Thread

1. NegativeK · 1789944184 · focus · HN ↗

   Can someone steelman private equity, please? I'm honestly looking for the upsides (for non-investors) of when PE moves into an industry like medicine and begins buying up businesses that traditionally aren't already large chains.

   I already hear the downsides frequently from someone whose work is directly affected.

   1. mhh__ · 1789946857 · focus · HN ↗

      PE staff are more intelligent and more shrewd than the people running the businesses they buy. Being a good doctor doesn't make you a good businessman.

      I'm not a huge fan of PE but the point of economics to deliver cheap and quality goods to consumers not keep people in a job.

      In healthcare in US in particular I think the main thing that capital should be (if regulators allow) boutique / specialists that e.g. are the best in the biz at doing MRI scans, in some states my understanding is that it's literally illegal to start a business aiming to make one small part of the process better.

      1. sailfast · 1789948595 · focus · HN ↗

         Remove “more intelligent” here and I’ll give you some benefit.

         The problem with healthcare “economics” is that providing high quality care is likely not as profitable as middling care, or sub-standard care.

         You say that economics is meant to deliver cheap quality goods, but in reality here economics for PE is value extraction and has nothing to do with consumer good at all - unless of course there’s more profit there. Most of the time, there isn’t.

         1. mhh__ · 1789949365 · focus · HN ↗

            Is Apple Inc run for consumer good or value extraction?

            1. macintux · 1789951180 · focus · HN ↗

               Apple has, for most of its existence, been a distant second choice, because IBM and Microsoft captured the enterprise, which trickled down into consumer buying habits.

               It survived, then thrived, by making its products so appealing that customers would buy them anyway.

               So, effectively, both.

            2. sailfast · 1790007364 · focus · HN ↗

               Apple is not a PE firm. They are a public consumer goods company with a ton of different business lines. Their duty is shareholder value and making good products that sell is one way to do that.

               Value extraction is a short term play. It’s usable by most companies in a pinch, but normally only happens before their death or slow decay into zombie-dom. At least, that’s what my anecdata tells me.

         2. nradov · 1789961505 · focus · HN ↗

            That's really not true. Studies have shown that there's little correlation between care quality and profitability. In some cases non-profit health systems charge high prices and deliver terrible care quality. The reality is that most provider organizations are run by incompetent managers. People used to working in modern tech companies would be shocked to see the waste, inefficiency, and missed opportunities. PE acquisitions may cause some problems but the new managers do at least bring a basic level of discipline and operational competence that was often missing before.

            1. sailfast · 1790007749 · focus · HN ↗

               Modern tech companies are not managed well at all in my experience! They’re rife with waste.

               Management often makes terribly unprofitable decisions and often work to protect their slices of the pie rather than the org.

               Tech companies are saved by their margins, their aura, and low interest rates.

               Better examples might be grocery stores or other low margin businesses that require some fairly ruthless prioritization (at least that is what I’m to understand)

               To your care / profitability argument: that is good news! However, I do believe that concern for profitability will always outweigh a care quality argument so there is a misalignment of incentives in that case. I would look to insurers to demonstrate this, generally, but can imagine a PE-owned hospital system might attempt similar measures.

               Ideal outcome is a great manager that also cares and ends up paying doctors more and providing excellent care while driving down costs using better processes and negotiating with suppliers. But, uh… not sure how often the benevolent PE firm actually shows up historically.

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