3 ms·

PE companies do it with very little regard for if any of the pieces are viable and survive after the fact, so their model isn't one I'd suggest following.

saghm 24d ago
Maybe if a large company is anticompetitive and the parts would not survive on their own, we should be letting those pieces fail
nradov 24d ago
From a public policy perspective it doesn't matter if some pieces are unviable and fail to survive. Across the entire economy, this creative destruction allows for quickly reallocating resources to more productive uses. Most of the companies that take PE investments do so because they're badly managed and unable to obtain capital from other sources; they would likely fail anyway. At least the PE investment gives them a chance to survive and brings in more financially disciplined management.
- RetroTechie 23d ago
  There's many examples of companies who were conducting a low growth, long-term viable business. And where then PE stepped in, ripped out the most profitable part(s), and discarded the less-profitable parts as a dead husk. In the process, the public lost the benefit that less-profitable part provided. Besides ripping up a company that was doing fine as-is. You call that "reallocating resources to more productive uses". Yes that may be what's happening in some cases. But not always. Less-profitable != non-beneficial to the public. At this point I regard PE entities as value-extraction machines. Which sometimes, but rarely, work with the public's benefit in mind. And let's not get started on cases where PE secured loans, sold off a company's assets, only to lease them right back. Leaving company deprived of their assets & debt-laden, going under shortly after, while PE firm runs off with the goodies. Most people would think of that as theft & destruction. But in high-finance world it's named differently & somehow legal.
eigen 23d ago
its not unheard of for large public companies to do spinoff. a few examples that seem to have worked out fairly well Phillip Morris / Altria / Kraft / Mondelez HP / HPE / Agilent / Keysight

saghm 24d ago

Maybe if a large company is anticompetitive and the parts would not survive on their own, we should be letting those pieces fail

nradov 24d ago

From a public policy perspective it doesn't matter if some pieces are unviable and fail to survive. Across the entire economy, this creative destruction allows for quickly reallocating resources to more productive uses. Most of the companies that take PE investments do so because they're badly managed and unable to obtain capital from other sources; they would likely fail anyway. At least the PE investment gives them a chance to survive and brings in more financially disciplined management.

RetroTechie 23d ago
There's many examples of companies who were conducting a low growth, long-term viable business. And where then PE stepped in, ripped out the most profitable part(s), and discarded the less-profitable parts as a dead husk. In the process, the public lost the benefit that less-profitable part provided. Besides ripping up a company that was doing fine as-is. You call that "reallocating resources to more productive uses". Yes that may be what's happening in some cases. But not always. Less-profitable != non-beneficial to the public. At this point I regard PE entities as value-extraction machines. Which sometimes, but rarely, work with the public's benefit in mind. And let's not get started on cases where PE secured loans, sold off a company's assets, only to lease them right back. Leaving company deprived of their assets & debt-laden, going under shortly after, while PE firm runs off with the goodies. Most people would think of that as theft & destruction. But in high-finance world it's named differently & somehow legal.

eigen 23d ago

its not unheard of for large public companies to do spinoff. a few examples that seem to have worked out fairly well Phillip Morris / Altria / Kraft / Mondelez HP / HPE / Agilent / Keysight