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The way the term private equity is used is meaningless. It’s just business, and the same thing happens anytime a business is sold, because the new owners have

The way the term private equity is used is meaningless. It’s just business, and the same thing happens anytime a business is sold, because the new owners have paid a 5x or more multiple, and the reason they would is if they think they can cut costs and increase prices. One should expect lower quality and higher prices anytime a business is sold.

tw04 1y ago
>Really, one should expect lower quality and higher prices anytime a business is sold. They really shouldn’t. And the fact this is treated as common knowledge kind of speaks to everything that’s currently broken in our country.
- wahnfrieden 1y ago
  What’s the argument? Sounds like you’re sour on it
  - kurthr 1y ago
    The assumption that "the new owners have paid a 5x or more multiple, and the reason they would is if they think they can cut costs and increase prices", is not universal and in many cases quite new. There are many new owners and buyers for which this is not the case. Your local bar, restaurant, hobby shop, gym, bookstore, daycare and others often transfer without the new owner looking to pay a 5x premium and maximize profits. It's only recently that doctors, dentist, veterinarian offices and other high margin social businesses are getting converted to PE. It's the enshitification of all the existing third places and extraction of social value for profit, because people will tolerate it due to lack of choice and social need.
    - surgical_fire 1y ago
      > It's only recently that doctors, dentist, veterinarian offices and other high margin social businesses are getting converted to PE And this is the only logical consequence of unregulated capitalism. Line must go up, always. No matter the damage it causes. Price will always go up, and costs are always cut down. It sucks because it is supposed to, as long as profits increase.
      - bmm6o 1y ago
        Right, it's pretty inevitable given the incentives. I think it's made worse by PE for a few reasons. They are investing with relatively short time horizons because they will need to sell to pay profits. So the long term health of the business is of no interest. If the reputation of the business suffers, that's someone else's problem. Compared to an individual investor who is looking long term, they need to retain customers and reputation.
- margalabargala 1y ago
  You're using the same words to talk about different things. You're right, in the world we would like to live in, this wouldn't be a thing. People shouldn't expect that a business sale means a quality drop. That would be a good reality. However, next to that good reality is the one we live in. Where people should expect quality to drop on a business sale, because that's the structure of the world we live in. Wishing the world were different isn't sufficient to make it so.
  - tw04 1y ago
    But it both hasn’t always been the case and still isn’t in large swaths of the country and the world. The 5x + enshittification phenomenon is both recent and a result of PE and “activist investors”. “We” collectively should demand better. You act as if government is some omnipresent being that makes its own decisions. If citizens start demanding the government act in their best interests by enforcing things like anti-trust laws, it will.
    - adi_kurian 1y ago
      Lina Khan, the only anti-trust believer of note and with influence, in my lifetime, got thrown out like a bad habit. Enshittification is shit, though one can imagine bigger scarier issues slapping us in the face and fast.
sarchertech 1y ago
Well a lot of times these “businesses” were sold to existing employees or family members who were going to run it themselves and it usually wasn’t for a huge multiple. In many cases they weren’t sold at all just passed down to heirs. The differentiator is that PE has figured out that they can offer enough to bypass the traditional methods of business continuation.
- lotsofpulp 1y ago
  I would frame it differently. Due to advances in communication and automation with the use of software, business owners can market the business to a far larger group of buyers, and business buyers can buy from a much larger pool of businesses. Everybody likes seeing those 10%+ annual returns in their 401K (or their local government's taxpayer funded defined benefit pension plan), but no one likes how the sausage is made.
  - sarchertech 1y ago
    Most of the businesses people are complaining about are inherently local. Doctors, dentists, sports teams, plumbers, electricians. When PE buys them in the majority of cases they continue to market them like local business and in most cases they go out of their way to lake them look like local businesses. What you’re talking about happened decades ago when Walmart, McDonalds etc… ran a huge chunk of the mom and pops out of business. This is the next round where they go after businesses that don’t benefit as much from nation wide advertising and branding. People don’t tend to pick their dentist based on nationwide advertising/brand recognition.
  - blargey 1y ago
    Most PE roll ups are not in your 401k - that’s what private equity means. While some may eventually find enough success to IPO and subsequently enter a big index, the past few decades of VOO / buy-the-market growth owes far more to tech stocks than what’s being discussed here.
    - lotsofpulp 1y ago
underlipton 1y ago
But it's not just that a business was sold; it's that it (usually) was sold in such a way (leveraged buy-out) as to weaken the business and make it more desperate from jump. Doctor's practices et al. used to change hands all the time without much trouble; it's only now that PE is allowed to buy them with massive amounts of debt that they're allowed to use aggressive tactics to pay off (and pay themselves) in just a few years that we've started to have these troubles. When you buy a house, the mortgage is associated with the buyer, not the house, and you can't just dismantle the house and sell it for parts to cover payments. Could you imagine if we could, though? Pretty soon, we'd have a lot of on-paper debt associated with empty lots that mortgage holders could simply walk away from (perhaps after a nominal sale). Then, the house declares bankruptcy and the bank is just out all that money. It's preposterous, they'd never let that happen. So, why with businesses?
- lotsofpulp 1y ago
  >When you buy a house, the mortgage is associated with the buyer, not the house In the US, this depends which state you are in: https://www.investopedia.com/ask/answers/08/nonrecourse-loan-vs-recourse-loan.asp https://www.investopedia.com/ask/answers/08/nonrecourse-loan... The non recourse states are Alaska, Arizona, California, Connecticut, Idaho, Minnesota, North Carolina, North Dakota, Oregon, Texas, Utah, Washington. >and you can't just dismantle the house and sell it for parts to cover payments You can do this in every state, at least with a conventional mortgage. If you default, they can pursue your other assets, except in non recourse states. >we'd have a lot of on-paper debt associated with empty lots that mortgage holders could simply walk away from (perhaps after a nominal sale) I don't know what "after a nominal sale" means, because if you sell a property with a lien on it, then the lien holder gets paid first. And underwriting would not let people who have a history of dismantling a house and defaulting borrow money over and over, and people need a place to live, so I'm not sure why anyone would take out a mortgage to dismantle a house. The scenario makes no sense, as raw materials are cheap, and labor costs are expensive. > It's preposterous, they'd never let that happen. So, why with businesses? Because the lender agreed to those terms. No one forces a lender to lend money without a personal guarantee. https://www.investopedia.com/terms/p/personal-guarantee.asp https://www.investopedia.com/terms/p/personal-guarantee.asp

