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You could say the same about publicity traded companies. It all depends on who is in charge... And unfortunately self-serving people tend to reach the top more

You could say the same about publicity traded companies. It all depends on who is in charge... And unfortunately self-serving people tend to reach the top more easily in both scenarios. You don't get Dan Price's very often (relatively). In public companies, there is more public information, but that doesn't stop a company from doing "bad" things of the short term stock movement is good enough. Look at all the merger promises that are broken. They all know what they are doing. Uphold the promise a year, then it's to late to undo the merger when you start to ignore the promise. Can also look at all the fines companies get for willfully breaking laws (or treading the line).. (fine < profits)? success!

gumby 3y ago
I think the PE companies have a specifically pathological and parasitic business model. There is more info about public companies and the majority of them don't suffer from the things you mention (which are real phenomena), and when they occur in the majority they do more from incompetence than malice. (I'm not talking about microcap companies). The PE model is: - buy company with debt. - after purchase company assumes the debt (pays off PE company) and pays further fees to acquirer - company therefore cannot make a profit, cuts staff which cuts output over time - company goes bankrupt This is the canonical business model from the big PE companies like Bain (Romney), KKR, Blackstone, CVC, Carlyle, etc.
- whatshisface 3y ago
  Something does not add up. Banks would not lend to PE firms of they would all then go on to default.
  - Spooky23 3y ago
    It’s syndicated. The initial lenders make money off of a variety of tax and other schemes.
    - whatshisface 3y ago
      That's missing a lot of steps... Like how to profit by not being paid back for the money you loaned!
      - mrcode007 3y ago
        It’s siphoned off the acquisition target
      - adgjlsfhk1 3y ago
        the business goes bankrupt and the bank is ahead of customers and employees in line for who gets paid first.
        whatshisface 3y ago
        So the scheme is to get in debt to unsophisticated lenders (employees and customers), take the money out, and finally default?
        deleted 3y ago
        [deleted]
      - Spooky23 3y ago
        The initial lenders aren't idiots. This is a multi-billion dollar business. They sell the obligation to another sucker, who will often bundle it with a bunch of other debt (good or bad) and sell it to institutional investors. Your 401k in 2008 or whatever had some shitty balanced fund that held 0.5% of assets in some toxic shit like Sears/K-Mart for the "high yield" portion of the fixed income component. So you make some money on government, agency and Apple/Exxon bonds, and get a high yield on K-Mart that goes poof a year later.
    - boeingUH60 3y ago
      Please explain these mysterious tax schemes you’re hinting at…
  - gumby 3y ago
    Banks get their money back. Debt is second in line (after taxes) in bankruptcy.
  - tome 3y ago
    You're completely right that it does not add up. PE detractors really need to be able to explain how this observation fits in with their analysis.
    - wewxjfq 3y ago
      The companies have to refinance their debt perpetually to avoid default, which is where the banks make money. Also, that debt will then be repackaged and sold to others, so the banks won't be the bag holders.
      - tome 3y ago
        That's just begging the question. Why are the "others" buying?
    - ImPostingOnHN 3y ago
      It's been explained multiple times in this thread. tl;dr: the "observation" is made-up and false.
      - tome 3y ago
        Somehow I haven't been able to find an explanation that I find convincing.
        ImPostingOnHN 3y ago
        Given how many people explained the same thing, that lack of understanding may be more attributable to you than to everyone else. In any case, I and several others were able to find many, so it's okay that you weren't. Sometimes a person who has made up their mind and doesn't want to change it, ignores anything that might, and further effort committed to them is just a lost cause.
        tome 3y ago
        Thanks for the reassuring words. Can you point to an explanation you find convincing?
- MostlyStable 3y ago
  -edit- I realized that part of it is that you are conflating "the big PE firms" and "all of PE". I guess the TL:DR of my comment is: don't' do that. The big firms are not all of PE and you should probably avoid ascribing what they do to all of PE as a category. Ok, the rest is my original comment. You just can't generalize like that. My step dad was brought on as the CEO of a small Ag manufacturing company when it was acquired by a PE firm. He is an engineer. He's been in charge now for close to 10 years. He has developed new products, invested in procedures and protocols, and in general focused on an increase in quality and repeatability of procedures while bringing new products into development. He cares deeply about the company (and has in fact tried at least once to buy it from the PE firm) This might very well be a non-central example (I certainly don't have industry wide stats to argue either way), but the point is that there is nothing inherent to PE that means companies have to be cut to the bone and stripped for parts. Yes, it absolutely can and does happen, but it's not because it's PE that's doing it. I'm fully willing to believe that the big PE firms that everyone thinks of when they make statements like yours have exactly the track record you claim. But it's not because they are PE. Smaller PE firms like the one my step dad works for is proof-by-existence that responsible PE is not an oxymoron.
  - KerrAvon 3y ago
