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. afavour · 1789950647 · focus · HN ↗

      Small(er) businesses can be poorly run. In theory private equity takes knowledge already in practise in other locations and shares it with this new location, improving results. Downside of course is that they care a lot less about that specific location than the previous owners would have.

      One specific practise I’d like to see banned is private equity buying companies with debt the company then assumes. It staggers me that it’s legal.

      1. lazide · 1789951421 · focus · HN ↗

         I’ve literally never seen that happen. what does always happen is cutting ‘non essentials’ that are essential until the company implodes.

         1. ironSkillet · 1789951592 · focus · HN ↗

            That is one of the core strategies in the private equity playbook.

            1. 0xDEAFBEAD · 1789953047 · focus · HN ↗

               Why would it be profitable for the company they just paid a lot of money to acquire to implode?

               1. TylerE · 1789954975 · focus · HN ↗

                  They sell off everything of value before it implodes and cash out. THEN they let it implode with nothing but the debt remaining.

                  1. 0xDEAFBEAD · 1789958593 · focus · HN ↗

                     Why would banks lend to such an enterprise if they don't expect to get paid back?

                     1. TylerE · 1789971105 · focus · HN ↗

                        They don't. They lend to the target company BEFORE the buyout.

                        1. 0xDEAFBEAD · 1790033634 · focus · HN ↗

                           So over time banks will learn to avoid lending to buyout targets?

                           1. lazide · 1790034731 · focus · HN ↗

                              banks generally lend using a set of relatively hard coded critera. it would take systemic change for them to ‘learn’.
               2. lazide · 1789954996 · focus · HN ↗

                  they usually get the company to take out the debt to actually be acquired. it’s the key first step.

                  then they extract as much cash as possible while the debt ballons. so called ‘extracting brand value’.

                  the investors usually do quite well

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