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Essentially no company bought out by private equity manages to remain high-quality. The entire point is to milk the revenue stream dry while overleveraging on d
by skywhopper 2y ago
Essentially no company bought out by private equity manages to remain high-quality. The entire point is to milk the revenue stream dry while overleveraging on debt to provide investors with a large short-term payout. They do this by slashing costs to the bone, laying off too many people, and betting that the remaining husk will coast long enough to make the target return before they sell off what’s left to second-stage vultures.
So, while it’s sad, the only surprising outcome would have been if quality stayed the same.
- mardifoufs 2y agoDepends on the PE tbh. We recently got acquired (after being split from our previous owner) and if anything we now have much better leadership, and they seem to focus on R&D more than anything else. It does help that they have clearly stated that they aim for making the corporation public in 5-7 years, which makes it less likely that they'd engage in bleeding the current assets dry for short term gains. It might be different for startups though for sure, in our case we were spun off from a very old corporation :)
- nikolajan 2y agoThey're not the exception of the rule, the rule is just going to kick off later for you (pre-IPO, when cost cutting measures will take place and the process described above will start)
- mardifoufs 2y agoI don't disagree, but I was more talking about the instances of PE acquisitions that get squeezed out. Obviously though you are right, at the end of the day they will want to make the business look as attractive as possible when they offload it. But to me that's still better than getting bought out to get squeezed and left to rot
- Aurornis 2y ago> Essentially no company bought out by private equity manages to remain high-quality. PE is a big category. Most PE-purchased companies are entirely boring and aren't imploding like these companies you hear about in the news. I know it seems like every PE backed company just explodes immediately because that's all we hear about in the news, but the selection bias of news stories means you're only hearing about the interesting stories where there's something to report on. Nobody is reporting on PE-purchased companies that are quietly continuing to operate.
- rtpg 2y agoSerious question: you have some examples of a company post-PE where you might say "this place still has quality?" I guess that's a hard pitch in general, given people always complain. But there are some companies in the world whose image has improved over time, so maybe there are some PE companies that have righted the ship and where the brand does not feel like a shell of itself?
- mamonster 2y agoThe most obvious example I can think of is Steinway. It was not a traditional PE shop buying it(at the time very famous hedge fund bought it for to reorg), but it is still a privately owned company and I've not heard anything bad about the pianos.
- achneerov 2y agoYahoo is an example of this. They were bought out by PE Apollo in 2021 and they consolidated their businesses, such as selling the Japanese arm of their business. I still occasionally use Yahoo finance and it does not seem to have degraded to much and will is what I deem as having quality.
- rchaud 2y agoMost PE deals aren't in the $3.5b range nor are they in the mostly overvalued "software platform" category. Those are ripe for razing to the ground staff-wise. Regardless, PE in general works on the basis of slashing costs first. When has that led to a better quality product?