    PE is notorious for buying firms with debt and then driving them into bankruptcy by loading them with that debt. It’s the only thing they’re notable for. They’ve essentially killed all traditional US brick and mortar retail — it wasn’t Amazon alone; it was crushing debt load and/or profits siphoned off to the PE firm instead of reinvesting in the business. If you don’t want your stepdad associated with those monsters, find a different term to describe his work.
    - mise_en_place 3y ago
      This is just way out of touch. How do you think Elon raised funds for buying Twitter? PE is the only way to fundraise outside of going public.
      - 3y ago
- boeingUH60 3y ago
  The model of most PE firms is to buy a company and sell it for a higher price later. What you said happens various times, especially with the big PE firms, but it’s not the norm. You really think banks will be lending to PE deals if the business model is to make the company bankrupt?
  - antihipocrat 3y ago
    Yes, that is the model. Large short term profits can be made if costs are cut. The idea is that the PE firm loads the target asset with debt, then drastically cuts labor, capital maintenance and other costs. The balance sheet looks good, and profits rise for a few years. The PE firm then sells the asset for profit. The buyer, and sometimes even taxpayers, are left holding the bag when things start breaking. The PE firm knows exactly what it's doing Thames Water is the classic example: https://www.dailymail.co.uk/news/article-12245021/Thames-Water-brink-disaster-amid-possible-renationalisation.html https://www.dailymail.co.uk/news/article-12245021/Thames-Wat... The large PE asset management firms don't need the banks to lend them money.. they have more than enough capital to fund their investments.
    - fuzzfactor 3y ago
      >Large short term profits can be made if costs are cut. What else can a "businessperson" do if they don't have the acumen to build up corporate value at all compared to those who came before and laid the foundations to begin with? The purpose of the stock exchange was to make it possible for a diverse bunch of investors to come together and fund the growing needs of a growing country. IOW the type of shareholders that this was designed to be suitable for are those who are actually investing in the registered corporations so those corporations can level up to accomodate unmet demand and grow capabilities to reach a more prosperous stability, thereby providing a fair but lucrative return for the investors over time. As the corporations grow in value so do the shares, naturally. OTOH once the market has been established, and especially in case it grows faster than the underlying value for a long enough period of time (like longer than one human lifetime, or longer than a single business career[0]), then a sizable amount of "investment" capital can end up manipulating the system to extract established value through their trading[1]. Especially when it comes to things like voting shares and mergers & acquisitions. Probably the longer a corporation has been publicly traded can figure prominently since that can be a corporation living longer than a human lifetime too. So rather than investing value beneficially, you end up with large chunks of capital actively working to extract value parasitically[2], which is like a double-whammy, and eventually the stock exchange and the market it spawned are not working as intended at all. Maybe just the opposite. IOOW with Boeing the value was lost a long time ago with an unfavorable merger, and every stakeholder has been doing without ever since. It's just becoming unbearably impossible to ignore any more. It just so happens that with an aircraft company, it's not only the shareholders, employees, and customers of Boeing who make up the majority of stakeholders. The flying public (who pays for it all to begin with) participates in far greater numbers and depends on the product aircraft with more of a life-or-death risk factor than the stakeholders who are on the financial receiving end. And it all comes down to integrity. Some business operators are still traditionally astute enough to create value where everyone financially involved gets their money's worth. Others never will be able to accomplish this, and lots of them know who they are from the beginning and have had a lifetime focusing their efforts on ways not to give people their money's worth. Sometimes with the most insidious strategies. And that's merely from poor integrity, even when ethics are not fully compromised. Now look what happens when the ethics go out the window too . . . Well that whooshed by and most people never saw it coming. [0] where some may rake it in and retire early from a relatively short career. [1] often including long-ago established value or utility that is now irreplaceable economically or legally. [2] from anything smaller or less powerful in their path, with who knows what kind of motivation not aligned with the growing needs of a growing mother country.
- lotsofpulp 3y ago
  How does your comment square with fact that it was Boeing, a publicly listed company, that decided to outsource its manufacturing in order to reduce costs and liability and knowingly sacrificing quality?
forrestthewoods 3y ago
> And unfortunately self-serving people tend to reach the top more easily in both scenarios. You don't get Dan Price's very often (relatively). Oh boy do I have bad news for you. https://www.seattletimes.com/business/seattle-celebrity-ceo-dan-prices-rise-and-fall-at-gravity-payments/ https://www.seattletimes.com/business/seattle-celebrity-ceo-...
- ldoughty 3y ago
  Appreciate the additional info. I do find it interesting that the Seattle Times has basically no positive coverage of Dan Price, despite numerous accounts I've read of prosperity from the change. That said, there is likely merit in the complaints, and it's good to remember that there are often two sides to stories.
TotoHorner 3y ago
[flagged]

