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Private equity is far worse. It means 100% ownership by a group of sociopaths who are executing on a plan to extract as much cash as possible quickly with no ot

by CPLX 10mo ago

Private equity is far worse. It means 100% ownership by a group of sociopaths who are executing on a plan to extract as much cash as possible quickly with no other goals at all. At least public companies have some diversity in ownership and agenda.

gruez 10mo ago
>Private equity is far worse. It’s mean 100% ownership by a group of sociopaths who are executing on a plan to extract as much cash as possible quickly with no other goals at all. ...as opposed to the average public company? An average company might have more "average joe" shareholders (almost by definition, because private equity is typically off limits to non-accredited investors), but outside of meme stocks, there's not enough of them to make a difference. The rest of the shareholders (eg. pension funds, insurance companies, endowments, family offices) can be assumed to behave like ruthless capitalists chasing the highest returns, regardless of whether the company is public or not.
- ksenzee 10mo ago
  If you’ve ever spoken to employees of a public company that was sold to private equity, you’ll know how much of a difference there is. It is a significant difference.
- CPLX 10mo ago
  > The rest of the shareholders (eg. pension funds, insurance companies, endowments, family offices) can be assumed to behave like ruthless capitalists chasing the highest returns, regardless of whether the company is public or not. Right but they are seeking the highest returns as equity holders typically, usually through things like stock buybacks. Private equity firms have much more devious ways of looting the companies, like management fees, acquiring other portfolio companies, and various other tricks. If you’ve ever seen the Goodfellas scene where they bust out the nightclub, that’s quite literally their business model.
  - gruez 10mo ago
    >Private equity firms have much more devious ways of looting the companies, like management fees, acquiring other portfolio companies, and various other tricks. "looting the companies" is non-nonsensical when they also own it. It's like saying a scrap yard is "looting" the cars it bought by taking out the valuable parts to resell or whatever. The rest of the stuff might make sense in the context of the LPs getting screwed over, but not in the context of portfolio companies that they own.
    - andrew_lettuce 10mo ago
      PE puts very little of their own money into the deal though, while they own it they don't buy it. They use incredibly high leverage and often saddle the company with monstrous debt, then loot the assets to pay the interest and take management fees while doing all this. Red lobster is a great recent example. They sold off all the real estate, then had stores lease it back, turning profitable locations into losers. They often do the same thing with manufacturing, goodwill, brandnames and sales channels. Think of this like an oil well. If you pump off all the gas, you depressurize the reservoir and can never get the oil. You need to slow your production to get the oil first, but private equity is happy to skim the cream and leave the milk to spoil.
      - mbesto 10mo ago
        > PE puts very little of their own money into the deal though, while they own it they don't buy it. This is simply untrue. A typical PE firm creates a GP fund using LPs money. This GP fund typically does a management buyout (which means 50.1% of more) of several companies using a mix of equity (e.g. GPs capital) and debt (banking lenders). So by every definition of the word, they absolutely own the company.
    - CPLX 10mo ago
      What you’re saying just isn’t true. Looting the companies is accomplished by stacking up debt and then giving themselves the money. Occasionally there are a few variations like looting a pension fund or taking a high quality product and making it horrible and selling that until people notice. It’s literally their business model, it’s happened thousands of times and is a very clear fixture of the modern American business climate. If you don’t know this it’s because you aren’t looking or it’s in your interest to say you don’t know this.
- rs186 10mo ago
  Let me explain this with a simple example: * If a company controlled by PE goes bankrupt, shareholders (PE) likely make a profit * But if a publicly listed company goes bankrupt, shareholders lose their money In other words, PEs almost never lose money, so they could extract the last bit of a company, even more short sighted than shareholders of a public company
  - gruez 10mo ago
