I have a pet theory: there are managerially-minded university graduates who value prestige more than power or pay. In the post-War era, they became beige-suited company men. In my generation, they went corporate finance. Today, they work for private equity.
Banking was great. Everyone–from liberal arts to engineering majors–could putz around for years in a pre-defined and prestigious path with moderately above-market pay and the potential to become rich. (Most don't.) It was also a field that could absorb a lot of grunt work, because most of what these folks did was format PowerPoints and populate Excel templates.
After the GFC, bulge-bracket finance became less prestigious right when technology lowered the industry's hunger for grunts. Silicon Valley took up some slack, but at least until the pandemic hiring boom, there was a modicum of technical gating factors.
The entire time, corporate and industrial America needed administration. But working at a chemical plant in Baton Rouge isn't sexy. You know what is sexy? Working for KKR.
So KKR's partners buy the plant, hire the college grad, give them a few weeks' training and "deploy" them to Baton Rouge. That will be their "project" for years. There are perks: they get to fly in from a city, for instance. But overall, the partners can acquire this labor cheaper than their portolio companies. (Ask anyone who isn't a partner at a private equity firm what they do, and it's on a spectrum between administrative assistance and middle management in a random business.) It's what consulting did in another era, re-branded for what young people willing to take less pay and power predict their peers and parents find prestigious (and what they consider safe).
Yes, they are called "Insecure overachievers". They are the bread and butter of investment banks, management consulting firms, big law firms, etc.
They are also the reason that partnerships still thrive. A couple of years ago I was talking with this (big law) partner at a dinner, and we came in on the topic around partnership - and he just said it straight: The competition / rat race towards partnership is 100% skewed to the firms advantage. They get dozens of highly motivated, highly competent professionals competing against each others to prove their worth. They'll be on call 24/7/365 to show that they're worthy of partnership. Even if they become partners, most won't be rainmakers - and many would have made the same amount of money if they struck out on their own, opening a small boutique firm.
> "Even if they become partners, most won't be rainmakers - and many would have made the same amount of money if they struck out on their own, opening a small boutique firm."
And the other dirty secret is: you'll still be on call 24/7/365, sleep on the couch in your office, and not know your family, even after you make partner.
The rat race/grind doesn't stop in Big Law. You grind to be considered for partner, and you think maybe once you get there you get to boss around a bunch of associates and take a breather. But no, that's not how it works.
You'll be paid 7-figures (maybe, if you're a book partner and not a work partner) but you'll still be just as miserable and overworked as your past associate self.
Having seen the industry up close I now advise people to run as far away as you can in the opposite direction if you're ever tempted by a big law legal career. It is nearly-exclusively the home of absolutely broken people who'll be remembered for keeling over in the break room after pulling the tenth all-nighter in a row.
I didn’t know that’s what we are called, but now that I see it in words, it sounds very accurate. There is a class issue, me being middle class second generation at play. With no guarantees of financial security from home but expectations of such, there is an insecure element at play. The overachievers is a bit optimistic, though. I’ve been in almost all the domains you mentioned and I would call it overtriers. I would not think overall statistically people would be making more, and if it is the same, then why is the model a bad proposition? My experience is, with partnerships, if you are not on a fast moving track in your first 5 years, then it’s time to move on. Industry is a nice place to be and there is a depth you get when directly employed that you don’t when you distance your objectives from that of your direct interactions.
I know this to be true because I've seen so many people given BS titles instead of raises and be happy about it as if they got something of real value.
But I don't understand it at all. Apparently, I lack the "prestige" gene.
That sounds like the "elite overproduction" which is commonly held to be one of the two factors increasing likelihood of a revolution (the other being popular immiseration).
> many would have made the same amount of money if they struck out on their own, opening a small boutique firm
Surely this it the same in tech. Most employees of FAANG companies could do something in a small company but the big company is just more prestigious and less risky. Every small business is like this now, doctors offices, restaurants, stores are all chains.
There’s a book called “Excellent Sheep” that explores this idea as well. It’s been a while since I read it but roughly the premise was that all these “prestigious” organisations (they focused more on McKinsey et al) are another, maybe final, stage on a long ladder of structured excellence. AP/Extracurricular -> Ivy League College -> Consulting (or PE/IB) -> MBA -> ?
The path is well defined and optimises for essentially racehorses. The path is defined at each step, you bring the sweat and hours. Hope to make it through the filter to the next level.
The book ends with the question of what to do after the last rung of the ladder? How do deal with the existential crisis? To be on the ladder is to adopt an external value system. How to find yourself now? Liberate yourself from the golden handcuffs?
The professor who wrote that book, interestingly, ended up being denied tenure and was subsequently unable to get another academic job despite years of trying. Here's a recent podcast with him: https://www.persuasion.community/p/deresiewicz
It may not be the best thing in the world to be an "excellent sheep," but perhaps it's better than being a lone ram.
This is spot on, but its missing a few important aspects:
Banking used to be a boring, low paying profession. PE was basically non-existent. The whole of banking and Private Equity fire machine has been fed by 2 factors that were absent ~50 years ago:
1) ultralow interest rates for extended periods of time
2) de-risking of hubris via bailouts (most recent case: SVB).
3) Regulation creep. If you look at the industries where PEs are investing heavily, its not where competition is fiercest, but instead they look for captive markets, particularly those with licensing requirements (Like healthcare). Its easier to buy into a company when competition is not likely to show up organically next door.
If you take that secret sauce off the dish, you can't quite cook the stuff that we have going on today.
A friend of mine is VP (not partner), and he seems to spend most of his time on deals. Market research, building financial models for a potential LBO, or for the sale of a portfolio company.
