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PE acquired us and was a great partner. Allowed us to do larger M&A deals than we otherwise could have. Supportive but mostly stayed out of the way. Never sugge

by eli 3y ago

PE acquired us and was a great partner. Allowed us to do larger M&A deals than we otherwise could have. Supportive but mostly stayed out of the way. Never suggested any cuts or anything that would impact culture. Ultimately led to us being acquired by a strategic a few years later in what I think was a good outcome for everyone. These are all just anecdotes. My experience doesn't override yours, but I'd be careful drawing broad conclusions. I think sometimes PE gets a bad rap because they can be a "buyer of last resort" for companies that are already struggling.

mbesto 3y ago
My firm supports 100's of PE acquisitions every year and I can tell you that your experience is far more the norm than what the parent comment has suggested.
- icelancer 3y ago
  The idea that PE comes in and sets eight figures of their own money on fire and ruins a business, shooting themselves in the foot makes no sense, yet every other story online is about them doing exactly that. Of course there are LBO scams going on (more historically rather than currently) but these billion dollar firms don't come in and lose a ton of their own money along with money of their outside investors on a regular basis.
  - deleted 3y ago
    [deleted]
  - Jeslijar 3y ago
    They come in, reduce costs as much as possible, keep revenue coming in as long as they can while having huge dividends to said PE until they get so far into debt they are not sustainable. They'll swap to service providers that they either own or get a cut from and pay themselves. Then their purchased company gets bankrupted, sells their assets to cover their debts (including said PE's 'debts' of services provided.) They probably make 200-300% of their initial investment back by paying for the initial purchase with debt that is tacked onto the purchased organization and simply drain them dry. PE doesn't make a ton of money by being dumb, they make a ton of money using any and all tactics necessary to make big stacks in short time. Obviously not all PEs operate like this and there are likely many loopholes and strategies. They bankrupt it by basically pumping it full of debt while taking money out and dumping it once it's out of money - zero liability with a LLC right?
    - AlphaSite 3y ago
      Who’s the one offering them the debt in the first place? You’d think if it were so easy people would wise up to it and stop offering debt to PE owned firms.
    - WalterBright 3y ago
      > zero liability with a LLC right? You assume lenders are fools. They aren't. They'll ask for a cosign of an asset holder other than the LLC.
  - FormerBandmate 3y ago
    PE firms are brutal to journalists because journalism doesn't make any money anymore (which is tragic). Journalists as such hate them
  - r00fus 3y ago
    Isn’t LBO the norm in industry? Where they charge from the acquired company and the acquired company takes on a huge loan?
    - JumpCrisscross 3y ago
      > Isn’t LBO the norm in industry? No, it's one of many PE strategies. Almost all private equity firms utilize leverage in some form, but it's not universal and certainly not as extreme in all cases as the LBO shops.
    - mbesto 3y ago
      LBO != debt ("huge loan") LBO is how the PE firm finances the acquisition. Think of almost exactly like a mortgage. The bank ( = investment bank) doesn't want to maintain/manage the house ( = company) so they help fund the acquiring cost. Typically it's 50/50 (50% the PE firm uses its own fund and 50% it uses a loan from an investment bank "mortgage). Post close, they might utilize a credit facility (usually a bank loan) where they can put debt on the company's books for specific initiatives (add-on acquisitions, hiring, etc.). There are some huge advantages to this because they usually can get loans at way better rates than a company could get if they went to a bank and got an SBA loan, venture debt, etc.
    - icelancer 3y ago
      Not anymore, and almost never at small scale. It was massively abused in the 1970s to early 1990s but it's generally associated with the 1980s and specifically the book Barbarians at the Gate (which is an awesome read). Today I would guess it's most associated with the Toys R Us and Sears failures, but surprisingly no one tends to talk about the Best Buy LBO for some reason...
  - eli 3y ago
    To be fair, I think there are also some PE firms that simply aren't that good at their job.
    - mbesto 3y ago
      This is very, very true. There is a huge proliferation of PE firms now too and many who are very unsophisticated, especially when dealing with smaller, family run businesses.
    - icelancer 3y ago
      Yeah, I buy that. Especially in the age of ZIRP.
  - BeetleB 3y ago
    > The idea that PE comes in and sets eight figures of their own money on fire and ruins a business, shooting themselves in the foot makes no sense, yet every other story online is about them doing exactly that. On How I Built This, they frequently talk to companies that were bought out by PE. Some had negative experiences, but the majority were positive.
    - midoridensha 3y ago