    >* If a company controlled by PE goes bankrupt, shareholders (PE) likely make a profit That's not necessarily a bad thing, or sign of anything sinister. If a business is failing, and you buy it for pennies on the dollar, and despite your best efforts it still goes under, so you liquidate it, you can still turn a profit if the price you paid is lower than what you got from liquidating it. That's not bad, because private equity (or anyone else, for that matter) isn't expected to operate as a charity. The only reason they're willing to stump up the cash to buy the business in the first place is the expectation that they'll make money. It's also not bad for the original owners either, because the fact that they hold to PE rather than someone else, or liquidating it, suggests that the PE offered a better deal than either. >But if a publicly listed company goes bankrupt, shareholders lose their money Often times yes, but sometimes not, eg. hertz.
    - youarentrightjr 10mo ago
      > despite your best efforts Citation needed.
  - JumpCrisscross 10mo ago
    > If a company controlled by PE goes bankrupt, shareholders (PE) likely make a profit. But if a publicly listed company goes bankrupt, shareholders lose their money This isn't remotely true. Plenty of private equity investments go bust before they can pay themselves back. And plenty of public company investors milked a company for interest payments or dividends into the ground. > PEs almost never lose money Private equity funds regularly lose money. Usually to lenders. You're complaining about leverage in general. Probably not private equity per se.
- youarentrightjr 10mo ago
  I see these private equity takes on HN frequently and am really baffled by the ignorance. There's a very clear difference between a public and private company - the fiduciary duty to shareholders. There is a legal requirement for directors of public companies to act in the financial interests of all shareholders. In practice, and according to precedent, this means long term viability of the company, in other words, a sustained profitable business. There is no such requirement for a private company. In practice (esp. recent history), this means private equity firms acquire successful businesses to "mine them" of their wealth - capitalizing their assets for personal gain, and leaving nothing left. The question for public companies isn't how many retail vs institutional investors they have, it's whether an investor can make a claim about a breach of fiduciary duty. It's patently false to say that the institutional investors (who yes, do have more sway) aren't interested in the company acting in their financial interests.
  - gruez 10mo ago
    >There is a legal requirement for directors of public companies to act in the financial interests of all shareholders. In practice, and according to precedent, this means long term viability of the company, in other words, a sustained profitable business. All that means is that controlling shareholders can't use the company as a piggy bank and raid it to fund their other ventures. It doesn't mean the business has to be "sustainable" or whatever. In fact, it's perfectly legal for the board to sell to a "vulture" PE firm that will sell the business off for parts, as long as the sale price is good enough.
    - margalabargala 10mo ago
      Yes, that's the major difference between the public and PE companies that OP was highlighting. The owners of a public company can't raid it to fund other ventures. They have to sell it off to someone else to do that. Selling off a public company like that is generally not trivial and is not surprise sprung on shareholders.
      - JumpCrisscross 10mo ago
- avrionov 10mo ago
  The biggest difference is not the morality of the management of the two types of companies, but the type of business they are into. Many private companies are growth businesses. On the opposite side, private equity targets businesses which are stable, but not growing or declining. PE looks for products which have high cost to switch or products with no alternatives. So when private equity buys the business they extract money in 3 ways: - Raise their prices. This is similar to the public companies, but they do it more aggressively, because their customers don't have a choice. For reference see, what VMWare did after it was bought by Broadcom (Broadcom is a public company which acts as a private equity). - Reduce costs, via layoffs and cutting smaller products. Also done by public companies, but the difference here is the magnitude. It is quite common for Private equity owned companies to have several years of 20% layoffs, until the original workers are completely replaced by workers in cheaper locations. Or not replaced at all which leads to a worse service. - And finally the third way a private equity extracts money from the acquired company by providing "services". Employees from the PE company are elected on the board of directors of the acquired company. A PE executive can become a CEO of an acquired company. PE companies have satellite companies, which provide legal, administrative and financial services to their companies. On top of that the acquired company has to pay the loan which was used to be acquired.
c16 10mo ago
I think this checks all the above boxes, but for a public company. https://www.bbc.com/news/articles/cwyk6kvyxvzo https://www.bbc.com/news/articles/cwyk6kvyxvzo
- CPLX 10mo ago
  This is utterly disgraceful. With that said he did ratify it with shareholders so it is what it is.

