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How much of this will end being a ZIRP phenomenon? The article does cover the implications of rising interest rates towards the end. > Meanwhile, interest rate

How much of this will end being a ZIRP phenomenon? The article does cover the implications of rising interest rates towards the end. > Meanwhile, interest rates have reached a 20-year high, posing a direct threat to private equity’s debt-heavy business model. In response, many private-equity funds have migrated toward even riskier forms of backroom financing. Many of these involve taking on even more debt on the assumption that market conditions will soon improve enough to restore profitability. If that doesn’t happen—and many of these big deals fail—the implications could be massive. For anyone interested in the nuts and bolts of how private equity works I highly recommend the 50X podcast[1] which covers how a firm focusing on buying out aircraft component suppliers operates. [1] https://www.50xpodcast.com https://www.50xpodcast.com

ramesh31 3y ago
>How much of this will end being a ZIRP phenomenon? A lot, given that private equity operates on a debt driven M&A strategy. But don't expect the consolidation to slow down. They will just squeeze their businesses and customers that much harder.
- nine_zeros 3y ago
  > A lot, given that private equity operates on a debt driven M&A strategy. But don't expect the consolidation to slow down. They will just squeeze their businesses and customers that much harder. This. The likely outcome is a deterioration of the companies. The deterioration will be felt by employees and customers both. This is the only way PE will be able to recoup any high interest debt they take on.
- andrewjl 3y ago
  I don't doubt that will happen but how does that translate to sustainable, as opposed to short-term, earnings?
  - ramesh31 3y ago
    >I don't doubt that will happen but how does that translate to sustainable, as opposed to short-term, earnings? It doesn't. The PE playbook is to find distressed businesses with solid brand power, milk them dry until there's nothing left, and then sell off or liquidate the remnants. They function more or less as garbage collection for the economy.

ramesh31 3y ago

>How much of this will end being a ZIRP phenomenon? A lot, given that private equity operates on a debt driven M&A strategy. But don't expect the consolidation to slow down. They will just squeeze their businesses and customers that much harder.

nine_zeros 3y ago
> A lot, given that private equity operates on a debt driven M&A strategy. But don't expect the consolidation to slow down. They will just squeeze their businesses and customers that much harder. This. The likely outcome is a deterioration of the companies. The deterioration will be felt by employees and customers both. This is the only way PE will be able to recoup any high interest debt they take on.
andrewjl 3y ago
I don't doubt that will happen but how does that translate to sustainable, as opposed to short-term, earnings?
- ramesh31 3y ago
  >I don't doubt that will happen but how does that translate to sustainable, as opposed to short-term, earnings? It doesn't. The PE playbook is to find distressed businesses with solid brand power, milk them dry until there's nothing left, and then sell off or liquidate the remnants. They function more or less as garbage collection for the economy.