You know what I hate about PE? They en-shitify everything. They take over companies that are producing high quality products, and they turn them into companies producing mediocre crap. And just when doom appears on the horizon, they sell out. It's the fucking worst and it makes it increasingly difficult to buy good stuff.
I hope the entire PE industry slinks back into the fetid swamp from which it came.
They simply can't be anything other than what you describe when profit eclipses every other human impulse such as pride in one's work, product and customer service and even the slightest sense of civic awareness.
I went to a nearby car wash recently that I have patronized for a few years. After waiting in a line of cars I finally pulled up to the payment kiosk and the credit card machine was locked up. I asked the attendant if I could pay for a wash and was informed that I would need to purchase a “membership”. When I asked to just pay for a car wash I was told no and directed to get out of the line and leave. It was humiliating and I tried to slink off without making eye contact with the other customers.
A web search revealed that my local carwash is now one of 270 car washes owned by a large private equity firm as part of an extensive portfolio. They own a variety of businesses and are operated by MBAs, lawyers, and suits from various Ivy League institutions. The car wash segment of their portfolio is described on their website as being in the business of “retail/subscriptions”.
Nothing to be humiliated about, we should be bothered about everyday products and services being mutated into subscriptions to extract maximum cash from our pockets. Once upon a time we would give a business money they'd provide us something, and we'd both go on our merry ways. Now everyone wants to lock you into their shitty overpriced subscription. I say no and feel no shame.
My daughter is a Mom who owns a small hair salon and is working her way toward a college degree. After several 30 to 40 percent rent increases the owners of the apartment complex where she lives announced that the units were being converted to "town homes". Either buy the unit at an inflated price, accept a fifty percent rent increase or move. But, because of the short notice rental contracts would not be enforced when residents found new housing. My daughter found a new place and when she gave notice was told that the owners had changed their minds and the rental contracts would remain in force. The economics wrecked her forward motion. She would have been effectively paying rent on two apartments for several months which, she could not afford.
Never one to give up she doubled down on work, rearranged her finances and pushed forward. As her current rental contract neared its end she found a new place. It demanded references, a cosigner, damage deposit and first and last months rent. Which she provided. Then as she prepared for the move the rental agency decided that her income wasn't sufficient. BUT FOR A NON-REFUNDABLE $700.00 FEE they would overlook the requirement.
So, a hard working small business owning Mom pursuing an education and a brighter future for herself and her children, already under tremendous time and financial pressure gets taken over the hurdles and gouged by rigged game corporate thugdom.
I'm glad to be there. Glad to help. But how long can THE GREATEST UPWARD TRANSFER OF WEALTH IN HUMAN HISTORY continue before total collapse. And what price is our Republic paying for the assault on human dignity, stolen time and resources? Collapsing infrastructure? What are we talking about here? 2008?PRIVATE EQUITY continues to destroy manufacturing, tinker with and loot pension funds, lay waste to lives, steal labor and tighten the noose every day of the week. This is the globalist version of the "company store" complete with fiat "script" and control of housing with the added bonus of manipulating access to supply chains, food and fuel.
The central banking EU/WEF Davos crowd has already placed the citizens of Europe under arrest. (11 years for silent prayer in Starmer's England.) The DNC Clinton/Obama/Harris/Soros cabal intended to follow suit here. Trump? Something's going to give. There is the Republic, the Constitution and the free citizen. Everything else is passing through.
With unscrupulous, soulless leeches like this, who needs the PRC? We’ve had since 2008 to remedy the issue of “too big to fail.” But our politicians gorge themselves like hogs at a trough and pass the bill for their failed policies on to the taxpayer— again and again.
Memberships are not things I sign on for. Learned many years back how they lock you in and give a hard time ending. They have access to you money at the start too. I choose not to sign on.
I am so tired of being expected to subscribe to everything. My town has had a bunch of cheap car washes be built over the last 5-ish years and they all push subscriptions hard.
Government sets the rules and regulates the actions of these firms. Clearly, change is needed. We've had three decades of a federal bureaucracy run amuck and dedicated to decimating the middle class.
I wouldn't term it "capitalist culture." Capitalism has served us well over our history. It's more of the modern statist/capitalist approach that smacks more of 1930s fascism. Think Biden pressuring companies to target Republicans and free speakers and the stench of corruption emanating from the web of the Deep State and their pals and allies in NGOs.
Problem is the Financial Class has done everything, including pre-WTO and NAFTA to make that incredibly hard. And they own our government now, no matter which Color Team is in office.
I honestly don't think Trump knew who he was pissing off with the tariffs until the markets "squealed" (his words). I don't agree that the way they were implemented, or announced anyway, was going to bring manufacturing back with the way the FIRE sector has a stranglehold on our politics and economic policy. Wall Street (or the Financial Services Sector) needs to be gutted or put in the corner. Unfortunately, the global supply chain is what it is now, and I don't think there's anyone gonna put the genie back in the bottle. It's time to just "get along" with tRotW and it won't always be on "our" terms.
But the short answer to your question, IMO, is that maybe they're just fiddling. Twiddling knobs and seeing what happens. On the economy anyway. Make no mistake tho, financial services owns the Trump administration just like any other.
Sure he does. Why do you think Trump continues to want to end the so-called loophole of capital gains tax rates on "carried interests?" He's made it clear that he's not a friend to private equity structures.
The Washington Post and X (fka Twitter) are technically included in the list of entities owned by "private equity." Are Bezos and Musk "thieves" by your definition?
Well, considering Tesla is being sued for altering odometers to avoid warranty claims, and Bezos makes his money taking a 20%+ cut off “marketplace” sellers selling to amazon account holders…. I leave the math as an exercise for the reader. :)
The only way it stops is if people got organized and boycotted PE owned companies. Or even better demanded that pension funds and bond mutual funds do not contain any PE debt. Imagine if everyone that is not a millionaire organized and sold all their bond fund investments and demanded a “non PE bond fund option”. Pulled all their money out of banks that underwrite PE bonds. PE’s worst nightmare, all us suckers fighting back.
they should demand pension fund fiduciaries be held accountable for wasting the assets of working people whose retirement $ they often handle . The returns do not justify the risk and the fees are wasted . Get a real independent audit of the returns , and compare to low cost alternatives. Its a massive scam
Ai will decimate PE. The returns have been subpar . fees are outrageous and its all slick marketing. Investors can participate in the returns from low cost tracking securities but in most cases just better off long via an index fund. They rely on historical returns and have lots of room to fudge their marks . Funny how that happens when they are in marketing mode
My PE investments have done better over a 40 year period than any other asset I own except my beach house. There are crappy PE firms but also excellent ones.
Jim - if you were smart like David Swenson of Yale and invested in PE pedigree in the 80s 90s -the sweetspot for the genre-congrats . It was absolutely worth the fee structure and lock up .However ,If you invested in the past 10 yrs I suspect your average return gets dragged down. There is 1000X more $ chasing fewer and fewer natural sellers -eg not another PE firm . I saw how they make sausages and with the exception of an occasional spv would not invest in the asset class. I'd run from it . Secondary trade different story .