by CPLX 10mo ago

gruez 10mo ago

>Private equity is far worse. It’s mean 100% ownership by a group of sociopaths who are executing on a plan to extract as much cash as possible quickly with no other goals at all. ...as opposed to the average public company? An average company might have more "average joe" shareholders (almost by definition, because private equity is typically off limits to non-accredited investors), but outside of meme stocks, there's not enough of them to make a difference. The rest of the shareholders (eg. pension funds, insurance companies, endowments, family offices) can be assumed to behave like ruthless capitalists chasing the highest returns, regardless of whether the company is public or not.

ksenzee 10mo ago
If you’ve ever spoken to employees of a public company that was sold to private equity, you’ll know how much of a difference there is. It is a significant difference.
CPLX 10mo ago
> The rest of the shareholders (eg. pension funds, insurance companies, endowments, family offices) can be assumed to behave like ruthless capitalists chasing the highest returns, regardless of whether the company is public or not. Right but they are seeking the highest returns as equity holders typically, usually through things like stock buybacks. Private equity firms have much more devious ways of looting the companies, like management fees, acquiring other portfolio companies, and various other tricks. If you’ve ever seen the Goodfellas scene where they bust out the nightclub, that’s quite literally their business model.
- gruez 10mo ago
  >Private equity firms have much more devious ways of looting the companies, like management fees, acquiring other portfolio companies, and various other tricks. "looting the companies" is non-nonsensical when they also own it. It's like saying a scrap yard is "looting" the cars it bought by taking out the valuable parts to resell or whatever. The rest of the stuff might make sense in the context of the LPs getting screwed over, but not in the context of portfolio companies that they own.
  - andrew_lettuce 10mo ago
    PE puts very little of their own money into the deal though, while they own it they don't buy it. They use incredibly high leverage and often saddle the company with monstrous debt, then loot the assets to pay the interest and take management fees while doing all this. Red lobster is a great recent example. They sold off all the real estate, then had stores lease it back, turning profitable locations into losers. They often do the same thing with manufacturing, goodwill, brandnames and sales channels. Think of this like an oil well. If you pump off all the gas, you depressurize the reservoir and can never get the oil. You need to slow your production to get the oil first, but private equity is happy to skim the cream and leave the milk to spoil.
    - mbesto 10mo ago
      > PE puts very little of their own money into the deal though, while they own it they don't buy it. This is simply untrue. A typical PE firm creates a GP fund using LPs money. This GP fund typically does a management buyout (which means 50.1% of more) of several companies using a mix of equity (e.g. GPs capital) and debt (banking lenders). So by every definition of the word, they absolutely own the company.
  - CPLX 10mo ago
    What you’re saying just isn’t true. Looting the companies is accomplished by stacking up debt and then giving themselves the money. Occasionally there are a few variations like looting a pension fund or taking a high quality product and making it horrible and selling that until people notice. It’s literally their business model, it’s happened thousands of times and is a very clear fixture of the modern American business climate. If you don’t know this it’s because you aren’t looking or it’s in your interest to say you don’t know this.
rs186 10mo ago
Let me explain this with a simple example: * If a company controlled by PE goes bankrupt, shareholders (PE) likely make a profit * But if a publicly listed company goes bankrupt, shareholders lose their money In other words, PEs almost never lose money, so they could extract the last bit of a company, even more short sighted than shareholders of a public company
- gruez 10mo ago
  >* If a company controlled by PE goes bankrupt, shareholders (PE) likely make a profit That's not necessarily a bad thing, or sign of anything sinister. If a business is failing, and you buy it for pennies on the dollar, and despite your best efforts it still goes under, so you liquidate it, you can still turn a profit if the price you paid is lower than what you got from liquidating it. That's not bad, because private equity (or anyone else, for that matter) isn't expected to operate as a charity. The only reason they're willing to stump up the cash to buy the business in the first place is the expectation that they'll make money. It's also not bad for the original owners either, because the fact that they hold to PE rather than someone else, or liquidating it, suggests that the PE offered a better deal than either. >But if a publicly listed company goes bankrupt, shareholders lose their money Often times yes, but sometimes not, eg. hertz.