From what I understand, the on-the-ground management work after acquisition is outsourced to specialized executives with whom the firm has a relationship. They can bring expertise in a specific industry, and the deal structure pays them with large performance incentives.
Transactional staff are typically a minority of PE branded employees. There is a stable of executives to pick from. But underneath them, operational staff (who may also be drawn from transactional) who aren’t in on the upside typically come via the fund. They will work in a fund office, have fund swag, but work on operational reporting, portfolio surveillance, refinancing and cap structure management, et cetera.
Prestige depends on the audience. People in Silicon Valley found startups because it's cool, even when their interests are better served at "boring" big companies.
It is an interesting theory, but it is not how it works.
Private Equity partners become board members of the squired companies, some time CEOs, but they don't manage day to day activities of the squired companies.
You can check a company like Francisco Partners which one of the biggest PE firms now. They have another company called Francisco Partners Consulting which helps with the management. The partners are too specialized to become middle managers in the squired companies.
There’s an intense expectation placed on these folks. If dad was a rockstar banker dude, junior is expected to be on a path of similar prestige.
Banking used to be populated with lots of jobs that require compliance and attention to rules, but not necessarily intelligence. Success was defined as being one of the 200 VPs at a regional bank and chilling at the club.
> fund managers and associates aren't on the ground managing factories
Not on the ground. But providing that service from away. Most commonly, the CFO’s “staff” will be associates. They build the same models and doll up the same decks. Same for communicating portfolio health to LPs. That’s a reporting function.
_________ was great. Everyone–from liberal arts to engineering majors–could putz around for years in a pre-defined and prestigious path with moderately above-market pay and the potential to become rich. (Most don't.) It was also a field that could absorb a lot of grunt work, because most of what these folks did was _________ templates.
A friend of mine is a Vet at a place recently sold to a PE firm. If your wait times are crazy long, if you can't get through on a phone, if you realize your vet's office has parted ways with the great vet you used to see -- that's the PE firm counting beans and destroying the service for customers in an effort to squeeze every dollar out of the system.
As a specific obviously bad example -- Vet services in California are kinda seasonal. More visits in summer than winter, due to more time outdoors, etc. A PE firm looked at visits on a weekly basis and saw a downward trend in the winter and decided to re-set staffing based on that. Now that summer has arrived they are severely short staffed, have parted ways with great vets, and now wait times are horrific.
My wife is a vet for a corporate owned hospital and our circle of friends are naturally very vet centric. They run the gamut from PE vets, corp vets, and private owners. We know GPS, specialists, dogs and cats only, large animal, exotics. What you are describing is not PE specific.
Staffing issues, primarily technicians, have hit everyone across the board. It’s a combination of wages, training, quality of life. Moreover, COVID caused a dramatic demand in vet services but protocols decreased the amount of patients seen. Only now is there starting to be some relief on that. Maybe PE reacted in a way that was not the wisest in your friend’s opinion, but everyone scrambled and few succeeded.
I dated a vet tech several years before COVID and it sounded like a horrendous job. $20/hr was considered good pay, you're constantly bending over, pickup up things (sometimes things that definitively do not to get picked up), and you're literally dealing with some of the shittiest parts of animal care.
That sounds bad for the customer, but how does that play out for the owners? Does this sort of behavior end up working out better for them financially? If so, despite how bad it sounds, it does seem like they end up with more efficient economics (assuming it's sustainable). If not, then surely the PE firms will suffer too right?
* Reduced potential peak. If you're at capacity during peak it might be worth the extra staff costs to capture the revenue.
* Reduced staffing flexibility. Things like vacations, parental leave, etc become tighter.
* Reduced customer satisfaction. I've stopped going to places when they lose my favorite staff member, and places a lot less consequential than a vet. This might translate to loss customers in the mid term, but you might not notice until their next vet visit in ~12 months. This might translate to bad yelp reviews.
* Presumably most of those vets let go are going to continue to be vets. It's a high skill job that pays well and people get into it for passion. That means your competition just gained access to a resource. Or maybe those vets become your new competition.
Some vets just want to practice veterinary medicine instead of running a business.
Start to finish, a vet clinic buildout is going to run you $1M+, and any lender is going to want a personal guarantee that uses your home and other personal assets as collateral if they’re lending to a new business owner.
You could certainly find investors, but then you’ll have people wanting an ROI.
I could come up with more reasons, but those two are probably the main ones.
My grandfather opened and ran two veterinary clinics in the 1970s. He sold both of them in the 1980s, one of them is still around. The other one closed after the buyer, another veterinarian, killed himself after the building and land were eminent domained for a freeway expansion and he felt he wasn’t paid enough for the land by the government.
Maybe because now that the retail vet is destroyed and rich people need vets who are not pathologically inconvenient and terrible, there is a brisk market for retained private vets.
This is a trend I’ve noticed that goes along with “enshittification” wherein the normal thing (let’s take grocery stores as an example) become either so downmarket-oriented (e.g., Dollar General) or aggravating (e.g., self-checkout lanes, poor inventory management, objectionable customer service) that they abandon the middle market and become intolerable.
At that point the upper part of the market diverges, and something like personal shoppers becomes the norm for anyone who can afford it.
On one hand, people in the middle class get squeezed by salary, and on the other hand they get squeezed because they hate Dollar General and they can’t afford a butler to shop for them.
And take on all the overhead of running a company, when they already have a maybe 1:1 ratio of patient contact hours to unbillable admin?
And anyway, even the doctors of veterinary work aren't rolling in money. Private practices sell to investors because they have the mountains of cash that the sole proprietor does not. Its just the devils bargain people strike all the time.
Money. It takes hundreds of thousands to do so, you gotta borrow that. Then it takes 10 or 20 years to pay that back. Then to get your retirement paid for you sell it to a private equity company.