Yeah & I managed a few funds over the years. I mentored the main partner of the more recent one. They use moderate leverage and employ a build by acquisition strategy with a big focus on operational improvements and upgrading of personnel when needed. Block & tackle.
I have a couple of friends that sold their thriving businesses to the PE raiders. The PE will keep on the previous owner to “run things” while leveraging every asset the business has. One friend was lucky and only sold their thriving businesses business and kept the property leasing it back to the new owners.
They force the old owners to sign non compete agreements also killing any future competitors while buying up all of the same businesses in the area.
I'm glad RACKET-- (and I wish other platforms would)--is continuing the focus on finance and financial institutions. Demystification and making money a major focus of our national conversation is the most powerful tool for change We the People hold.
"Private equity companies have a well-deserved reputation for cutting expenses in the best of times."
They also have a "well-deserved reputation" for immediately ripping all the cash reserves and other tangible assets out of the companies they acquire and disseminating it to the partners in the firm.
Another "well-deserved reputation" they've earned is causing a brain and talent drain in the companies they acquire by cutting the compensation of the companies most talented employees.
Sounds like you know well. It reminds me of what happened to a privately owned New England radio group in the 90’s who sold to a PE group running cookie cutter stations around the country. Local talent was replaced with simulcasts, all local bits were gone, sales pay was restructured, office jobs and processes were consolidated. Chaos ensued, clients fled and the owners issued a public statement apologizing for selling out to a lie, all too late. So many people were hurt.
We spent a lot of time and money developing a new technological process with a very solid company that had been in business for years that was acquired by a PE firm right when we were ready to monetize the tech.
As soon as the PE firm took control they cut all of the key employees salaries that were involved with the project. Understandably they all left to go to work for other companies where they could be compensated at an equal or better rate.
It isn't a universal trait that PE just tries to gut every company it buys. I've worked in the tech sector and worked for companies acquired by PE that saw value in the company and funded it to expand and either be sold to an interested party for a nice chunk of change or go public to recoup their investment.
The side of PE that guts working companies for their assets is atrocious.
So you are saying that the income stream from future sales of this process to your firm didn’t justify that company paying the employees who helped develop it? Did you offer to pay a lot more and guarantee some sales if it was so lucrative? Or instead did you hire those employees yourselves and start a small division to roll out that process?
Sometimes it turns out that other people aren’t willing to take risks on our behalf and we have to take our own risk (or pay a lot to reduce the risk of others ).
There are lots of niche business lines that get shut down when a company goes through tough times and expense cuts, or a buyout. If those niches are attractive, someone will fill them- or maybe you can.
All the engineers who helped us develop the tech/process left, and there was no other engineers left who had their knowledge base and skills to bring it to fruition.
Combine that problem with a new clueless yes man CEO and upper level management, and our project along with many others were cancelled due to budget cutting necessitated by the fact that the PE firm had raided the coffers.
It made zero sense for us to continue to pour time and money into it with them. So, we went to one of their competitors and eventually got the product to market.
Same thing happened to newspapers in the nineties and 2000s. PE interests in local news (both radio and newspaper publishing) had huge negative effects for a functioning US democracy and civil cohesion.
Yeah, PE is a curse and a tax on working people in general as far as I'm concerned.
Were I the Trump administration, I'd be getting my treasury secretary working on ways to facilitate favorable financing for employee owned companies to purchase the assets of the otherwise viable companies that are gonna crash and burn as a result of private equity companies getting the smackdown they deserve. It would be just the most wonderful thing in life to see the real ass hats broken for their sins rather than the working people that usually get it.
Private equity's grand advantage in this life is their ability to finance at terms that are significantly more favorable than the rest of us, peons are able to secure. Then having bled the cash out of an enterprise that would be used by real business people to ride through when life gets interesting, they ride off into the sunset leaving ruined lives in their wake.
Punch in Denny McClain and Chesaning, Michigan for a particularly horrific example.
Nothing in this life would make me happier than seeing gangs of PE guys standing outside of bankruptcy courts selling apples and digital pencils.
You’re on to something with government making it easier for employees to buy their own companies. As it is, a leveraged ESOP works great if the company continues to grow. But someone has to guarantee the original loan so that the employee Trust Fund can buy the company. Perhaps there actually is a role for the SBA there, maybe guaranteeing the loans or something?
ESOPs are already favored by the government. No extra incentives needed. As long as there are future profits, ESOPs are worth doing - because people forget that the income earned by ESOPs are NOT subject to income tax. This allows the profits to compound and be used to fund incremental retirement benefits for the employees (on top of 401ks that the employees already have). Often an ESOPs can end up with the ownership of companies as a result of bankruptcy proceedings. It can work out very well, and can "re-localize" a company.
I’m familiar with leveraged ESOPs where an Employee Trust is created which borrows money to buy all or part of the company. The owner who sells gets a tax advantage, but someone has to guarantee the ESOP loan…
In addition to that they are able to do is to take advantage of accelerated depreciation schedules to avoid taxes and pay off debit. that is one of the reasons they often flip at 5 years, thats when the depreciation runs out.
TBF i know this because i worked in PE. It has its place especially in dealing with legacy issues of smaller companies. (Example The founder who does trust a life's work and fortune to he or her ne'er do well children.) Often PE could either manage those issues or give them the leverage to step up thier game.
There is a very good idea here, as example US Steel finds itself near the end of a long road of poor Managment and markets and so forth. There are other better run steel companies here in the USA. Rather than sell to Nippon Steel, why not incentivize a couple of the well run firms to buy US Steel or create a new entity or NewCo? No doubt the devil is in the details but if it saves US Steel, keeps Nippon Steel out, and creates a couple of new modern steel factories, forges, rolling mills etc, and excludes any PE money whatsoever, it feels like a win. PE firms, slugs with money. You can spot the partners, they wear trousers that are too short and tight, checked shirts semi tucked in, scuffed up tie shoes that need new soles and a very very expensive English made vest with the name of the PE firm emblazoned on the left front chest.
I watched my hometown economy suffer when the local steel company died a death that was at first slow, and then sudden. No amount of "incentives" could have saved that company when the government did absolutely nothing about foreign steel dumping in the late '70s. So-called "selective" steel tariffs were tried - even by Reagan would you believe - in the '80s. Read the history on "voluntary restraint agreements" during that time. They were, ultimately, an absolute failure.
“Private equity's grand advantage in this life is their ability to finance at terms that are significantly more favorable than the rest of us, peons are able to secure.”
Well said. PE, first and foremost, is professional borrowing.
The disparate access to capital helps one to understand how the Bank of the United States spawned such opposition in the 1820s.
Trump loves Andrew Jackson. But would a New Yorker who is also a professional borrower take similar action to equalize capital availability and price.
This one is a thicket when you try to think it through. Lenders presently have every right to accept any return that they are willing to accept. Likely, this is as it should be. So, how exactly does one go about leveling the playing field? I haven't the first clue.
1.) Four BIG banks have all deposits guaranteed. All others have limited deposit guarantees. Guess to where those with big deposits have moved their $?
2.) Concentration of lending power in big affluent cities far from where things get made but near where PE pros live.