      PE wouldn't be around for long if they always shot themselves in the foot and made terrible business decisions. They have a bad rap for taking over failing companies (or companies that are just well past their prime) and extracting as much value as they can out of them, but acquiring a startup is generally different I'd think.
  - mbesto 3y ago
    > yet every other story online is about them doing exactly that. That's because this strategy is only normally utilized by the biggest PE firms (Apollo, KKR, etc.) who acquire large businesses (Toys R Us, Instant Brands, etc.) and those sell headlines. Net on net returns, it's much harder to turn a $1B biz into a $2B, versus a $10M business into a $20M business. So the large funds typically do a ton of creative financing to achieve returns and hence how they essentially bankrupt the companies. Sub $1B acquisitions usually this strategy doesn't make much sense.
  - WalterBright 3y ago
    What's also funny is the general certainty that the CEOs of Microsoft, Google, Apple, and every other large company are eager to destroy the company for short term profits.
  - austhrow743 3y ago
    A startup going from being VC backed to PE is one that is greatly reducing its expectations of the future value of current work. I can see how it would feel like the PE firm is ruining the business to a current employee. Projects that you worked on, saw a lot of money poured in to, that you personally still believe in; get shut down and you think "why would these idiots buy that just to shut it down? Must be finance shenanigans involving write offs and shell companies" when really they valued those projects at $0 or less when they bought the company.
- JumpCrisscross 3y ago
  Growth equity blurs the line between traditional PE, on one hand, which spans buying and responsibly operating good companies to LBOs, which require cuts, and venture capital, on the other hand, which is more hands off but also more brutal if you don't look like you're flying moonwards. This ambiguity as to what "private equity" is might be clouding the data.
  - mbesto 3y ago
    That's true. I equate Growth PE with "minority interest, positive profitability", VC as "minority interest, growth at all costs" and PE is simply "majority acquisition, typically profitable".
- JohnFen 3y ago
  Not that I don't believe you, but my personal experience dealing with outfits (as a customer) that have been acquired by PE firms is that they have ruined the thing they acquired approximately 100% of the time.
- killdozer 3y ago
  "My work helps people, don't listen to the ocean of negative examples about my industry."
dmix 3y ago
If PE ruined more businesses than it helped then people wouldn’t be doing PE (either the finance guys or the companies). So technically there should be more wins than not. At least on paper. How that looks for lower level employees may be different but often PE is there for a reason.
- majormajor 3y ago
  Eh, you'd expect that trend to take something like decades to fully percolate and result in behavioral change, if ever. You could apply your first sentence pretty directly to MLMs, for instance.
- derefr 3y ago
  You can turn a low-profit “boutique” business that pays the salary of 100 people, into a high-margin marque for an acquiring larger-sized corp where every one of those employees get thrown out on their asses because they’re redundant post-consolidation. If you built the boutique business to get a payday, maybe you’d consider that a win. The market certainly would. If you built the boutique business because the megaco had a monopoly and was stagnating and awful and you believed in a vision where you can do better — then the PE firm just forced you to take an L by selling to that same megaco and hollowing out your business to just become another head of its behemoth. If you built the boutique business to work with your favorite people in a non-hellish work environment and ensure they all get to live comfortably — you’ve probably developed cirrhosis from all the regret you’re drinking away.
  - ideamotor 3y ago
    Brutal
- bee_rider 3y ago
  If PE ruined 5 companies for every success but that one success paid back 10x, someone would do it.
SNosTrAnDbLe 3y ago
Maybe PE firms are ok and mine was an extreme example but I got burned pretty badly. If I do have to work on a place backed by a PE firm for some reason, I would start out as a contractor and then see how it plays out before committing to be a full time employee.
jfidbfidvdid 3y ago
do you tell this often? i could swear I've read this exact comment before (pe acquired, great partner, enabled m&a, ultimately acquired by a strategic)
- eli 3y ago
  My memory is far from perfect, but I don't think that was me. It's pretty much exactly how a growth-focused PE is supposed to work so one would hope it has actually happened that way at least a few times.
- izacus 3y ago
  This is modus operandi of many PE firms so you'll find hundreds upon hundreds of people with the same story. It's like wondering why every farmer has a similar story when a locust swarm comes.
joshuahaglund 3y ago
PE can bankrupt a company and still make a profit. https://www.theatlantic.com/ideas/archive/2023/05/private-equity-firms-bankruptcies-plunder-book/673896/ https://www.theatlantic.com/ideas/archive/2023/05/private-eq...