Probably because they don't want to get steamrolled by a much wealthier competitor's marketing/lobbying machine, given all the permits and certifications needed. Franchises are hard to compete with in consumer markets. I used to have a great relationship with a vet who did house calls, but most of her clients were horse owners, which is a very different market than the typical household pet demographic. I doubt she could have got by without that specialty.
This is not a stupid question. I would only guess that start up capital is not available and the market is not big enough for another practice. And all that before considering licensing.
Most professions have a gulf between the wealth of business owners and workers. You can’t start a business working hand to mouth.
Starting a business requires a certain sort of personality and interest. Most people don't fit that mold, and most of those people are fully aware of that.
I have firsthand experience of how PE ruins startups. We were a small startup and unfortunately our founder decided to go with a PE firm rather than a VC firm for a round of funding. The latter were upfront about job cuts but the PE firm did not say anything until them took over. The founder got a good paycheck but we were left holding the bag.
There was a bloodbath and they ruined the culture, the product and the morale. I never realized the meaning of a "cutthroat" culture until that time. It was personally the most stressful period of my employment.
From then on, the moment that I see PE mentioned anywhere, I know its time to run.
PE acquired us and was a great partner. Allowed us to do larger M&A deals than we otherwise could have. Supportive but mostly stayed out of the way. Never suggested any cuts or anything that would impact culture. Ultimately led to us being acquired by a strategic a few years later in what I think was a good outcome for everyone.
These are all just anecdotes. My experience doesn't override yours, but I'd be careful drawing broad conclusions.
I think sometimes PE gets a bad rap because they can be a "buyer of last resort" for companies that are already struggling.
My firm supports 100's of PE acquisitions every year and I can tell you that your experience is far more the norm than what the parent comment has suggested.
Maybe PE firms are ok and mine was an extreme example but I got burned pretty badly.
If I do have to work on a place backed by a PE firm for some reason, I would start out as a contractor and then see how it plays out before committing to be a full time employee.
do you tell this often? i could swear I've read this exact comment before (pe acquired, great partner, enabled m&a, ultimately acquired by a strategic)
If PE ruined more businesses than it helped then people wouldn’t be doing PE (either the finance guys or the companies).
So technically there should be more wins than not. At least on paper. How that looks for lower level employees may be different but often PE is there for a reason.
It's not all black and white, at least from my experience
A similar thing to what you described happened at a software company where I used to work at, culture destroyed, many people let go. I will name and shame the PE firm - it was Hg Capital
However currently, I've been at a company for a few years who is owned by Morgan Stanley Capital Partners, and it's a completely different story. The culture is great and hasn't changed at all
I am inadvertently part of a PE cleanup, being a PM hired by a guy PE brought in.
I am of the opinion if PE destroyed this company’s culture and strip/sell it off, it’s certainly deserves it and will be better for everyone involved.
This place worked for decades as a cost center. It never made money, routinely losing $10-$40 million a year. Multimillion dollar deals were negotiated and made with handshakes, biting is in the ass. The engineers spent their time making shit, over engineered products with no regards to the little customers we had. Our suite of products have no interoperability. Just last week i again repeated why to a couple of “top engineers” why having single sign on across
Our products makes a good customer experience.
PE is a tech boogeyman here on HN and Reddit. But now I wholeheartedly believe that’s Sometimes PE needs to come in and shut things down.
Same thing happened at a company I worked at, they also constantly tell you how they are investing in the future of the company and will not be doing all of the culture destroying things that they are definitely going to do. So if you are in this position and they say it will be different, don't believe them.
A PE bought a majority stake in the company I work for which for 40 years was a family owned company.
They said they were financial partners only, non-operational and they bought because they liked how we were.
It's been years since and things have only gotten better as far as I am concerned. I mean they were pretty great originally when the family owned it and I had no complaints, but the culture and engagement and such has only gotten better, and the company is growing faster and becoming even more profitable than ever before as well.
A major difference is that VCs (good ones at least) specialize in startups in a given sector and have some understanding of the sector, the product, the market landscape, the culture, etc. They also operate in that sector long term which means they really want to maintain a decent reputation among founders, employees, and even customers. VCs really don't want to get their name associated with "OMG run away!" since it could adversely affect their deal flow in the future.
PE usually doesn't have any special connection to your sector or community. They just buy stuff and try to run it according to bog standard MBA rules.
> PE usually doesn't have any special connection to your sector or community.
I know you said usually, but it really does depend. Thoma Bravo would be an example of one that is tech sector focused. Not that I like TB, just saying that doesn't always apply.
I feel your pain about what happened. I've seen comparable things a few times first hand. My learning was: just leave once the change starts, only stay if you're getting something out of it. It's not my company, I'm only in charge of my life, I'll find something better soon.
I think I would not recommend to run once PE is mentioned, it can also change for the better, but it can be a red flag to look more closely.
This doesn't make it any better for the, you know, entire rest of the company.
It's important to remember that this startup industry relies on selling dreams to idealistic young grads who will usually end up under the bus while the higher-ups walk away with the profit, if there is any. And a lot of us here are complicit, because we rely on cheap labor and false promises to get the next company off the ground.
Once you see your first exit where the CEO walks away with $10+ million and every single other employee's stock (even the first few engineers) was made worthless in backroom dealings, you get jaded about the way this entire business operates.
> My learning was: just leave once the change starts
As a customer, rather than an employee, that's what I learned too. If a PE firm buys a company that I do business with, the best thing for me to do is to stop doing business with them.
YMMV. Really depends on which PE firm it is. The large cap ones are notorious for what you are describing.
The PE clients I work with are very growth orientated and understand that culture is important for growth, so I don't believe you can paint the whole space with one brushstroke.