3.) Regulatory pressures on banks, esp smaller banks, that impedes business lending
4.) Disappearance of community banks which both reduced competition and therefore aggressiveness to win loan business — and moved lending decisions outside communities where Character is readily ascertained
More troubling about private equity pirates is their large and growing investment in single family housing. I believe a strong case can be made that this practice has helped drive up the cost of housing to unsustainable levels and it should be banned.
A catastrophe waiting to happen. I'm in the western panhandle of Florida and there are large suburbs being built that are all rentals and completely owned by investors. I've noticed for some years now many podcasts marketing the idea that being a homeowner is a drudge and it's much better to rent. My grown daughter was repeating this idea and how much easier it would be to move around, until I told her to stop and think about later life when she's on a fixed income.
Your daughter may also start to think differently once she gets kicked out of a place with no warning in a tight rental market - that is a massive upheaval. It happened to me when I was single. I can't imagine what it would have been like if I had kids in school, etc.
Another area you see a lot if PE these days is healthcare. And that is not a good thing. I worked for a conpany that was acquired by a PE firm and it is all about the EBITDA. Customer is a distant second. Employees even further back.
She's already there and looking for a home. She's also a nurse with a degree in health care admin and sees the problem you mentioned. Thank God for the election.
Or a tight market period. I recently lost a long term rental of nearly a decade when the owner over-extended their money and when another of their properties didn't sell in time, they put the one I was living on for sale because they knew it would sell quickly.
Ownership is a bitch, I've been there too, but you are not as tied to other people's stupid mistakes.
Yes- owned by mom and pop landlords. This is how it often works in cities- small landlords owning buildings. I’ve rented from a half a dozen of them during my lifetime. Maybe you have, too. Ironically, city councils love the big “affordable housing” type apartment buildings owned by large corporate and commercial developers. The kind of developers who make polticial contributions.
They've anticipated this - this is why the PE credit secondaries market is exploding, growing something like 30 times since the 2010s in terms of deal activity. Rather than committing to their stakes, GPs are creating "continuation vehicles" out of the companies they buy, giving the LPs an option to cash out. They then bundle up multiple companies from their portfolio to create investable funds (think ETFs meet Mortgage Backed Securities).
Oh no, they're not selling it to retail investors yet, just the bottom tier of capitalists too small to get on the game otherwise (aka stupid greedy suckers designated for holding the bag when it finally bursts). Usually you need to be accredited by net worth and there is a 100k-1m minimum, much smaller then you would otherwise need to enter the PE game
Is there anything available in the public domain describing the bundled company deals like a prospectus/offering circular? In 2008 I remember finding CLO/CDO prospectuses I surveyed unintelligible (I spent some quality time going through CMO prospectuses in the 80's and 90's) and it became clear TLDR had taken hold of the mainstream investment community.
Yet again PE demonstrates its scumbaggery and how American capitalists continue to take and take at the expense of Main St. Moreover, because these PE, in conjunction w/their VC and Wall St scumbrothers, own the GOP and most of the Dems, nothing happens to change things. Neanderthal America at work. The one rule in politics remains true: the rich always get richer. Awful.
I hope it’s common knowledge that Wall St and the military-surveillance complex run DC. Witness Trump increasing the defense budget and (I’ve heard) his crew neutering portions of the tariffs that would have helped bring back manufacturing. So PE’s business model might be fraud as Buffett says, but i will need to see them suffering before I believe it.
Sounds like rather than trying to live with corporate cancer we could instead cure ourselves of the problem. We definitely should not preserve it by bailing it out. There are certain things that aren't worth their existence. Things like private equity firms and Goldman Sachs predicting our economy.
Ballou, Brendan. 2023. Plunder : Private Equity’s Plan to Pillage America. New York: Public Affairs.
Summary: The authoritative exposé of private equity: what it is, how it kills businesses and jobs, how the government helps, and how we stop it Private equity surrounds us. Firms like Blackstone, Carlyle, and KKR are among the largest employers in America and hold assets that rival those of small countries. Yet few understand what these firms are or how they work. In Plunder, Brendan Ballou explains how private equity has reshaped American business by raising prices, reducing quality, cutting jobs, and shifting resources from productive to unproductive parts of the economy. Ballou vividly illustrates how many private equity firms buy up retailers, medical practices, prison services, nursing-home chains, and mobile-home parks, among other businesses, using little of their own money to do it and avoiding debt and liability for their actions. Forced to take on huge debts and pay extractive fees, companies purchased by private equity firms are often left bankrupt, or shells of their former selves, with consequences to communities that long depended on them. Perhaps most startling is Ballou's insight into how this is happening with the active support of various arms of the government. But, as Ballou reveals in an agenda for reining in the industry, private equity can be stopped from wreaking further havoc
I am a supporter of capitalism as an economic system but we are a very long way from Adam Smiths “Butcher, brewer, and Baker”. In a post-Christian nation capitalism has no moral guidance/restraints and is a very brutal task master. The PE firms are evil incarnate and are very destructive.
Does anyone see the irony of “Giant Vampire Squid” Goldman Sachs passing judgement on private equity? Ha. I can see their former CEO, who became the TREASURER of the United States, telling the public that TARP was needed and GS needed to be bailed out at taxpayer expense because Goldman Sachs had blown up out of greed. Jesus. The temerity of this shitty system is mind boggling. Average person loses again.
Matt, I love you to death, but there are a lot of problems with this write up. You can do better.
Some Questions:
Is there anything especially unique about a debt financed distribution to equity? Public companies have debt and they pay dividends. Is this considered a “dividend recap?”
If this is so bad, why do lenders agree to finance the distribution? Banks are pretty sophisticated last time I checked.
You claim that companies are “saddled with high debt.” This claim deserves some numbers to support it. Are PE owned companies levered more than their publicly traded counterparts?
You claim that PE owned companies are inherently more vulnerable to tariffs than publicly owned companies. What is the basis for this claim? It seems counter intuitive since PE owned companies are smaller and more likely to sell to domestic consumers. All else equal, they are likely to benefit from tariffs. And aren’t the tariffs responsible for this economic destruction?
You state that “investors are running for the hills and dumping their shares in private equity.” This is not how it works. Investors in PE backed companies commit to a limited partnership. They cannot sell their shares. After all, the “P” in “PE” refers to “Private” which implies there is not a liquid market for the underlying asset.
I am happy to serve as a source for you on this subject, it is an area that I have 20+ years of experience with.
It is true that in your example you can in the strictist sense of the word call a public company paying dividends a "dividend recap" but there is a big difference when a company takes out $4.3 billion SOFR +325 in order to take investors out of their investment as well as some profit. Brookfield did this with Clarios because the partnership's time horizon was up, public sale/IPO was not available so this is what they did.
The bank finances the distribution because, use the Clarios example, had very hot demand for the paper...CLOs, mutual funds and ETFs. The lenders in these broadly syndicated loans don't hold them...UNLESS you have a situation like right now...funds are pouring out of the high yield loan funds and many of the lenders are now "Hung" with a few billion of broadly syndicated loans.... Hung has a nice ring to it.
As far as running for the hills, this is definitely the case now. There are many current examples of private equity investors trying to sell their shares with the PE general partners conditioning the allowance of a sale to another party only if the investors commits to a new fund. I believe Carlyle has just done this.