  - youarentrightjr 10mo ago
    > despite your best efforts Citation needed.
- JumpCrisscross 10mo ago
  > If a company controlled by PE goes bankrupt, shareholders (PE) likely make a profit. But if a publicly listed company goes bankrupt, shareholders lose their money This isn't remotely true. Plenty of private equity investments go bust before they can pay themselves back. And plenty of public company investors milked a company for interest payments or dividends into the ground. > PEs almost never lose money Private equity funds regularly lose money. Usually to lenders. You're complaining about leverage in general. Probably not private equity per se.
youarentrightjr 10mo ago
I see these private equity takes on HN frequently and am really baffled by the ignorance. There's a very clear difference between a public and private company - the fiduciary duty to shareholders. There is a legal requirement for directors of public companies to act in the financial interests of all shareholders. In practice, and according to precedent, this means long term viability of the company, in other words, a sustained profitable business. There is no such requirement for a private company. In practice (esp. recent history), this means private equity firms acquire successful businesses to "mine them" of their wealth - capitalizing their assets for personal gain, and leaving nothing left. The question for public companies isn't how many retail vs institutional investors they have, it's whether an investor can make a claim about a breach of fiduciary duty. It's patently false to say that the institutional investors (who yes, do have more sway) aren't interested in the company acting in their financial interests.
- gruez 10mo ago
  >There is a legal requirement for directors of public companies to act in the financial interests of all shareholders. In practice, and according to precedent, this means long term viability of the company, in other words, a sustained profitable business. All that means is that controlling shareholders can't use the company as a piggy bank and raid it to fund their other ventures. It doesn't mean the business has to be "sustainable" or whatever. In fact, it's perfectly legal for the board to sell to a "vulture" PE firm that will sell the business off for parts, as long as the sale price is good enough.
  - margalabargala 10mo ago
    Yes, that's the major difference between the public and PE companies that OP was highlighting. The owners of a public company can't raid it to fund other ventures. They have to sell it off to someone else to do that. Selling off a public company like that is generally not trivial and is not surprise sprung on shareholders.
    - JumpCrisscross 10mo ago
avrionov 10mo ago
The biggest difference is not the morality of the management of the two types of companies, but the type of business they are into. Many private companies are growth businesses. On the opposite side, private equity targets businesses which are stable, but not growing or declining. PE looks for products which have high cost to switch or products with no alternatives. So when private equity buys the business they extract money in 3 ways: - Raise their prices. This is similar to the public companies, but they do it more aggressively, because their customers don't have a choice. For reference see, what VMWare did after it was bought by Broadcom (Broadcom is a public company which acts as a private equity). - Reduce costs, via layoffs and cutting smaller products. Also done by public companies, but the difference here is the magnitude. It is quite common for Private equity owned companies to have several years of 20% layoffs, until the original workers are completely replaced by workers in cheaper locations. Or not replaced at all which leads to a worse service. - And finally the third way a private equity extracts money from the acquired company by providing "services". Employees from the PE company are elected on the board of directors of the acquired company. A PE executive can become a CEO of an acquired company. PE companies have satellite companies, which provide legal, administrative and financial services to their companies. On top of that the acquired company has to pay the loan which was used to be acquired.

c16 10mo ago

I think this checks all the above boxes, but for a public company. https://www.bbc.com/news/articles/cwyk6kvyxvzo https://www.bbc.com/news/articles/cwyk6kvyxvzo

CPLX 10mo ago
This is utterly disgraceful. With that said he did ratify it with shareholders so it is what it is.