I believe they prefer the term "sharp-elbowed", but either way, you can imagine why so many were not interested in having Mitt Romney as a national leader.
Despite the directions the interviewer tried steering this conversation into, this is a really interesting interview.
But when it comes to the private equity roll-ups, I think everyone is missing the forest for the trees. If you are a doctor looking to retire and sell your business there is no one else right now who would buy it. The same goes for every category of "mom and pop" business in the US. Even if you could find someone experienced enough and interested in running it - that person could not afford the business.
So there is kind of a double problem happening right now. One is simply demographic - experienced business owners are retiring at a much faster rate than they are being replaced. Secondly, there is the capitalization problem. A doctor knows what his practice is worth and wants every cent he can get out of it - but the next generation of doctor is not going to be able to compete with debt financing what a PE cash-buyer can get.
In addition, there is a problem specific to medical practices - you can't just hand them over to your kid! (unless they also happened to pursue the exact same medical training you did). And in addition to this medical schools (as I have been told) are really underprepared new doctors for running a business.
Keep in mind owner-operators already get a huge income and tax incentive over PE firms. It's kind of a perfect storm that makes medical clinics such a special target vs plumbers or landscapers or whatever.
If you want clinics to stay independent and keep retiring doctors happy, we are going to have to carve out special programs or tax breaks for young doctors to buy up these businesses with debt. And keep in mind, these would be essentially subsidies for millionaires.
> A doctor knows what his practice is worth and wants every cent he can get out of it - but the next generation of doctor is not going to be able to compete with debt financing what a PE cash-buyer can get.
In my opinion, the physician in this example is a monster. Profit maximization is a choice, not some kind of moral imperative. Am I supposed to have any respect for somebody selling out their employees and patients to vampires so they can retire to a beach or whatever?
The solution I'd want to see for situations like this is to find a way to sell to the people who have a continuing interest in how the business is run: employees and customers. The "exit" that does right by all interested parties would be something like having a newly formed employee coop gradually buy out the founder's ownership stake. To make a tech analogy, you don't have to sell your 0-day to foreign government just because they pay more than the bug bounty program! You don't have to sell out your community to vampires because they're the highest bidders! This is a choice that somebody is making.
> In my opinion, the physician in this example is a monster. Profit maximization is a choice, not some kind of moral imperative.
They've had a career of treating patients. I think they've satisfied the moral imperative already. And selling to PE doesn't necessarily equate to "profit maximization". It could just mean "decent sale". As the OP said, often there simply isn't anyone available to buy it out at the timeline it needs to be bought out.
> The solution I'd want to see for situations like this is to find a way to sell to the people who have a continuing interest in how the business is run: employees and customers. The "exit" that does right by all interested parties would be something like having a newly formed employee coop gradually buy out the founder's ownership stake.
I don't doubt that this can work (it has for other businesses!). However, a given doctor wants to retire soon. Can you point him to a concrete plan to set this up? As in a firm that will have said plan ready, does all the legal work, and manages the terms with the existing employees/customers? The doctor already has his hands full treating patients and running the business.
If you cannot point him to such a resource, then do you see why he'd just sell to PE?
> Am I supposed to have any respect for somebody selling out their employees and patients to vampires so they can retire to a beach
Nobody else will buy it. The alternatives are shutting down the practice or forcing oneself to keep working. Particularly in medicine, the latter is dangerous.
> solution I'd want to see for situations like this is to find a way to sell to the people who have a continuing interest in how the business is run
Sounds like a buy-out strategy! Seriously. Berkshire Hathaway could negotiate good deal terms by making this promise.
Well, keep in mind that from the perspective of the rest of the healthcare industry, private practices are kind of dinosaurs at this point. They don't play well in our modern system, and the last 50 years of healthcare legislation has done everything short of outright banning them.
New doctors are not trained or expected to run businesses. Getting money from medicare or insurance is a nightmare. Patients want access to more services than ever before. The entire idea of a private practice is anathema to modern ideas of healthcare oversight and access equity. Even getting private malpractice insurance is almost impossible now.
There is a reason almost nobody is starting private practices anymore. So to give the doctors a bit of credit this is a chance to slip quietly into the night.
"In addition, there is a problem specific to medical practices - you can't just hand them over to your kid!"
- Doctors partner with the person that will take over their practice for years before retiring. PE is destroying this system and the latest crop of doctors will lose out on mentorship and the opportunity to run a practice. Everything will become big corporate offices and everyone will suffer
> Doctors partner with the person that will take over their practice for years before retiring. PE is destroying this system and the latest crop of doctors will lose out on mentorship and the opportunity to run a practice. Everything will become big corporate offices and everyone will suffer
Of all the doctors I personally know, only one was interested in working in such a practice (let alone owning one). Where is the existing doctor going to find other doctors to partner with? Especially when they can get paid more to work elsewhere?
Sure! But that cuts into the "keeping retiring doctors happy" piece. If your practice is worth $15 million but you only get 50c on the dollar because there is no buyer pool, you might be pretty grumpy.
To the broader picture though, this is a double edged sword if you want more private family practices. Less doctors are going to go through the work and cost of starting their own business if they have to take a haircut on its net worth at retirement.
Another thing to keep in mind is that it was a completely different regulatory environment when most of these private practices started. 50 years ago you could run a cash business with yourself, a receptionist, and a nurse. Incumbent practices could keep up with the times and add billing staff, but you would have to be insane to start a new practice today.
I'm all for healthcare reforms, but it's a pity that we didn't pursue a simple voucher or cash-based system over our insanely complex system.
> Even if you could find someone experienced enough and interested in running it - that person could not afford the business.