As far as whether private equity companies are more vulneralbe to an economic downturn than public..we can certainly study.
1. Corporate finance is not exclusive to private equity. Share buybacks and dividends are done if they enhance return on equity. They are not done if they do not.
2. Banks must retain some amount of all loans that they originate. Risk is distributed regardless if it is a loan to a private company or a public company. Banks are not incented to make shitty loans.
3. A couple of things re: running for the hills. 1) LP interests are not "shares." Accuracy matters. 2) You are a bit confused in your understanding of the current market. Your reference to GPs conditioning a new commitment is what is known as a "stapled" deal. This is not new. GPs have always had approval rights and have always controlled who is allowed as an LP.
But to the point, are investors actually "running for the hills." Not really. You can look at pricing in the secondary market. Pricing is still very firm and in 2024 was up y/y. Google "Jefferies Global Secondary Market Review" if you are interested. What is new is the various structured transactions and continuation vehicles that are coming to market although I would hardly consider this "running for the hills." In fact restrictions disallowing retail investors from participating in private markets are coming down, which is increasing demand.
The broader issue with PE is twofold: 1) the increase in rates has destroyed NAV - the value of these assets is based on a discount cash flow model and the higher the rate on the 10-year the higher the discount; and, 2) capital markets are now freezing up which means no public issuance of stocks or bonds, which means there is no way to finance the exit of companies from PE portfolios. To the extent PE owned companies have to make hard decisions, all companies will have to make hard decisions, because access to capital will be constrained in a post tariff world. This is a function of the tariffs, not a function of the fact the equity is privately or publicly held.
I wish you would report more on private equity, Matt. Most Americans are in the dark about the topic. As I said in an earlier post, I worked for a company that was slowly destroyed by two PE firms. The company's employees didn't understand what was going on because we didn't know anything the nature of the PE beast and weren't even aware we were owned by the two of these firms. Not once were we introduced to any of the people at these firms.
As far as I know, the company, which had existed for something like 80 years, was doing very well at the time of purchase. It was our parent corporation that had gotten into financial trouble over some bad real estate deals, which prompted the sale of the company to the two PE firms. Almost immediately, the two firms sold off the company's office building and the surrounding property, then sold half the company to another business, and moved those who of us remained to new, cramped quarters in an office building located in a city 100 miles away. Most of the employees couldn't move or manage the commute to the new digs, so there was an 80 percent turnover in the staff the summer of the move. What followed then was 15 years of continual layoffs and cuts to the services we offered with no investments in innovation or new products to the point where the company was a shadow of its former self. In the end, its assets were sold for peanuts to our main competitor. A few of the employees were hired by the competitor, but most were let go.
This is gonna sound awful, but.....I am a practice owning veterinarian. For the past decade and a half, PE firms have been snapping up and consolidating vet clinics. A healthy percentage are now owned and run by PE firms.
This has caused a HUGE shortage of staff in the industry because the PE managers are paying WAY above actual worth of employees to staff these practices. Prices are very high, but not high enough to justify the exhorbitant salaries used to lure these doctors into practice. This has caused a big labor shortage, especially for smaller practices like mine. I cannot justify huge salaries for people who don't 'earn their keep.' Add to that, the fact that I run a low cost clinic and I am now the Lone Ranger at my practice......I keep waiting for the over priced veterinary bubble to burst, so I can finally get some help.
Sadly, I long for the days of post real estate bubble burst so there are more people again than jobs.
My industry has gone down a dark path based on money that isn't really there.....and sooner or later the train is gonna run out of fuel.
I'm kinda sitting back here waiting to see what happens.....hoping an unemployed vet who will actually put the patient first falls into my lap. Mind you, I pay well.....but, not being a huge corp, my benefits package is slim to none, so I cannot compete with big companies.
I believe it has been a PE strategy to strangle us independents out of existence and then they can manipulate the market as they please. I keep telling my colleagues this....but it's hard to turn down a 3 million dollar buy out when you are grossing a million and a half.......I get it....but it's not real business.
I would advertise the fact that you are independent and locally owned. This resonates with lots of folks. You might also consider offering some kind of equity incentive to the right person. You might no longer own 100% of the pie, but the pie will be bigger.
You know what I hate about PE? They en-shitify everything. They take over companies that are producing high quality products, and they turn them into companies producing mediocre crap. And just when doom appears on the horizon, they sell out. It's the fucking worst and it makes it increasingly difficult to buy good stuff.
I hope the entire PE industry slinks back into the fetid swamp from which it came.
They simply can't be anything other than what you describe when profit eclipses every other human impulse such as pride in one's work, product and customer service and even the slightest sense of civic awareness.
I went to a nearby car wash recently that I have patronized for a few years. After waiting in a line of cars I finally pulled up to the payment kiosk and the credit card machine was locked up. I asked the attendant if I could pay for a wash and was informed that I would need to purchase a “membership”. When I asked to just pay for a car wash I was told no and directed to get out of the line and leave. It was humiliating and I tried to slink off without making eye contact with the other customers.
A web search revealed that my local carwash is now one of 270 car washes owned by a large private equity firm as part of an extensive portfolio. They own a variety of businesses and are operated by MBAs, lawyers, and suits from various Ivy League institutions. The car wash segment of their portfolio is described on their website as being in the business of “retail/subscriptions”.
Nothing to be humiliated about, we should be bothered about everyday products and services being mutated into subscriptions to extract maximum cash from our pockets. Once upon a time we would give a business money they'd provide us something, and we'd both go on our merry ways. Now everyone wants to lock you into their shitty overpriced subscription. I say no and feel no shame.
like the “tip “ machine. I have learned to punch no tip if no tip is warranted. like handing me a donut..
A cashier at a mall food shop once confided in me not to bother tipping because the store owner kept it all anyway.
Tip with cash.
nope. no if they had me a muffin or a loaf of bread.. besides most in my area make at least 20 per hour
Cheap with the capital letters, too.
Subscription is basically renting. You know - You'll own nothing and be happy.
As opposed to a pay-for service car wash where you own the clean feeling forever?
Agreed
My daughter is a Mom who owns a small hair salon and is working her way toward a college degree. After several 30 to 40 percent rent increases the owners of the apartment complex where she lives announced that the units were being converted to "town homes". Either buy the unit at an inflated price, accept a fifty percent rent increase or move. But, because of the short notice rental contracts would not be enforced when residents found new housing. My daughter found a new place and when she gave notice was told that the owners had changed their minds and the rental contracts would remain in force. The economics wrecked her forward motion. She would have been effectively paying rent on two apartments for several months which, she could not afford.
Never one to give up she doubled down on work, rearranged her finances and pushed forward. As her current rental contract neared its end she found a new place. It demanded references, a cosigner, damage deposit and first and last months rent. Which she provided. Then as she prepared for the move the rental agency decided that her income wasn't sufficient. BUT FOR A NON-REFUNDABLE $700.00 FEE they would overlook the requirement.
So, a hard working small business owning Mom pursuing an education and a brighter future for herself and her children, already under tremendous time and financial pressure gets taken over the hurdles and gouged by rigged game corporate thugdom.