gumby 3y ago

I think the PE companies have a specifically pathological and parasitic business model. There is more info about public companies and the majority of them don't suffer from the things you mention (which are real phenomena), and when they occur in the majority they do more from incompetence than malice. (I'm not talking about microcap companies). The PE model is: - buy company with debt. - after purchase company assumes the debt (pays off PE company) and pays further fees to acquirer - company therefore cannot make a profit, cuts staff which cuts output over time - company goes bankrupt This is the canonical business model from the big PE companies like Bain (Romney), KKR, Blackstone, CVC, Carlyle, etc.

whatshisface 3y ago
Something does not add up. Banks would not lend to PE firms of they would all then go on to default.
- Spooky23 3y ago
  It’s syndicated. The initial lenders make money off of a variety of tax and other schemes.
  - whatshisface 3y ago
    That's missing a lot of steps... Like how to profit by not being paid back for the money you loaned!
    - mrcode007 3y ago
      It’s siphoned off the acquisition target
    - adgjlsfhk1 3y ago
      the business goes bankrupt and the bank is ahead of customers and employees in line for who gets paid first.
      - whatshisface 3y ago
        So the scheme is to get in debt to unsophisticated lenders (employees and customers), take the money out, and finally default?
        deleted 3y ago
        [deleted]
    - Spooky23 3y ago
      The initial lenders aren't idiots. This is a multi-billion dollar business. They sell the obligation to another sucker, who will often bundle it with a bunch of other debt (good or bad) and sell it to institutional investors. Your 401k in 2008 or whatever had some shitty balanced fund that held 0.5% of assets in some toxic shit like Sears/K-Mart for the "high yield" portion of the fixed income component. So you make some money on government, agency and Apple/Exxon bonds, and get a high yield on K-Mart that goes poof a year later.
  - boeingUH60 3y ago
    Please explain these mysterious tax schemes you’re hinting at…
- gumby 3y ago
  Banks get their money back. Debt is second in line (after taxes) in bankruptcy.
- tome 3y ago
  You're completely right that it does not add up. PE detractors really need to be able to explain how this observation fits in with their analysis.
  - wewxjfq 3y ago
    The companies have to refinance their debt perpetually to avoid default, which is where the banks make money. Also, that debt will then be repackaged and sold to others, so the banks won't be the bag holders.
    - tome 3y ago
      That's just begging the question. Why are the "others" buying?
  - ImPostingOnHN 3y ago
    It's been explained multiple times in this thread. tl;dr: the "observation" is made-up and false.
    - tome 3y ago
      Somehow I haven't been able to find an explanation that I find convincing.
      - ImPostingOnHN 3y ago
        Given how many people explained the same thing, that lack of understanding may be more attributable to you than to everyone else. In any case, I and several others were able to find many, so it's okay that you weren't. Sometimes a person who has made up their mind and doesn't want to change it, ignores anything that might, and further effort committed to them is just a lost cause.
        tome 3y ago
        Thanks for the reassuring words. Can you point to an explanation you find convincing?
MostlyStable 3y ago
-edit- I realized that part of it is that you are conflating "the big PE firms" and "all of PE". I guess the TL:DR of my comment is: don't' do that. The big firms are not all of PE and you should probably avoid ascribing what they do to all of PE as a category. Ok, the rest is my original comment. You just can't generalize like that. My step dad was brought on as the CEO of a small Ag manufacturing company when it was acquired by a PE firm. He is an engineer. He's been in charge now for close to 10 years. He has developed new products, invested in procedures and protocols, and in general focused on an increase in quality and repeatability of procedures while bringing new products into development. He cares deeply about the company (and has in fact tried at least once to buy it from the PE firm) This might very well be a non-central example (I certainly don't have industry wide stats to argue either way), but the point is that there is nothing inherent to PE that means companies have to be cut to the bone and stripped for parts. Yes, it absolutely can and does happen, but it's not because it's PE that's doing it. I'm fully willing to believe that the big PE firms that everyone thinks of when they make statements like yours have exactly the track record you claim. But it's not because they are PE. Smaller PE firms like the one my step dad works for is proof-by-existence that responsible PE is not an oxymoron.
- KerrAvon 3y ago
  PE is notorious for buying firms with debt and then driving them into bankruptcy by loading them with that debt. It’s the only thing they’re notable for. They’ve essentially killed all traditional US brick and mortar retail — it wasn’t Amazon alone; it was crushing debt load and/or profits siphoned off to the PE firm instead of reinvesting in the business. If you don’t want your stepdad associated with those monsters, find a different term to describe his work.
  - mise_en_place 3y ago