I mean, this must be a huge factor. Ignoring doctor's offices for a moment--even regular mom-n-pop small businesses. Few actual humans can afford one, so PE gobbles them all up. I'd love to own a small local business. Know why I don't buy one? I just can't afford any, it's that simple! Same reason fewer and fewer people can buy houses: They simply can't afford them. So PE swoops in and buys housing, too.
This seems to be one of the many ill effects of America being set up so there are fewer and fewer rich people, and those fewer own more and more of the pie. If wealth were distributed more evenly, maybe more Average Joes would be able to buy and run their own businesses. But our society doesn't encourage this broad base of wealth. It instead encourages a shrinking elite owning everything.
Part of what you're touching on is a general problem with rent-seeking, regulatory costs to entry, and monopolization in general, in the US at least. With physicians, this is kind of a consequence of a system their professional organizations have shaped: they kind of brought this ("this" being lack of buyers) on themselves to some extent by restricting supply.
But even outside of that, if you ignore that part of it, there's monopolization costs coming from other directions. Many physicians are getting squeezed by decreases in their options, as hospitals and clinics merge, which creates efficiencies that make it hard for small clinics to compete with, which in turn leads to fewer administrative options should a physician choose to try somsething else. My sense is it's even worse than that, because even if you still have a few large hospital systems to choose from, the administrators are being incentivized in the same ways across the chains, so it's one flavor of hyperprofitized healthcare corporation versus another flavor of hyperprofitized healthcare corporation. Basically, it's hard for small clinics to compete even if someone wants to, because healthcare has become a cuthroat profit-driven market, with lots of big money and plenty of opportunities for those in power to take advantage of advantages.
I guess what I'm saying is it's not just the debt for the young physician: it's a very risky thing to do, period, being a small clinic versus an oligopoly of large chains. "A doctor knows what his practice is worth and wants every cent he can get out of it" is one possibility, but another is that that seller is in a position of survivorship bias, and can't find buyers because they don't see it as a rational decision even outside of the debt question.
The reason why you don't see this with landscapers or plumbers or whatever is because those markets have far more competition, and they're not overregulated (at least to the same extent). Healthcare as a market is characterized by obstacles to competition everywhere: if you ignore the rationale for those obstacles, and just look at it for what it is, you're left with an infrastructure that's constituted largely of barriers and costs to entry and participation. Basically, the market has become too expensive even for practitioners to participate fully in, so the only thing left are financial heavyweights.
The partnership model exists for exactly this scenario and has thrived for centuries in every sector. If a doctor wants to retire they are obligated sell their share of the business to other partners, not outside entities. When a new partner is promoted they have to buy their way in. All of these problems are solved. If PE firms are getting involved it is due to either greed or mismanagement (or both), not some inherent flaw in the system.
It is systemic but it isn't really a flaw. It is the higher order effects of flooding the system with liquidity.
If you look at the richest people in America in 1985 and adjust their wealth for inflation no one even makes the top 100 in 2023.
If the richest person in America only has 5 billion in 2023 USD then systemically there is just not enough liquidity to think about the risk/reward of buying a vet.
We have basically diluted the price of all businesses and all assets. With the amount of liquidity in the system you can either have it pool and do nothing or buy business you would never have previously.
This is the price we pay for avoiding what probably would have been two depressions from the financial crisis and covid.
Everything in economics is a trade off. It is very hard to say if we would be better off or not. If we had spent the last 15 years of life dealing with two depressions who knows what society looks like now. It is a very different answer if you are 20 or 45 too I imagine.
Doctors are an exception and specifically because of the regulatory issues.
If you look at other boring "mom and pop" businesses out there, like laundromats, gas stations, car washes, liquor stores, mailbox stores, etc...there's a tons of "acquisitions" entrepreneurs out there buying these things up like crazy and tons of influencers out there (codie sanchez, etc) telling them to do so.
I don't know where you get the idea that private medical practices are unsellable... It is very common for retiring doctors to sell their client base/practice to other doctors in the same field.
> That’s a great point, and I’m always adamant about pushing back slightly on the story of Toys“R”Us. Toys“R”Us was profitable the last year before it declared bankruptcy. The challenge was that it had so much debt that it was servicing that rather than being able to expand its operations, and it had advantages that Amazon didn’t have in terms of physical stores.
Push back more strongly. My partner at the time had been working at a Toys'R'Us store for many years. She said right up to the last day store traffic was as strong as ever - think last minute shopping for your kid's friend's birthday party, buying toys for your own kid's birthday etc. They had significant traffic and sales throughout the year, not just holiday season. Buying a bicycle for our kid? You're going to want to do that in person. You're a mediocre parent that wants to placate your "annoying" kid? take them to Toys'R'Us and let them shop for something. People really underestimate how well TRU was thriving as a brick-and-mortar store.
Also, contrary to what the article says about not figuring out online shopping and logistics, she said associates spent a majority of their time pulling online orders for same-day in-store pickup, and that business was steadily increasing.
Too much debt killed Toys'R'Us, not Amazon. I don't know if it was all acquisition debt, or if they loaded up afterwords to strip-mine value but either way it was the debt period.
> She said right up to the last day store traffic was as strong as ever... People really underestimate how well TRU was thriving as a brick-and-mortar store.
To be fair, that doesn't mean thriving at all. It's easy to have tons of customers but be making zero profit because all your revenue is eaten up by costs. It's common for stores to be busy up to the moment they go bankrupt -- because the problem is they're stuck where they can't raise prices (shoppers will evaporate) and they can't lower costs.
> contrary to what the article says about not figuring out online shopping and logistics, she said associates spent a majority of their time pulling online orders for same-day in-store pickup
That sounds like not figuring it out to me. Store employees pulling orders for in-store pickup is generally a losing proposition and has never been sustainable. Big warehouses handle online orders efficiently. Retail stores don't at all, generally speaking.