I'm glad to be there. Glad to help. But how long can THE GREATEST UPWARD TRANSFER OF WEALTH IN HUMAN HISTORY continue before total collapse. And what price is our Republic paying for the assault on human dignity, stolen time and resources? Collapsing infrastructure? What are we talking about here? 2008?PRIVATE EQUITY continues to destroy manufacturing, tinker with and loot pension funds, lay waste to lives, steal labor and tighten the noose every day of the week. This is the globalist version of the "company store" complete with fiat "script" and control of housing with the added bonus of manipulating access to supply chains, food and fuel.
The central banking EU/WEF Davos crowd has already placed the citizens of Europe under arrest. (11 years for silent prayer in Starmer's England.) The DNC Clinton/Obama/Harris/Soros cabal intended to follow suit here. Trump? Something's going to give. There is the Republic, the Constitution and the free citizen. Everything else is passing through.
With unscrupulous, soulless leeches like this, who needs the PRC? We’ve had since 2008 to remedy the issue of “too big to fail.” But our politicians gorge themselves like hogs at a trough and pass the bill for their failed policies on to the taxpayer— again and again.
See my comment. University endowments, public sector pensions, and the uber wealthy have invested heavily in PE. There will be no oversight.
Your daughter and her fellow renters should have retained counsel and sued the vampires.
They have lawyers on retainer - they will wait you out... The courts are part of the problem.
In a few months you will be able to buy that car wash from the bank for pennies on the dollar. Sell subs and singles.
Exactly. When PE companies have to liquidate everything there will be a lot of equipment on the market cheap.
Demand determines jobs.
Memberships are not things I sign on for. Learned many years back how they lock you in and give a hard time ending. They have access to you money at the start too. I choose not to sign on.
Wash you own car, dude.
Carwashes wreak havoc on your paint.
They’re scraping the barrel, take heart it is ending.
I am so tired of being expected to subscribe to everything. My town has had a bunch of cheap car washes be built over the last 5-ish years and they all push subscriptions hard.
I miss when car washes were just literally laundries for drug dealers.
Same with home maintenance companies. Plumbers that once fixed boilers in the middle of winter are now two months out for a service call.
Guess that’s why home maintenance is hyperinflated.
We will buy your home...no matter condition!!!
see Breaking Bad for info on car wash..https://www.youtube.com/watch?v=_msyHz8NSXE. eventually he owns the place for other reasons
Maybe PE is into money laundering. A cop friend told me the cartel money from human smuggling was off the rails, way bigger than drugs.
Money laundering with loans
undoubtedly
then see Ozark. it is right on. TV. of course most get caught or killed ( on tv )
Government sets the rules and regulates the actions of these firms. Clearly, change is needed. We've had three decades of a federal bureaucracy run amuck and dedicated to decimating the middle class.
Exactly. But it's part of the US capitalist culture. Next week or next quarter profits trump anything else.
Briefly addressed toward the end of this article. https://policytensor.substack.com/p/debunking-the-pettis-miran-hypotheses
I wouldn't term it "capitalist culture." Capitalism has served us well over our history. It's more of the modern statist/capitalist approach that smacks more of 1930s fascism. Think Biden pressuring companies to target Republicans and free speakers and the stench of corruption emanating from the web of the Deep State and their pals and allies in NGOs.
One of the foundations of a Fascist State is crony capitalism enabled by the State because the State is the most important crony.
USA 🇺🇸 can go back to building things and solving problems.
Calling thieves as thieves isn’t really a sin against Capitalism…. And tough 💩 if it is…
Problem is the Financial Class has done everything, including pre-WTO and NAFTA to make that incredibly hard. And they own our government now, no matter which Color Team is in office.
If they own our government why then does POTUS behave so?
I honestly don't think Trump knew who he was pissing off with the tariffs until the markets "squealed" (his words). I don't agree that the way they were implemented, or announced anyway, was going to bring manufacturing back with the way the FIRE sector has a stranglehold on our politics and economic policy. Wall Street (or the Financial Services Sector) needs to be gutted or put in the corner. Unfortunately, the global supply chain is what it is now, and I don't think there's anyone gonna put the genie back in the bottle. It's time to just "get along" with tRotW and it won't always be on "our" terms.
But the short answer to your question, IMO, is that maybe they're just fiddling. Twiddling knobs and seeing what happens. On the economy anyway. Make no mistake tho, financial services owns the Trump administration just like any other.
Sure he does. Why do you think Trump continues to want to end the so-called loophole of capital gains tax rates on "carried interests?" He's made it clear that he's not a friend to private equity structures.
The Washington Post and X (fka Twitter) are technically included in the list of entities owned by "private equity." Are Bezos and Musk "thieves" by your definition?
Well, considering Tesla is being sued for altering odometers to avoid warranty claims, and Bezos makes his money taking a 20%+ cut off “marketplace” sellers selling to amazon account holders…. I leave the math as an exercise for the reader. :)
Jack - do your own dirty work.
The only way it stops is if people got organized and boycotted PE owned companies. Or even better demanded that pension funds and bond mutual funds do not contain any PE debt. Imagine if everyone that is not a millionaire organized and sold all their bond fund investments and demanded a “non PE bond fund option”. Pulled all their money out of banks that underwrite PE bonds. PE’s worst nightmare, all us suckers fighting back.
they should demand pension fund fiduciaries be held accountable for wasting the assets of working people whose retirement $ they often handle . The returns do not justify the risk and the fees are wasted . Get a real independent audit of the returns , and compare to low cost alternatives. Its a massive scam
Ai will decimate PE. The returns have been subpar . fees are outrageous and its all slick marketing. Investors can participate in the returns from low cost tracking securities but in most cases just better off long via an index fund. They rely on historical returns and have lots of room to fudge their marks . Funny how that happens when they are in marketing mode
My PE investments have done better over a 40 year period than any other asset I own except my beach house. There are crappy PE firms but also excellent ones.
Jim - if you were smart like David Swenson of Yale and invested in PE pedigree in the 80s 90s -the sweetspot for the genre-congrats . It was absolutely worth the fee structure and lock up .However ,If you invested in the past 10 yrs I suspect your average return gets dragged down. There is 1000X more $ chasing fewer and fewer natural sellers -eg not another PE firm . I saw how they make sausages and with the exception of an occasional spv would not invest in the asset class. I'd run from it . Secondary trade different story .
Interesting but the best performance of all has come from a group in Dallas I began working with about 5 years ago.
Thats impressive- cash out or on paper. I assume you invested in other PE partnerships as well?
Yeah & I managed a few funds over the years. I mentored the main partner of the more recent one. They use moderate leverage and employ a build by acquisition strategy with a big focus on operational improvements and upgrading of personnel when needed. Block & tackle.
I have a couple of friends that sold their thriving businesses to the PE raiders. The PE will keep on the previous owner to “run things” while leveraging every asset the business has. One friend was lucky and only sold their thriving businesses business and kept the property leasing it back to the new owners.
They force the old owners to sign non compete agreements also killing any future competitors while buying up all of the same businesses in the area.
I hope the PE raiders die a cruel death.
