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There is a pretty well worn playbook in the PE world: Cut engineering and support, offshore what you can, and take a knife to suppliers. This can be hard for g
by mathattack 4y ago
There is a pretty well worn playbook in the PE world: Cut engineering and support, offshore what you can, and take a knife to suppliers. This can be hard for growth oriented management teams to pull off.
Companies like IBM and CA do this too with the added financial benefit of being able to centralize most staff functions (finance, HR, etc) and leverage existing low cost locations.
Of course this hurts existing customers. In reality it’s moving some of the surplus value generated by the company from the customers and employees back to the shareholders.
It’s too complex issue to just say “It’s all good” or “It’s all bad.”
- chrisfrantz 4y agoDon’t forget raise prices and make it more difficult to cancel.
- kawsper 4y agoI only know of CA because they bought my beloved Flowdock and did exactly what you describe, and it didn't survive, forcing us to switch to Slack. I think Broadcom owns CA now.
- mathattack 4y agoYes - which of course compounds the issue.
- jsdwarf 4y agoExactly. Tech-oriented shareholders are longing for growth, so PE firms often acquire tech companies with a large customer base but no stellar growth story. Besides cutting costs, they also charge customers more. A classic PE game is to declare a widespread, but no longer innovative software product "end of life" just to charge more for "extended support" contracts. Customers often have said product deeply entrenched in their daily workflows and would inccur high customizing costs if they switch to a competitor. In the end, they are better off paying the support premium. From a funding perspective, PE firms also have an advantage compared to stock exchanges: because their assets are no longer traded daily, the volatility of these assets decreases. The asset value is maybe determined once a year for balance sheet purposes. This means that pension funds and other regulated investors can invest more in the PE sector than in stocks, because technically they are buying "low volatility assets".