Private equity leveraged buyouts are an option for companies to change their fate. Typically, they're on a long path towards an slow death. With the buyout, current shareholders get a return, and the company is on a 3-7 year path towards a crisis bankruptcy.
It's good for the current shareholders, and it's good for the private equity company. It's not good for the business, but if the old owners and the new owners like the deal, who's really got standing to object? How do you force a business to continue to operate in spite of the business being unsustainable and ownership wanting out?
Employees don't like it, but the business is already on a path to death, so whatcha gonna do there? It's probably better for employees if Toys R Us closes stores every year for many years, instead of all of them at once, but those jobs are on borrowed time either way. I'd imagine vendors don't like it, because they're going to lose in bankruptcy, but after PE takes over your client, that's a good time to reevaluate their credit and put them on a shorter leash.
The problem lies in where the money comes from the execute taking the company private. A big bank will issue the debt, then peddle the debt as AAA rated into all of America's 401k's via their friends at the brokerages. You think the banks are just sitting on those debts hoping to make it to maturity?
And it's never the PE firm that owes the debt, they're able to get paid back by the thing they buy, and that shell owes the debt. The losses are socialized among the public.
Sorry, but you have no idea what you're talking about. There's no way debt from a leveraged buyout is going to be rated anywhere close to AAA. The leveraged buyouts of Twitter and Toy's R Us were funded by junk bonds.
You think the banks are so stupid that they just let PE firms saddle them with a bunch of debt and walk away? Bank PE loans are almost always senior loans, meaning the loan has to be completely repaid before you can start distributing dividends.
If the business is (seemingly) on the path to death and current owners are done with it, but employees still want to stay, then the obvious best outcome for the business is to be handed over to the employees. The downside is that there's less money in that for the shareholders and the PE fund, but let's not try to change the narrative to "PE buyouts are best for the business" when they clearly aren't. They are a way to squeeze out as much capital as possible from a company before tossing its carcass, nothing more.
This assumes that the current company has no valuation, or the current employees can fund a purchase. And it assume that the employees are more apt to run the company than PE
Plants get pruned and brought back to life. I think there is an argument to be made that PE could be caretakers and stewards that unlock the good trapped by rot, but that might take time, so instead they extract the value immediately but destroy the life in the process. If corporations are people, my friends, they deserve some human rights of their own.
> the model is that often businesses that service working-class people are attractive because poorer customers don’t have alternatives, so you can raise prices, you can cut quality care
> Private equity firms have donated something like $900 million since 1990 to federal candidates. They have a bench of employees that include former cabinet members, secretaries of state, treasury, defense, chairman of the FCC, SEC.
> it’s almost impossible for a private equity firm to be held legally responsible under common law veil-piercing arguments
> They executed a sale-leaseback, which means they sold the underlying assets of the nursing home chain and had the chain lease it back for a quick hit of money, but now they’ve got a long-term obligation. They executed what’s called a dividend recapitalization, so ManorCare had to borrow money to pay Carlyle and the other investors a profit.
> Instant Brands was purchased by private equity firm Cornell Capital in 2017.
And although https://cornellcapllc.com/investments/ provides the shell companies they own, who knows what's under each of those shells, and under those shells.
Readit News
Banking was great. Everyone–from liberal arts to engineering majors–could putz around for years in a pre-defined and prestigious path with moderately above-market pay and the potential to become rich. (Most don't.) It was also a field that could absorb a lot of grunt work, because most of what these folks did was format PowerPoints and populate Excel templates.
After the GFC, bulge-bracket finance became less prestigious right when technology lowered the industry's hunger for grunts. Silicon Valley took up some slack, but at least until the pandemic hiring boom, there was a modicum of technical gating factors.
The entire time, corporate and industrial America needed administration. But working at a chemical plant in Baton Rouge isn't sexy. You know what is sexy? Working for KKR.
So KKR's partners buy the plant, hire the college grad, give them a few weeks' training and "deploy" them to Baton Rouge. That will be their "project" for years. There are perks: they get to fly in from a city, for instance. But overall, the partners can acquire this labor cheaper than their portolio companies. (Ask anyone who isn't a partner at a private equity firm what they do, and it's on a spectrum between administrative assistance and middle management in a random business.) It's what consulting did in another era, re-branded for what young people willing to take less pay and power predict their peers and parents find prestigious (and what they consider safe).
They are also the reason that partnerships still thrive. A couple of years ago I was talking with this (big law) partner at a dinner, and we came in on the topic around partnership - and he just said it straight: The competition / rat race towards partnership is 100% skewed to the firms advantage. They get dozens of highly motivated, highly competent professionals competing against each others to prove their worth. They'll be on call 24/7/365 to show that they're worthy of partnership. Even if they become partners, most won't be rainmakers - and many would have made the same amount of money if they struck out on their own, opening a small boutique firm.
Prestige is a powerful motivator.
And the other dirty secret is: you'll still be on call 24/7/365, sleep on the couch in your office, and not know your family, even after you make partner.
The rat race/grind doesn't stop in Big Law. You grind to be considered for partner, and you think maybe once you get there you get to boss around a bunch of associates and take a breather. But no, that's not how it works.
You'll be paid 7-figures (maybe, if you're a book partner and not a work partner) but you'll still be just as miserable and overworked as your past associate self.
Having seen the industry up close I now advise people to run as far away as you can in the opposite direction if you're ever tempted by a big law legal career. It is nearly-exclusively the home of absolutely broken people who'll be remembered for keeling over in the break room after pulling the tenth all-nighter in a row.
I know this to be true because I've seen so many people given BS titles instead of raises and be happy about it as if they got something of real value.