If interested, Private Equity Stakeholder Project does a great job following private equity’s effect on many sectors including healthcare.
www.pestakeholder.org
I'm glad RACKET-- (and I wish other platforms would)--is continuing the focus on finance and financial institutions. Demystification and making money a major focus of our national conversation is the most powerful tool for change We the People hold.
Thanks for sharing. I’m also interested in how PE has “en-shitified” the daycare industry. I’ve experienced it firsthand and it sucks royally.
"Private equity companies have a well-deserved reputation for cutting expenses in the best of times."
They also have a "well-deserved reputation" for immediately ripping all the cash reserves and other tangible assets out of the companies they acquire and disseminating it to the partners in the firm.
Another "well-deserved reputation" they've earned is causing a brain and talent drain in the companies they acquire by cutting the compensation of the companies most talented employees.
Sounds like you know well. It reminds me of what happened to a privately owned New England radio group in the 90’s who sold to a PE group running cookie cutter stations around the country. Local talent was replaced with simulcasts, all local bits were gone, sales pay was restructured, office jobs and processes were consolidated. Chaos ensued, clients fled and the owners issued a public statement apologizing for selling out to a lie, all too late. So many people were hurt.
All too well.
We spent a lot of time and money developing a new technological process with a very solid company that had been in business for years that was acquired by a PE firm right when we were ready to monetize the tech.
As soon as the PE firm took control they cut all of the key employees salaries that were involved with the project. Understandably they all left to go to work for other companies where they could be compensated at an equal or better rate.
End of project.
Such a shame and all for greed. Will we ever get our country back?
We never had it to begin with.
It isn't a universal trait that PE just tries to gut every company it buys. I've worked in the tech sector and worked for companies acquired by PE that saw value in the company and funded it to expand and either be sold to an interested party for a nice chunk of change or go public to recoup their investment.
The side of PE that guts working companies for their assets is atrocious.
Correct. It's not every PE firm.
Some of them take the long view and expand and build value.
But over the past 20 years those types of firms have become more rare.
All part of the same process - monetizing value
Except one adds value for the majority, while the other one just cannibalizes value for the minority.
So you are saying that the income stream from future sales of this process to your firm didn’t justify that company paying the employees who helped develop it? Did you offer to pay a lot more and guarantee some sales if it was so lucrative? Or instead did you hire those employees yourselves and start a small division to roll out that process?
Sometimes it turns out that other people aren’t willing to take risks on our behalf and we have to take our own risk (or pay a lot to reduce the risk of others ).
There are lots of niche business lines that get shut down when a company goes through tough times and expense cuts, or a buyout. If those niches are attractive, someone will fill them- or maybe you can.
The problem was simple.
All the engineers who helped us develop the tech/process left, and there was no other engineers left who had their knowledge base and skills to bring it to fruition.
Combine that problem with a new clueless yes man CEO and upper level management, and our project along with many others were cancelled due to budget cutting necessitated by the fact that the PE firm had raided the coffers.
It made zero sense for us to continue to pour time and money into it with them. So, we went to one of their competitors and eventually got the product to market.
Same thing happened to newspapers in the nineties and 2000s. PE interests in local news (both radio and newspaper publishing) had huge negative effects for a functioning US democracy and civil cohesion.
Yeah, PE is a curse and a tax on working people in general as far as I'm concerned.
Were I the Trump administration, I'd be getting my treasury secretary working on ways to facilitate favorable financing for employee owned companies to purchase the assets of the otherwise viable companies that are gonna crash and burn as a result of private equity companies getting the smackdown they deserve. It would be just the most wonderful thing in life to see the real ass hats broken for their sins rather than the working people that usually get it.
Private equity's grand advantage in this life is their ability to finance at terms that are significantly more favorable than the rest of us, peons are able to secure. Then having bled the cash out of an enterprise that would be used by real business people to ride through when life gets interesting, they ride off into the sunset leaving ruined lives in their wake.
Punch in Denny McClain and Chesaning, Michigan for a particularly horrific example.
Nothing in this life would make me happier than seeing gangs of PE guys standing outside of bankruptcy courts selling apples and digital pencils.
You’re on to something with government making it easier for employees to buy their own companies. As it is, a leveraged ESOP works great if the company continues to grow. But someone has to guarantee the original loan so that the employee Trust Fund can buy the company. Perhaps there actually is a role for the SBA there, maybe guaranteeing the loans or something?
Government guaranteeing private sector debt has never been a good idea and always distorts economic decision making.
ESOPs are already favored by the government. No extra incentives needed. As long as there are future profits, ESOPs are worth doing - because people forget that the income earned by ESOPs are NOT subject to income tax. This allows the profits to compound and be used to fund incremental retirement benefits for the employees (on top of 401ks that the employees already have). Often an ESOPs can end up with the ownership of companies as a result of bankruptcy proceedings. It can work out very well, and can "re-localize" a company.
I’m familiar with leveraged ESOPs where an Employee Trust is created which borrows money to buy all or part of the company. The owner who sells gets a tax advantage, but someone has to guarantee the ESOP loan…
In addition to that they are able to do is to take advantage of accelerated depreciation schedules to avoid taxes and pay off debit. that is one of the reasons they often flip at 5 years, thats when the depreciation runs out.
Exactly…
TBF i know this because i worked in PE. It has its place especially in dealing with legacy issues of smaller companies. (Example The founder who does trust a life's work and fortune to he or her ne'er do well children.) Often PE could either manage those issues or give them the leverage to step up thier game.
And living in cardboard boxes under an overpass.
There is a very good idea here, as example US Steel finds itself near the end of a long road of poor Managment and markets and so forth. There are other better run steel companies here in the USA. Rather than sell to Nippon Steel, why not incentivize a couple of the well run firms to buy US Steel or create a new entity or NewCo? No doubt the devil is in the details but if it saves US Steel, keeps Nippon Steel out, and creates a couple of new modern steel factories, forges, rolling mills etc, and excludes any PE money whatsoever, it feels like a win. PE firms, slugs with money. You can spot the partners, they wear trousers that are too short and tight, checked shirts semi tucked in, scuffed up tie shoes that need new soles and a very very expensive English made vest with the name of the PE firm emblazoned on the left front chest.
Nippon steel sounded like a great deal to me. Cleveland Cliffs in second place as an acquirer.
I would like Nippon Steel to come in and take over. Unfortunately there's just too much xenophobic pride getting in the way.
Cleveland Cliffs would work…hope it can happen.
I watched my hometown economy suffer when the local steel company died a death that was at first slow, and then sudden. No amount of "incentives" could have saved that company when the government did absolutely nothing about foreign steel dumping in the late '70s. So-called "selective" steel tariffs were tried - even by Reagan would you believe - in the '80s. Read the history on "voluntary restraint agreements" during that time. They were, ultimately, an absolute failure.
“Private equity's grand advantage in this life is their ability to finance at terms that are significantly more favorable than the rest of us, peons are able to secure.”
Well said. PE, first and foremost, is professional borrowing.
The disparate access to capital helps one to understand how the Bank of the United States spawned such opposition in the 1820s.
Trump loves Andrew Jackson. But would a New Yorker who is also a professional borrower take similar action to equalize capital availability and price.
Possible ... unlikely.
