4 ms·

> By year 3 they start the squeeze, layoffs, asset selloffs (stripping), and lowering quality, raising prices. That is where the real teeth of wolf are shown.

> By year 3 they start the squeeze, layoffs, asset selloffs (stripping), and lowering quality, raising prices. That is where the real teeth of wolf are shown. To play devil's advocate: Doesn't this also open the market to new entrants? e.g. young person looking to start a HVAC company in the old days couldn't compete with the established firm that already had contracts and the local market wasn't big enough for two players. If the established firm gets bought by PE and driven into the ground, wouldn't the newer more nimble firm now have a better competitive market position?

xboxnolifes 5mo ago
Unless the new company ends up more competitive than the pre-PE company, does it matter? Thats not a good outcome, thats just a period of bad time between 2 good times.
the_sleaze_ 5mo ago
As long as customers choose services based on quality. The HVAC for example - the large firms around you do not run HVAC/plumbing/electrical, they run marketing companies that happen to schedule and bill H+P+E service appointments. That being said I've never heard or encountered a single services company in the US that can't find business, in fact it's the opposite. They're trying not to drown themselves in front of a fire hose.
- quickthrowman 5mo ago
  > The HVAC for example - the large firms around you do not run HVAC/plumbing/electrical, they run marketing companies that happen to schedule and bill H+P+E service appointments. Maybe if you’re talking about the small residential market, that’s not where the money is. The large HVAC/Electrical/Plumbing contractors in my area all perform their own work, including the one I work for. Large contractors do commercial and industrial work, not service calls for homeowners. Doing service calls homeowners sounds like a nightmare, personally. Bain Capital just bought Service Logic which is a holding company for HVAC contractors. They own a couple of the local HVAC shops and they all have their own PMs, sales, estimating, and field staff.
- mbesto 5mo ago
  > As long as customers choose services based on quality. If the market doesn't reward this then maybe quality isn't important to the customer. Could be price, location, availability, etc. - PE can absolutely create that value even when they roll up 70% of your local HVAC market.
  - donmcronald 5mo ago
    I think part of it is that as the incentive for new entrants goes up, some of those entrants are downright awful. So, there’s a risk of getting someone terrible, the reward of getting someone awesome, and the existing choice of getting predictable mediocrity. A lot of small business owners in the trades are pretty bad at the business side of things, even if they do great work.
cyberax 5mo ago
A lot of markets can't support more than a couple of competitors. And in many cases, you can't easily open a new company because of upfront expenses. E.g.: an emergency room.
- alexpotato 5mo ago
  This is true but to use your example of an emergency room: It's not uncommon in more rural areas to find a business that is essentially "more than an urgent care but less than an emergency room". e.g. they aren't doing trauma surgery but they can deal with broken limbs, severe lacerations etc that an urgent care couldn't handle. My point is that while it's true that there are "step functions" in certain services, this is not always the case.
- bell-cot 5mo ago
  When it's an essential service for "everyone", and the economics make healthy competition unworkable, the traditional solutions have been municipal ownership and publicly regulated utilities. Those include Fire Departments, Water & Sewer Dept's, Electric & Gas companies, ...
  - alexpotato 5mo ago
    > Those include Fire Departments I remember watching a discussion about privatizing the local fire department aka the town pays a private company to run the fire department. Opposition folks use the line: "You used to have a shield on your building that denoted you had paid for fire coverage. The old fire departments would drive past the unshielded buildings while fighting the fires." (this is, of course, no longer the case but love to mention this discussion when ever privatization comes up)
    - cyberax 5mo ago
      > (this is, of course, no longer the case but love to mention this discussion when ever privatization comes up) But this very thing happened not that far in the past: https://www.nbcnews.com/id/wbna39516346 https://www.nbcnews.com/id/wbna39516346
roenxi 5mo ago
Yes, if it is possible. The issue when economic strip mining becomes the best strategy are usually from somewhere deeper in the system. It wouldn't be a shock if the root cause was some inane regulatory decision that means the market isn't being allowed to reach a sensible equilibrium.

xboxnolifes 5mo ago

Unless the new company ends up more competitive than the pre-PE company, does it matter? Thats not a good outcome, thats just a period of bad time between 2 good times.

the_sleaze_ 5mo ago

As long as customers choose services based on quality. The HVAC for example - the large firms around you do not run HVAC/plumbing/electrical, they run marketing companies that happen to schedule and bill H+P+E service appointments. That being said I've never heard or encountered a single services company in the US that can't find business, in fact it's the opposite. They're trying not to drown themselves in front of a fire hose.

quickthrowman 5mo ago
> The HVAC for example - the large firms around you do not run HVAC/plumbing/electrical, they run marketing companies that happen to schedule and bill H+P+E service appointments. Maybe if you’re talking about the small residential market, that’s not where the money is. The large HVAC/Electrical/Plumbing contractors in my area all perform their own work, including the one I work for. Large contractors do commercial and industrial work, not service calls for homeowners. Doing service calls homeowners sounds like a nightmare, personally. Bain Capital just bought Service Logic which is a holding company for HVAC contractors. They own a couple of the local HVAC shops and they all have their own PMs, sales, estimating, and field staff.
mbesto 5mo ago
> As long as customers choose services based on quality. If the market doesn't reward this then maybe quality isn't important to the customer. Could be price, location, availability, etc. - PE can absolutely create that value even when they roll up 70% of your local HVAC market.
- donmcronald 5mo ago
  I think part of it is that as the incentive for new entrants goes up, some of those entrants are downright awful. So, there’s a risk of getting someone terrible, the reward of getting someone awesome, and the existing choice of getting predictable mediocrity. A lot of small business owners in the trades are pretty bad at the business side of things, even if they do great work.

cyberax 5mo ago

A lot of markets can't support more than a couple of competitors. And in many cases, you can't easily open a new company because of upfront expenses. E.g.: an emergency room.

alexpotato 5mo ago
This is true but to use your example of an emergency room: It's not uncommon in more rural areas to find a business that is essentially "more than an urgent care but less than an emergency room". e.g. they aren't doing trauma surgery but they can deal with broken limbs, severe lacerations etc that an urgent care couldn't handle. My point is that while it's true that there are "step functions" in certain services, this is not always the case.
bell-cot 5mo ago
When it's an essential service for "everyone", and the economics make healthy competition unworkable, the traditional solutions have been municipal ownership and publicly regulated utilities. Those include Fire Departments, Water & Sewer Dept's, Electric & Gas companies, ...
- alexpotato 5mo ago
  > Those include Fire Departments I remember watching a discussion about privatizing the local fire department aka the town pays a private company to run the fire department. Opposition folks use the line: "You used to have a shield on your building that denoted you had paid for fire coverage. The old fire departments would drive past the unshielded buildings while fighting the fires." (this is, of course, no longer the case but love to mention this discussion when ever privatization comes up)
  - cyberax 5mo ago
    > (this is, of course, no longer the case but love to mention this discussion when ever privatization comes up) But this very thing happened not that far in the past: https://www.nbcnews.com/id/wbna39516346 https://www.nbcnews.com/id/wbna39516346

roenxi 5mo ago

Yes, if it is possible. The issue when economic strip mining becomes the best strategy are usually from somewhere deeper in the system. It wouldn't be a shock if the root cause was some inane regulatory decision that means the market isn't being allowed to reach a sensible equilibrium.