But I don't understand it at all. Apparently, I lack the "prestige" gene.
https://www.theatlantic.com/ideas/archive/2023/06/us-societa...
As much as I like the idea of PE scum putting their own necks into the guillotines, though, I'm skeptical of whether this theory really works.
Surely this it the same in tech. Most employees of FAANG companies could do something in a small company but the big company is just more prestigious and less risky. Every small business is like this now, doctors offices, restaurants, stores are all chains.
The path is well defined and optimises for essentially racehorses. The path is defined at each step, you bring the sweat and hours. Hope to make it through the filter to the next level.
The book ends with the question of what to do after the last rung of the ladder? How do deal with the existential crisis? To be on the ladder is to adopt an external value system. How to find yourself now? Liberate yourself from the golden handcuffs?
Interesting read
It may not be the best thing in the world to be an "excellent sheep," but perhaps it's better than being a lone ram.
Banking used to be a boring, low paying profession. PE was basically non-existent. The whole of banking and Private Equity fire machine has been fed by 2 factors that were absent ~50 years ago:
1) ultralow interest rates for extended periods of time 2) de-risking of hubris via bailouts (most recent case: SVB). 3) Regulation creep. If you look at the industries where PEs are investing heavily, its not where competition is fiercest, but instead they look for captive markets, particularly those with licensing requirements (Like healthcare). Its easier to buy into a company when competition is not likely to show up organically next door.
If you take that secret sauce off the dish, you can't quite cook the stuff that we have going on today.
From what I understand, the on-the-ground management work after acquisition is outsourced to specialized executives with whom the firm has a relationship. They can bring expertise in a specific industry, and the deal structure pays them with large performance incentives.
Transactional staff are typically a minority of PE branded employees. There is a stable of executives to pick from. But underneath them, operational staff (who may also be drawn from transactional) who aren’t in on the upside typically come via the fund. They will work in a fund office, have fund swag, but work on operational reporting, portfolio surveillance, refinancing and cap structure management, et cetera.
Private Equity partners become board members of the squired companies, some time CEOs, but they don't manage day to day activities of the squired companies.
You can check a company like Francisco Partners which one of the biggest PE firms now. They have another company called Francisco Partners Consulting which helps with the management. The partners are too specialized to become middle managers in the squired companies.
boom-bust cycles enable capital to buy everything in the bust period. every thing.
legal entities keep shifting to join news tax avoidance tricks. it's not a static game.
Out of curiosity, what happens to the busted capital in this toy model?
Banking used to be populated with lots of jobs that require compliance and attention to rules, but not necessarily intelligence. Success was defined as being one of the 200 VPs at a regional bank and chilling at the club.
Not on the ground. But providing that service from away. Most commonly, the CFO’s “staff” will be associates. They build the same models and doll up the same decks. Same for communicating portfolio health to LPs. That’s a reporting function.
AdLibs is fun. How about: Developing and React.
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As a specific obviously bad example -- Vet services in California are kinda seasonal. More visits in summer than winter, due to more time outdoors, etc. A PE firm looked at visits on a weekly basis and saw a downward trend in the winter and decided to re-set staffing based on that. Now that summer has arrived they are severely short staffed, have parted ways with great vets, and now wait times are horrific.
Thanks PE!
Staffing issues, primarily technicians, have hit everyone across the board. It’s a combination of wages, training, quality of life. Moreover, COVID caused a dramatic demand in vet services but protocols decreased the amount of patients seen. Only now is there starting to be some relief on that. Maybe PE reacted in a way that was not the wisest in your friend’s opinion, but everyone scrambled and few succeeded.
Surely that's an easy antitrust win to point out, it's gotta be causing significant consumer harm to be labelled so boldly as a selling point!
* Reduced staff costs.
* Reduced potential peak. If you're at capacity during peak it might be worth the extra staff costs to capture the revenue.
* Reduced staffing flexibility. Things like vacations, parental leave, etc become tighter.
* Reduced customer satisfaction. I've stopped going to places when they lose my favorite staff member, and places a lot less consequential than a vet. This might translate to loss customers in the mid term, but you might not notice until their next vet visit in ~12 months. This might translate to bad yelp reviews.
* Presumably most of those vets let go are going to continue to be vets. It's a high skill job that pays well and people get into it for passion. That means your competition just gained access to a resource. Or maybe those vets become your new competition.
Start to finish, a vet clinic buildout is going to run you $1M+, and any lender is going to want a personal guarantee that uses your home and other personal assets as collateral if they’re lending to a new business owner.
You could certainly find investors, but then you’ll have people wanting an ROI.
I could come up with more reasons, but those two are probably the main ones.
My grandfather opened and ran two veterinary clinics in the 1970s. He sold both of them in the 1980s, one of them is still around. The other one closed after the buyer, another veterinarian, killed himself after the building and land were eminent domained for a freeway expansion and he felt he wasn’t paid enough for the land by the government.
This is a trend I’ve noticed that goes along with “enshittification” wherein the normal thing (let’s take grocery stores as an example) become either so downmarket-oriented (e.g., Dollar General) or aggravating (e.g., self-checkout lanes, poor inventory management, objectionable customer service) that they abandon the middle market and become intolerable.
At that point the upper part of the market diverges, and something like personal shoppers becomes the norm for anyone who can afford it.
On one hand, people in the middle class get squeezed by salary, and on the other hand they get squeezed because they hate Dollar General and they can’t afford a butler to shop for them.
Real nice system we have here.
And anyway, even the doctors of veterinary work aren't rolling in money. Private practices sell to investors because they have the mountains of cash that the sole proprietor does not. Its just the devils bargain people strike all the time.
Most professions have a gulf between the wealth of business owners and workers. You can’t start a business working hand to mouth.