This one is a thicket when you try to think it through. Lenders presently have every right to accept any return that they are willing to accept. Likely, this is as it should be. So, how exactly does one go about leveling the playing field? I haven't the first clue.
Some clues:
1.) Four BIG banks have all deposits guaranteed. All others have limited deposit guarantees. Guess to where those with big deposits have moved their $?
2.) Concentration of lending power in big affluent cities far from where things get made but near where PE pros live.
3.) Regulatory pressures on banks, esp smaller banks, that impedes business lending
4.) Disappearance of community banks which both reduced competition and therefore aggressiveness to win loan business — and moved lending decisions outside communities where Character is readily ascertained
That’s a start…
More troubling about private equity pirates is their large and growing investment in single family housing. I believe a strong case can be made that this practice has helped drive up the cost of housing to unsustainable levels and it should be banned.
A catastrophe waiting to happen. I'm in the western panhandle of Florida and there are large suburbs being built that are all rentals and completely owned by investors. I've noticed for some years now many podcasts marketing the idea that being a homeowner is a drudge and it's much better to rent. My grown daughter was repeating this idea and how much easier it would be to move around, until I told her to stop and think about later life when she's on a fixed income.
"You will own nothing and be happy."
Your daughter may also start to think differently once she gets kicked out of a place with no warning in a tight rental market - that is a massive upheaval. It happened to me when I was single. I can't imagine what it would have been like if I had kids in school, etc.
Another area you see a lot if PE these days is healthcare. And that is not a good thing. I worked for a conpany that was acquired by a PE firm and it is all about the EBITDA. Customer is a distant second. Employees even further back.
She's already there and looking for a home. She's also a nurse with a degree in health care admin and sees the problem you mentioned. Thank God for the election.
Or a tight market period. I recently lost a long term rental of nearly a decade when the owner over-extended their money and when another of their properties didn't sell in time, they put the one I was living on for sale because they knew it would sell quickly.
Ownership is a bitch, I've been there too, but you are not as tied to other people's stupid mistakes.
In Fort Worth city did a study and discovered 26% of single family houses are in corporate ownership.
https://fortworthreport.org/2024/06/04/26-of-fort-worths-single-family-homes-are-commercially-owned/
Yes- owned by mom and pop landlords. This is how it often works in cities- small landlords owning buildings. I’ve rented from a half a dozen of them during my lifetime. Maybe you have, too. Ironically, city councils love the big “affordable housing” type apartment buildings owned by large corporate and commercial developers. The kind of developers who make polticial contributions.
https://fortworthreport.org/2024/06/17/majority-of-commercially-owned-homes-in-fort-worth-have-mom-and-pop-landlords/
But maybe wait to ban it until after you sell your house.
Already done.
They've anticipated this - this is why the PE credit secondaries market is exploding, growing something like 30 times since the 2010s in terms of deal activity. Rather than committing to their stakes, GPs are creating "continuation vehicles" out of the companies they buy, giving the LPs an option to cash out. They then bundle up multiple companies from their portfolio to create investable funds (think ETFs meet Mortgage Backed Securities).
Larry Fink trying to “serve” the retail investor.
Oh no, they're not selling it to retail investors yet, just the bottom tier of capitalists too small to get on the game otherwise (aka stupid greedy suckers designated for holding the bag when it finally bursts). Usually you need to be accredited by net worth and there is a 100k-1m minimum, much smaller then you would otherwise need to enter the PE game
Is there anything available in the public domain describing the bundled company deals like a prospectus/offering circular? In 2008 I remember finding CLO/CDO prospectuses I surveyed unintelligible (I spent some quality time going through CMO prospectuses in the 80's and 90's) and it became clear TLDR had taken hold of the mainstream investment community.
Yes, they're considered closed end funds and have for file N-2s with the SEC. For example, here is Coller's
https://www.sec.gov/Archives/edgar/data/2033620/000113322824008991/cpcs-efp10051_n2.htm
What could possibly go wrong?….
Yet again PE demonstrates its scumbaggery and how American capitalists continue to take and take at the expense of Main St. Moreover, because these PE, in conjunction w/their VC and Wall St scumbrothers, own the GOP and most of the Dems, nothing happens to change things. Neanderthal America at work. The one rule in politics remains true: the rich always get richer. Awful.
The Federal Reserve is already planning to bail out the casinos. The bailouts will be called anything but a bailout.
They'll take the SAVE act acronym and call it the Securing America's Valuable Equity Act or some crap like that.
Then they'll finally talk about the SAVE act on the fake news for once
Like the social security FAIRNESS act. Such names are a poke in the eye.
I hope it’s common knowledge that Wall St and the military-surveillance complex run DC. Witness Trump increasing the defense budget and (I’ve heard) his crew neutering portions of the tariffs that would have helped bring back manufacturing. So PE’s business model might be fraud as Buffett says, but i will need to see them suffering before I believe it.
Buffett runs his companies very much like PE companies, which they effectively are as part of Berkshire Hathaway.
Sounds like rather than trying to live with corporate cancer we could instead cure ourselves of the problem. We definitely should not preserve it by bailing it out. There are certain things that aren't worth their existence. Things like private equity firms and Goldman Sachs predicting our economy.
Plunder by Brendan Ballou is an excellent book written a few years ago on the PE business model and how it has ruined countless industries
Ballou, Brendan. 2023. Plunder : Private Equity’s Plan to Pillage America. New York: Public Affairs.
Summary: The authoritative exposé of private equity: what it is, how it kills businesses and jobs, how the government helps, and how we stop it Private equity surrounds us. Firms like Blackstone, Carlyle, and KKR are among the largest employers in America and hold assets that rival those of small countries. Yet few understand what these firms are or how they work. In Plunder, Brendan Ballou explains how private equity has reshaped American business by raising prices, reducing quality, cutting jobs, and shifting resources from productive to unproductive parts of the economy. Ballou vividly illustrates how many private equity firms buy up retailers, medical practices, prison services, nursing-home chains, and mobile-home parks, among other businesses, using little of their own money to do it and avoiding debt and liability for their actions. Forced to take on huge debts and pay extractive fees, companies purchased by private equity firms are often left bankrupt, or shells of their former selves, with consequences to communities that long depended on them. Perhaps most startling is Ballou's insight into how this is happening with the active support of various arms of the government. But, as Ballou reveals in an agenda for reining in the industry, private equity can be stopped from wreaking further havoc
Thanks for the rec as this is complex for many of us. I am providing the full citation and a summary thanks to your highlight.
Also, Morgenson, Gretchen. 2023. These are the Plunderers:
How Private Equity Runs—and Wrecks America. Chris Hedges did an excellent show with her on his Reports last year 3/1/24.
I am a supporter of capitalism as an economic system but we are a very long way from Adam Smiths “Butcher, brewer, and Baker”. In a post-Christian nation capitalism has no moral guidance/restraints and is a very brutal task master. The PE firms are evil incarnate and are very destructive.