tw04 1y ago

>Really, one should expect lower quality and higher prices anytime a business is sold. They really shouldn’t. And the fact this is treated as common knowledge kind of speaks to everything that’s currently broken in our country.

wahnfrieden 1y ago
What’s the argument? Sounds like you’re sour on it
- kurthr 1y ago
  The assumption that "the new owners have paid a 5x or more multiple, and the reason they would is if they think they can cut costs and increase prices", is not universal and in many cases quite new. There are many new owners and buyers for which this is not the case. Your local bar, restaurant, hobby shop, gym, bookstore, daycare and others often transfer without the new owner looking to pay a 5x premium and maximize profits. It's only recently that doctors, dentist, veterinarian offices and other high margin social businesses are getting converted to PE. It's the enshitification of all the existing third places and extraction of social value for profit, because people will tolerate it due to lack of choice and social need.
  - surgical_fire 1y ago
    > It's only recently that doctors, dentist, veterinarian offices and other high margin social businesses are getting converted to PE And this is the only logical consequence of unregulated capitalism. Line must go up, always. No matter the damage it causes. Price will always go up, and costs are always cut down. It sucks because it is supposed to, as long as profits increase.
    - bmm6o 1y ago
      Right, it's pretty inevitable given the incentives. I think it's made worse by PE for a few reasons. They are investing with relatively short time horizons because they will need to sell to pay profits. So the long term health of the business is of no interest. If the reputation of the business suffers, that's someone else's problem. Compared to an individual investor who is looking long term, they need to retain customers and reputation.
margalabargala 1y ago
You're using the same words to talk about different things. You're right, in the world we would like to live in, this wouldn't be a thing. People shouldn't expect that a business sale means a quality drop. That would be a good reality. However, next to that good reality is the one we live in. Where people should expect quality to drop on a business sale, because that's the structure of the world we live in. Wishing the world were different isn't sufficient to make it so.
- tw04 1y ago
  But it both hasn’t always been the case and still isn’t in large swaths of the country and the world. The 5x + enshittification phenomenon is both recent and a result of PE and “activist investors”. “We” collectively should demand better. You act as if government is some omnipresent being that makes its own decisions. If citizens start demanding the government act in their best interests by enforcing things like anti-trust laws, it will.
  - adi_kurian 1y ago
    Lina Khan, the only anti-trust believer of note and with influence, in my lifetime, got thrown out like a bad habit. Enshittification is shit, though one can imagine bigger scarier issues slapping us in the face and fast.