    This is just way out of touch. How do you think Elon raised funds for buying Twitter? PE is the only way to fundraise outside of going public.
    - 3y ago
boeingUH60 3y ago
The model of most PE firms is to buy a company and sell it for a higher price later. What you said happens various times, especially with the big PE firms, but it’s not the norm. You really think banks will be lending to PE deals if the business model is to make the company bankrupt?
- antihipocrat 3y ago
  Yes, that is the model. Large short term profits can be made if costs are cut. The idea is that the PE firm loads the target asset with debt, then drastically cuts labor, capital maintenance and other costs. The balance sheet looks good, and profits rise for a few years. The PE firm then sells the asset for profit. The buyer, and sometimes even taxpayers, are left holding the bag when things start breaking. The PE firm knows exactly what it's doing Thames Water is the classic example: https://www.dailymail.co.uk/news/article-12245021/Thames-Water-brink-disaster-amid-possible-renationalisation.html https://www.dailymail.co.uk/news/article-12245021/Thames-Wat... The large PE asset management firms don't need the banks to lend them money.. they have more than enough capital to fund their investments.
  - fuzzfactor 3y ago
    >Large short term profits can be made if costs are cut. What else can a "businessperson" do if they don't have the acumen to build up corporate value at all compared to those who came before and laid the foundations to begin with? The purpose of the stock exchange was to make it possible for a diverse bunch of investors to come together and fund the growing needs of a growing country. IOW the type of shareholders that this was designed to be suitable for are those who are actually investing in the registered corporations so those corporations can level up to accomodate unmet demand and grow capabilities to reach a more prosperous stability, thereby providing a fair but lucrative return for the investors over time. As the corporations grow in value so do the shares, naturally. OTOH once the market has been established, and especially in case it grows faster than the underlying value for a long enough period of time (like longer than one human lifetime, or longer than a single business career[0]), then a sizable amount of "investment" capital can end up manipulating the system to extract established value through their trading[1]. Especially when it comes to things like voting shares and mergers & acquisitions. Probably the longer a corporation has been publicly traded can figure prominently since that can be a corporation living longer than a human lifetime too. So rather than investing value beneficially, you end up with large chunks of capital actively working to extract value parasitically[2], which is like a double-whammy, and eventually the stock exchange and the market it spawned are not working as intended at all. Maybe just the opposite. IOOW with Boeing the value was lost a long time ago with an unfavorable merger, and every stakeholder has been doing without ever since. It's just becoming unbearably impossible to ignore any more. It just so happens that with an aircraft company, it's not only the shareholders, employees, and customers of Boeing who make up the majority of stakeholders. The flying public (who pays for it all to begin with) participates in far greater numbers and depends on the product aircraft with more of a life-or-death risk factor than the stakeholders who are on the financial receiving end. And it all comes down to integrity. Some business operators are still traditionally astute enough to create value where everyone financially involved gets their money's worth. Others never will be able to accomplish this, and lots of them know who they are from the beginning and have had a lifetime focusing their efforts on ways not to give people their money's worth. Sometimes with the most insidious strategies. And that's merely from poor integrity, even when ethics are not fully compromised. Now look what happens when the ethics go out the window too . . . Well that whooshed by and most people never saw it coming. [0] where some may rake it in and retire early from a relatively short career. [1] often including long-ago established value or utility that is now irreplaceable economically or legally. [2] from anything smaller or less powerful in their path, with who knows what kind of motivation not aligned with the growing needs of a growing mother country.
lotsofpulp 3y ago
How does your comment square with fact that it was Boeing, a publicly listed company, that decided to outsource its manufacturing in order to reduce costs and liability and knowingly sacrificing quality?

forrestthewoods 3y ago

> And unfortunately self-serving people tend to reach the top more easily in both scenarios. You don't get Dan Price's very often (relatively). Oh boy do I have bad news for you. https://www.seattletimes.com/business/seattle-celebrity-ceo-dan-prices-rise-and-fall-at-gravity-payments/ https://www.seattletimes.com/business/seattle-celebrity-ceo-...

ldoughty 3y ago
Appreciate the additional info. I do find it interesting that the Seattle Times has basically no positive coverage of Dan Price, despite numerous accounts I've read of prosperity from the change. That said, there is likely merit in the complaints, and it's good to remember that there are often two sides to stories.

TotoHorner 3y ago

[flagged]