by eli 3y ago

mbesto 3y ago

My firm supports 100's of PE acquisitions every year and I can tell you that your experience is far more the norm than what the parent comment has suggested.

icelancer 3y ago
The idea that PE comes in and sets eight figures of their own money on fire and ruins a business, shooting themselves in the foot makes no sense, yet every other story online is about them doing exactly that. Of course there are LBO scams going on (more historically rather than currently) but these billion dollar firms don't come in and lose a ton of their own money along with money of their outside investors on a regular basis.
- deleted 3y ago
  [deleted]
- Jeslijar 3y ago
  They come in, reduce costs as much as possible, keep revenue coming in as long as they can while having huge dividends to said PE until they get so far into debt they are not sustainable. They'll swap to service providers that they either own or get a cut from and pay themselves. Then their purchased company gets bankrupted, sells their assets to cover their debts (including said PE's 'debts' of services provided.) They probably make 200-300% of their initial investment back by paying for the initial purchase with debt that is tacked onto the purchased organization and simply drain them dry. PE doesn't make a ton of money by being dumb, they make a ton of money using any and all tactics necessary to make big stacks in short time. Obviously not all PEs operate like this and there are likely many loopholes and strategies. They bankrupt it by basically pumping it full of debt while taking money out and dumping it once it's out of money - zero liability with a LLC right?
  - AlphaSite 3y ago
    Who’s the one offering them the debt in the first place? You’d think if it were so easy people would wise up to it and stop offering debt to PE owned firms.
  - WalterBright 3y ago
    > zero liability with a LLC right? You assume lenders are fools. They aren't. They'll ask for a cosign of an asset holder other than the LLC.
- FormerBandmate 3y ago
  PE firms are brutal to journalists because journalism doesn't make any money anymore (which is tragic). Journalists as such hate them
- r00fus 3y ago
  Isn’t LBO the norm in industry? Where they charge from the acquired company and the acquired company takes on a huge loan?
  - JumpCrisscross 3y ago
    > Isn’t LBO the norm in industry? No, it's one of many PE strategies. Almost all private equity firms utilize leverage in some form, but it's not universal and certainly not as extreme in all cases as the LBO shops.
  - mbesto 3y ago
    LBO != debt ("huge loan") LBO is how the PE firm finances the acquisition. Think of almost exactly like a mortgage. The bank ( = investment bank) doesn't want to maintain/manage the house ( = company) so they help fund the acquiring cost. Typically it's 50/50 (50% the PE firm uses its own fund and 50% it uses a loan from an investment bank "mortgage). Post close, they might utilize a credit facility (usually a bank loan) where they can put debt on the company's books for specific initiatives (add-on acquisitions, hiring, etc.). There are some huge advantages to this because they usually can get loans at way better rates than a company could get if they went to a bank and got an SBA loan, venture debt, etc.
  - icelancer 3y ago
    Not anymore, and almost never at small scale. It was massively abused in the 1970s to early 1990s but it's generally associated with the 1980s and specifically the book Barbarians at the Gate (which is an awesome read). Today I would guess it's most associated with the Toys R Us and Sears failures, but surprisingly no one tends to talk about the Best Buy LBO for some reason...
- eli 3y ago
  To be fair, I think there are also some PE firms that simply aren't that good at their job.
  - mbesto 3y ago
    This is very, very true. There is a huge proliferation of PE firms now too and many who are very unsophisticated, especially when dealing with smaller, family run businesses.
  - icelancer 3y ago
    Yeah, I buy that. Especially in the age of ZIRP.
- BeetleB 3y ago
  > The idea that PE comes in and sets eight figures of their own money on fire and ruins a business, shooting themselves in the foot makes no sense, yet every other story online is about them doing exactly that. On How I Built This, they frequently talk to companies that were bought out by PE. Some had negative experiences, but the majority were positive.
  - midoridensha 3y ago
    PE wouldn't be around for long if they always shot themselves in the foot and made terrible business decisions. They have a bad rap for taking over failing companies (or companies that are just well past their prime) and extracting as much value as they can out of them, but acquiring a startup is generally different I'd think.
- mbesto 3y ago
  > yet every other story online is about them doing exactly that. That's because this strategy is only normally utilized by the biggest PE firms (Apollo, KKR, etc.) who acquire large businesses (Toys R Us, Instant Brands, etc.) and those sell headlines. Net on net returns, it's much harder to turn a $1B biz into a $2B, versus a $10M business into a $20M business. So the large funds typically do a ton of creative financing to achieve returns and hence how they essentially bankrupt the companies. Sub $1B acquisitions usually this strategy doesn't make much sense.
- WalterBright 3y ago
  What's also funny is the general certainty that the CEOs of Microsoft, Google, Apple, and every other large company are eager to destroy the company for short term profits.
- austhrow743 3y ago
  A startup going from being VC backed to PE is one that is greatly reducing its expectations of the future value of current work. I can see how it would feel like the PE firm is ruining the business to a current employee. Projects that you worked on, saw a lot of money poured in to, that you personally still believe in; get shut down and you think "why would these idiots buy that just to shut it down? Must be finance shenanigans involving write offs and shell companies" when really they valued those projects at $0 or less when they bought the company.
JumpCrisscross 3y ago
Growth equity blurs the line between traditional PE, on one hand, which spans buying and responsibly operating good companies to LBOs, which require cuts, and venture capital, on the other hand, which is more hands off but also more brutal if you don't look like you're flying moonwards. This ambiguity as to what "private equity" is might be clouding the data.
- mbesto 3y ago
  That's true. I equate Growth PE with "minority interest, positive profitability", VC as "minority interest, growth at all costs" and PE is simply "majority acquisition, typically profitable".
JohnFen 3y ago
Not that I don't believe you, but my personal experience dealing with outfits (as a customer) that have been acquired by PE firms is that they have ruined the thing they acquired approximately 100% of the time.
killdozer 3y ago
"My work helps people, don't listen to the ocean of negative examples about my industry."

