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People hate on PE for good reason - they often make money by destroying good businesses. They sell off the valuable parts for profit, load the debts on what is

People hate on PE for good reason - they often make money by destroying good businesses. They sell off the valuable parts for profit, load the debts on what is left, and declare bankruptcy, leaving employees and customers holding the bag. PE is good business for the raiders, bad business for the raided.

devcpp 2y ago
Unless the company has a very negative outlook with outstanding debts (which Squarespace is not AFAIK), the price they have to pay to take over is much lower than the value of their assets. And even with a negative outlook and debts (i.e. liquidation), extracting value without making bigger issues is not at all simple.
- arrosenberg 2y ago
  And yet, they do.
mattmaroon 2y ago
That’s a strange cartoony impression that people here have but not generally what they do, even in the case of LBOs which I assume is what you’re referencing but only a small part of what PE firms do. They generally buy businesses that are managed poorly, manage them well, and fix them. And when they part one out like you are referencing, it’s usually a bad business. While what Eddie Lampert did to Sears/K-Mart was criminal, or at least should be, they were not a good business and hadn’t been in a very long time. A good business is rarely worth more parted out than whole. It’s most often good business for the “raided” too because they are failing and the alternative is bankruptcy. A company that survives after laying off 25% of its staff still employs more people than one that dies entirely. This is why they prefer companies with high revenue and low profits. That’s nearly always the sign of a business that has been mismanaged and can be fixed. I have come to the conclusion that people in tech are as largely ignorant of finance as people in finance are of tech.
- deleted 2y ago
  [deleted]
- to11mtm 2y ago
  Okay, fun question... (Honestly not sure where I sit on this...) I've always been very skeptical of the sale/spinoff of various divisions of automakers in the 80s/90s. To me it always felt like they were looking for a short term profit vs the general 'steady pace' of government contracts and the like, I also can't help to feel amazed nobody even showed a good second option for the next gen mail carrier... but again, I feel like it's because everyone sold the farm already.
  - mattmaroon 2y ago
    I think it’s a mixed bag. There’s obvious efficiency in having a small number of companies make parts and sell them to the many auto makers. There are obvious downsides to outsourcing too. I think Tesla is a good illustration. They make a lot of parts other auto makers outsource, and they also have a whole lot of quality control issues. I am sure I suffer from observational bias here, as my GF has a model Y and I notice all the parts that fail that never would on any other car (like vent fans, door handles, etc.) but the upside exists in some engineering document or p&l I don’t see.
- arrosenberg 2y ago
  > I have come to the conclusion that people in tech are as largely ignorant of finance as people in finance are of tech. Well I'm you can certainly speak for yourself, but that doesn't mean the rest of us are, so maybe keep your opinions to yourself. I was responding to the premise that people hate on PE because of negativity bias - there is a negativity bias toward Private Equity, and it is entirely on the fault of the industry for their mendacity and lack of empathy. The fact is, there are more than enough examples of this bad behavior (recently, Chuck E Cheese and Toys'R'Us come to mind). There are also plenty of examples of PE "improving management" by crushing labor, degradation of product quality and screwing customers, so that is is the reputation for the entire industry. I'm not even specifically criticizing the industry - they have a role to play in the economy. What I am saying is don't go crying about the public perception - if they want the big money, they get to own that reputation and be the bad guy. No one likes a parasite.

devcpp 2y ago

Unless the company has a very negative outlook with outstanding debts (which Squarespace is not AFAIK), the price they have to pay to take over is much lower than the value of their assets. And even with a negative outlook and debts (i.e. liquidation), extracting value without making bigger issues is not at all simple.

arrosenberg 2y ago
And yet, they do.

mattmaroon 2y ago

That’s a strange cartoony impression that people here have but not generally what they do, even in the case of LBOs which I assume is what you’re referencing but only a small part of what PE firms do. They generally buy businesses that are managed poorly, manage them well, and fix them. And when they part one out like you are referencing, it’s usually a bad business. While what Eddie Lampert did to Sears/K-Mart was criminal, or at least should be, they were not a good business and hadn’t been in a very long time. A good business is rarely worth more parted out than whole. It’s most often good business for the “raided” too because they are failing and the alternative is bankruptcy. A company that survives after laying off 25% of its staff still employs more people than one that dies entirely. This is why they prefer companies with high revenue and low profits. That’s nearly always the sign of a business that has been mismanaged and can be fixed. I have come to the conclusion that people in tech are as largely ignorant of finance as people in finance are of tech.

deleted 2y ago
[deleted]
to11mtm 2y ago
Okay, fun question... (Honestly not sure where I sit on this...) I've always been very skeptical of the sale/spinoff of various divisions of automakers in the 80s/90s. To me it always felt like they were looking for a short term profit vs the general 'steady pace' of government contracts and the like, I also can't help to feel amazed nobody even showed a good second option for the next gen mail carrier... but again, I feel like it's because everyone sold the farm already.
- mattmaroon 2y ago
  I think it’s a mixed bag. There’s obvious efficiency in having a small number of companies make parts and sell them to the many auto makers. There are obvious downsides to outsourcing too. I think Tesla is a good illustration. They make a lot of parts other auto makers outsource, and they also have a whole lot of quality control issues. I am sure I suffer from observational bias here, as my GF has a model Y and I notice all the parts that fail that never would on any other car (like vent fans, door handles, etc.) but the upside exists in some engineering document or p&l I don’t see.
arrosenberg 2y ago
> I have come to the conclusion that people in tech are as largely ignorant of finance as people in finance are of tech. Well I'm you can certainly speak for yourself, but that doesn't mean the rest of us are, so maybe keep your opinions to yourself. I was responding to the premise that people hate on PE because of negativity bias - there is a negativity bias toward Private Equity, and it is entirely on the fault of the industry for their mendacity and lack of empathy. The fact is, there are more than enough examples of this bad behavior (recently, Chuck E Cheese and Toys'R'Us come to mind). There are also plenty of examples of PE "improving management" by crushing labor, degradation of product quality and screwing customers, so that is is the reputation for the entire industry. I'm not even specifically criticizing the industry - they have a role to play in the economy. What I am saying is don't go crying about the public perception - if they want the big money, they get to own that reputation and be the bad guy. No one likes a parasite.