sarchertech 1y ago

Well a lot of times these “businesses” were sold to existing employees or family members who were going to run it themselves and it usually wasn’t for a huge multiple. In many cases they weren’t sold at all just passed down to heirs. The differentiator is that PE has figured out that they can offer enough to bypass the traditional methods of business continuation.

lotsofpulp 1y ago
I would frame it differently. Due to advances in communication and automation with the use of software, business owners can market the business to a far larger group of buyers, and business buyers can buy from a much larger pool of businesses. Everybody likes seeing those 10%+ annual returns in their 401K (or their local government's taxpayer funded defined benefit pension plan), but no one likes how the sausage is made.
- sarchertech 1y ago
  Most of the businesses people are complaining about are inherently local. Doctors, dentists, sports teams, plumbers, electricians. When PE buys them in the majority of cases they continue to market them like local business and in most cases they go out of their way to lake them look like local businesses. What you’re talking about happened decades ago when Walmart, McDonalds etc… ran a huge chunk of the mom and pops out of business. This is the next round where they go after businesses that don’t benefit as much from nation wide advertising and branding. People don’t tend to pick their dentist based on nationwide advertising/brand recognition.
- blargey 1y ago
  Most PE roll ups are not in your 401k - that’s what private equity means. While some may eventually find enough success to IPO and subsequently enter a big index, the past few decades of VOO / buy-the-market growth owes far more to tech stocks than what’s being discussed here.
  - lotsofpulp 1y ago

underlipton 1y ago

But it's not just that a business was sold; it's that it (usually) was sold in such a way (leveraged buy-out) as to weaken the business and make it more desperate from jump. Doctor's practices et al. used to change hands all the time without much trouble; it's only now that PE is allowed to buy them with massive amounts of debt that they're allowed to use aggressive tactics to pay off (and pay themselves) in just a few years that we've started to have these troubles. When you buy a house, the mortgage is associated with the buyer, not the house, and you can't just dismantle the house and sell it for parts to cover payments. Could you imagine if we could, though? Pretty soon, we'd have a lot of on-paper debt associated with empty lots that mortgage holders could simply walk away from (perhaps after a nominal sale). Then, the house declares bankruptcy and the bank is just out all that money. It's preposterous, they'd never let that happen. So, why with businesses?

lotsofpulp 1y ago
>When you buy a house, the mortgage is associated with the buyer, not the house In the US, this depends which state you are in: https://www.investopedia.com/ask/answers/08/nonrecourse-loan-vs-recourse-loan.asp https://www.investopedia.com/ask/answers/08/nonrecourse-loan... The non recourse states are Alaska, Arizona, California, Connecticut, Idaho, Minnesota, North Carolina, North Dakota, Oregon, Texas, Utah, Washington. >and you can't just dismantle the house and sell it for parts to cover payments You can do this in every state, at least with a conventional mortgage. If you default, they can pursue your other assets, except in non recourse states. >we'd have a lot of on-paper debt associated with empty lots that mortgage holders could simply walk away from (perhaps after a nominal sale) I don't know what "after a nominal sale" means, because if you sell a property with a lien on it, then the lien holder gets paid first. And underwriting would not let people who have a history of dismantling a house and defaulting borrow money over and over, and people need a place to live, so I'm not sure why anyone would take out a mortgage to dismantle a house. The scenario makes no sense, as raw materials are cheap, and labor costs are expensive. > It's preposterous, they'd never let that happen. So, why with businesses? Because the lender agreed to those terms. No one forces a lender to lend money without a personal guarantee. https://www.investopedia.com/terms/p/personal-guarantee.asp https://www.investopedia.com/terms/p/personal-guarantee.asp