dmix 3y ago

If PE ruined more businesses than it helped then people wouldn’t be doing PE (either the finance guys or the companies). So technically there should be more wins than not. At least on paper. How that looks for lower level employees may be different but often PE is there for a reason.

majormajor 3y ago
Eh, you'd expect that trend to take something like decades to fully percolate and result in behavioral change, if ever. You could apply your first sentence pretty directly to MLMs, for instance.
derefr 3y ago
You can turn a low-profit “boutique” business that pays the salary of 100 people, into a high-margin marque for an acquiring larger-sized corp where every one of those employees get thrown out on their asses because they’re redundant post-consolidation. If you built the boutique business to get a payday, maybe you’d consider that a win. The market certainly would. If you built the boutique business because the megaco had a monopoly and was stagnating and awful and you believed in a vision where you can do better — then the PE firm just forced you to take an L by selling to that same megaco and hollowing out your business to just become another head of its behemoth. If you built the boutique business to work with your favorite people in a non-hellish work environment and ensure they all get to live comfortably — you’ve probably developed cirrhosis from all the regret you’re drinking away.
- ideamotor 3y ago
  Brutal
bee_rider 3y ago
If PE ruined 5 companies for every success but that one success paid back 10x, someone would do it.

SNosTrAnDbLe 3y ago

Maybe PE firms are ok and mine was an extreme example but I got burned pretty badly. If I do have to work on a place backed by a PE firm for some reason, I would start out as a contractor and then see how it plays out before committing to be a full time employee.

jfidbfidvdid 3y ago

do you tell this often? i could swear I've read this exact comment before (pe acquired, great partner, enabled m&a, ultimately acquired by a strategic)

eli 3y ago
My memory is far from perfect, but I don't think that was me. It's pretty much exactly how a growth-focused PE is supposed to work so one would hope it has actually happened that way at least a few times.
izacus 3y ago
This is modus operandi of many PE firms so you'll find hundreds upon hundreds of people with the same story. It's like wondering why every farmer has a similar story when a locust swarm comes.

joshuahaglund 3y ago

PE can bankrupt a company and still make a profit. https://www.theatlantic.com/ideas/archive/2023/05/private-equity-firms-bankruptcies-plunder-book/673896/ https://www.theatlantic.com/ideas/archive/2023/05/private-eq...