However, there's a larger chance that the purchasing business has incentives that align with the company being purchased. An established and trusted brand is incredibly valuable; many parent companies would be content to let that business thrive as a semi-autonomous business unit. Would you argue that PE is less or more likely to employ the strategy I've outlined in my original comment? My prior would be that PE is more likely to use that strategy than other businesses. As always, I'm open to my views being changed on that. Clearly not all PE deals involve stripping a company down, and plenty of other businesses would be happy to strip a company down. As someone with more experience with PE, I'd be interested in your views and why you have different priors than me.