PE has helped the financial class oligopolize every industry it touches.
https://policytensor.substack.com/p/brenners-hypothesis-revisited-or-the-logic-of-discipline-in-us-manufacturing
Does anyone see the irony of “Giant Vampire Squid” Goldman Sachs passing judgement on private equity? Ha. I can see their former CEO, who became the TREASURER of the United States, telling the public that TARP was needed and GS needed to be bailed out at taxpayer expense because Goldman Sachs had blown up out of greed. Jesus. The temerity of this shitty system is mind boggling. Average person loses again.
Matt, I love you to death, but there are a lot of problems with this write up. You can do better.
Some Questions:
Is there anything especially unique about a debt financed distribution to equity? Public companies have debt and they pay dividends. Is this considered a “dividend recap?”
If this is so bad, why do lenders agree to finance the distribution? Banks are pretty sophisticated last time I checked.
You claim that companies are “saddled with high debt.” This claim deserves some numbers to support it. Are PE owned companies levered more than their publicly traded counterparts?
You claim that PE owned companies are inherently more vulnerable to tariffs than publicly owned companies. What is the basis for this claim? It seems counter intuitive since PE owned companies are smaller and more likely to sell to domestic consumers. All else equal, they are likely to benefit from tariffs. And aren’t the tariffs responsible for this economic destruction?
You state that “investors are running for the hills and dumping their shares in private equity.” This is not how it works. Investors in PE backed companies commit to a limited partnership. They cannot sell their shares. After all, the “P” in “PE” refers to “Private” which implies there is not a liquid market for the underlying asset.
I am happy to serve as a source for you on this subject, it is an area that I have 20+ years of experience with.
It is true that in your example you can in the strictist sense of the word call a public company paying dividends a "dividend recap" but there is a big difference when a company takes out $4.3 billion SOFR +325 in order to take investors out of their investment as well as some profit. Brookfield did this with Clarios because the partnership's time horizon was up, public sale/IPO was not available so this is what they did.
The bank finances the distribution because, use the Clarios example, had very hot demand for the paper...CLOs, mutual funds and ETFs. The lenders in these broadly syndicated loans don't hold them...UNLESS you have a situation like right now...funds are pouring out of the high yield loan funds and many of the lenders are now "Hung" with a few billion of broadly syndicated loans.... Hung has a nice ring to it.
As far as running for the hills, this is definitely the case now. There are many current examples of private equity investors trying to sell their shares with the PE general partners conditioning the allowance of a sale to another party only if the investors commits to a new fund. I believe Carlyle has just done this.
As far as whether private equity companies are more vulneralbe to an economic downturn than public..we can certainly study.
1. Corporate finance is not exclusive to private equity. Share buybacks and dividends are done if they enhance return on equity. They are not done if they do not.
2. Banks must retain some amount of all loans that they originate. Risk is distributed regardless if it is a loan to a private company or a public company. Banks are not incented to make shitty loans.
3. A couple of things re: running for the hills. 1) LP interests are not "shares." Accuracy matters. 2) You are a bit confused in your understanding of the current market. Your reference to GPs conditioning a new commitment is what is known as a "stapled" deal. This is not new. GPs have always had approval rights and have always controlled who is allowed as an LP.
But to the point, are investors actually "running for the hills." Not really. You can look at pricing in the secondary market. Pricing is still very firm and in 2024 was up y/y. Google "Jefferies Global Secondary Market Review" if you are interested. What is new is the various structured transactions and continuation vehicles that are coming to market although I would hardly consider this "running for the hills." In fact restrictions disallowing retail investors from participating in private markets are coming down, which is increasing demand.
The broader issue with PE is twofold: 1) the increase in rates has destroyed NAV - the value of these assets is based on a discount cash flow model and the higher the rate on the 10-year the higher the discount; and, 2) capital markets are now freezing up which means no public issuance of stocks or bonds, which means there is no way to finance the exit of companies from PE portfolios. To the extent PE owned companies have to make hard decisions, all companies will have to make hard decisions, because access to capital will be constrained in a post tariff world. This is a function of the tariffs, not a function of the fact the equity is privately or publicly held.
Thank you ToS. I have worked in the sector (not as much as you - 5 years) and had similar queries.
I own a large plumbing company.
I'm getting old.
All my kids got degrees and don't like shit work.
The four smaller competitors can't wait for me to die.
I have very little savings, always poured everything back into my company, that's how I became number one.
I have decided to sell, none of my competitors have made an offer. They know they will pick up my customers.
I'm fucked.
Oh wait there is a large PE offering me a crazy number.
Fuck my competitors.
Hello Bahamas.
I wish you would report more on private equity, Matt. Most Americans are in the dark about the topic. As I said in an earlier post, I worked for a company that was slowly destroyed by two PE firms. The company's employees didn't understand what was going on because we didn't know anything the nature of the PE beast and weren't even aware we were owned by the two of these firms. Not once were we introduced to any of the people at these firms.
The demand for the services or products went away ?
As far as I know, the company, which had existed for something like 80 years, was doing very well at the time of purchase. It was our parent corporation that had gotten into financial trouble over some bad real estate deals, which prompted the sale of the company to the two PE firms. Almost immediately, the two firms sold off the company's office building and the surrounding property, then sold half the company to another business, and moved those who of us remained to new, cramped quarters in an office building located in a city 100 miles away. Most of the employees couldn't move or manage the commute to the new digs, so there was an 80 percent turnover in the staff the summer of the move. What followed then was 15 years of continual layoffs and cuts to the services we offered with no investments in innovation or new products to the point where the company was a shadow of its former self. In the end, its assets were sold for peanuts to our main competitor. A few of the employees were hired by the competitor, but most were let go.
Did the demand for the services or products go away or were they assumed by another company?
The jobs were not lost, people lost their jobs.
The net is no jobs were lost.
So this article is crap.
This is gonna sound awful, but.....I am a practice owning veterinarian. For the past decade and a half, PE firms have been snapping up and consolidating vet clinics. A healthy percentage are now owned and run by PE firms.
This has caused a HUGE shortage of staff in the industry because the PE managers are paying WAY above actual worth of employees to staff these practices. Prices are very high, but not high enough to justify the exhorbitant salaries used to lure these doctors into practice. This has caused a big labor shortage, especially for smaller practices like mine. I cannot justify huge salaries for people who don't 'earn their keep.' Add to that, the fact that I run a low cost clinic and I am now the Lone Ranger at my practice......I keep waiting for the over priced veterinary bubble to burst, so I can finally get some help.
Sadly, I long for the days of post real estate bubble burst so there are more people again than jobs.
My industry has gone down a dark path based on money that isn't really there.....and sooner or later the train is gonna run out of fuel.
I'm kinda sitting back here waiting to see what happens.....hoping an unemployed vet who will actually put the patient first falls into my lap. Mind you, I pay well.....but, not being a huge corp, my benefits package is slim to none, so I cannot compete with big companies.
I believe it has been a PE strategy to strangle us independents out of existence and then they can manipulate the market as they please. I keep telling my colleagues this....but it's hard to turn down a 3 million dollar buy out when you are grossing a million and a half.......I get it....but it's not real business.
I would advertise the fact that you are independent and locally owned. This resonates with lots of folks. You might also consider offering some kind of equity incentive to the right person. You might no longer own 100% of the pie, but the pie will be bigger.
So true. I know an MD -GP who has his own shop. The rest, in my neck of the woods, are PE groups.