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There was a bloodbath and they ruined the culture, the product and the morale. I never realized the meaning of a "cutthroat" culture until that time. It was personally the most stressful period of my employment.
From then on, the moment that I see PE mentioned anywhere, I know its time to run.
These are all just anecdotes. My experience doesn't override yours, but I'd be careful drawing broad conclusions.
I think sometimes PE gets a bad rap because they can be a "buyer of last resort" for companies that are already struggling.
So technically there should be more wins than not. At least on paper. How that looks for lower level employees may be different but often PE is there for a reason.
A similar thing to what you described happened at a software company where I used to work at, culture destroyed, many people let go. I will name and shame the PE firm - it was Hg Capital
However currently, I've been at a company for a few years who is owned by Morgan Stanley Capital Partners, and it's a completely different story. The culture is great and hasn't changed at all
Bought by a growth equity fund? Probably fine. Bought as part of a roll up? Probably screwed.
PE is like tech: similar tools, but very different firms.
Always appreciated and very helpful. Nothing in this comments suggest that it deserves any downvotes.
I am of the opinion if PE destroyed this company’s culture and strip/sell it off, it’s certainly deserves it and will be better for everyone involved.
This place worked for decades as a cost center. It never made money, routinely losing $10-$40 million a year. Multimillion dollar deals were negotiated and made with handshakes, biting is in the ass. The engineers spent their time making shit, over engineered products with no regards to the little customers we had. Our suite of products have no interoperability. Just last week i again repeated why to a couple of “top engineers” why having single sign on across Our products makes a good customer experience.
PE is a tech boogeyman here on HN and Reddit. But now I wholeheartedly believe that’s Sometimes PE needs to come in and shut things down.
A PE bought a majority stake in the company I work for which for 40 years was a family owned company.
They said they were financial partners only, non-operational and they bought because they liked how we were.
It's been years since and things have only gotten better as far as I am concerned. I mean they were pretty great originally when the family owned it and I had no complaints, but the culture and engagement and such has only gotten better, and the company is growing faster and becoming even more profitable than ever before as well.
PE usually doesn't have any special connection to your sector or community. They just buy stuff and try to run it according to bog standard MBA rules.
I know you said usually, but it really does depend. Thoma Bravo would be an example of one that is tech sector focused. Not that I like TB, just saying that doesn't always apply.
I feel your pain about what happened. I've seen comparable things a few times first hand. My learning was: just leave once the change starts, only stay if you're getting something out of it. It's not my company, I'm only in charge of my life, I'll find something better soon.
I think I would not recommend to run once PE is mentioned, it can also change for the better, but it can be a red flag to look more closely.
This doesn't make it any better for the, you know, entire rest of the company.
It's important to remember that this startup industry relies on selling dreams to idealistic young grads who will usually end up under the bus while the higher-ups walk away with the profit, if there is any. And a lot of us here are complicit, because we rely on cheap labor and false promises to get the next company off the ground.
Once you see your first exit where the CEO walks away with $10+ million and every single other employee's stock (even the first few engineers) was made worthless in backroom dealings, you get jaded about the way this entire business operates.
Its been a while but it still brings out some bitterness. I did leave after an year but the damage had been done by then.
As a customer, rather than an employee, that's what I learned too. If a PE firm buys a company that I do business with, the best thing for me to do is to stop doing business with them.
The PE clients I work with are very growth orientated and understand that culture is important for growth, so I don't believe you can paint the whole space with one brushstroke.
But when it comes to the private equity roll-ups, I think everyone is missing the forest for the trees. If you are a doctor looking to retire and sell your business there is no one else right now who would buy it. The same goes for every category of "mom and pop" business in the US. Even if you could find someone experienced enough and interested in running it - that person could not afford the business.
So there is kind of a double problem happening right now. One is simply demographic - experienced business owners are retiring at a much faster rate than they are being replaced. Secondly, there is the capitalization problem. A doctor knows what his practice is worth and wants every cent he can get out of it - but the next generation of doctor is not going to be able to compete with debt financing what a PE cash-buyer can get.
In addition, there is a problem specific to medical practices - you can't just hand them over to your kid! (unless they also happened to pursue the exact same medical training you did). And in addition to this medical schools (as I have been told) are really underprepared new doctors for running a business.
Keep in mind owner-operators already get a huge income and tax incentive over PE firms. It's kind of a perfect storm that makes medical clinics such a special target vs plumbers or landscapers or whatever.
If you want clinics to stay independent and keep retiring doctors happy, we are going to have to carve out special programs or tax breaks for young doctors to buy up these businesses with debt. And keep in mind, these would be essentially subsidies for millionaires.
In my opinion, the physician in this example is a monster. Profit maximization is a choice, not some kind of moral imperative. Am I supposed to have any respect for somebody selling out their employees and patients to vampires so they can retire to a beach or whatever?
The solution I'd want to see for situations like this is to find a way to sell to the people who have a continuing interest in how the business is run: employees and customers. The "exit" that does right by all interested parties would be something like having a newly formed employee coop gradually buy out the founder's ownership stake. To make a tech analogy, you don't have to sell your 0-day to foreign government just because they pay more than the bug bounty program! You don't have to sell out your community to vampires because they're the highest bidders! This is a choice that somebody is making.
They've had a career of treating patients. I think they've satisfied the moral imperative already. And selling to PE doesn't necessarily equate to "profit maximization". It could just mean "decent sale". As the OP said, often there simply isn't anyone available to buy it out at the timeline it needs to be bought out.
> The solution I'd want to see for situations like this is to find a way to sell to the people who have a continuing interest in how the business is run: employees and customers. The "exit" that does right by all interested parties would be something like having a newly formed employee coop gradually buy out the founder's ownership stake.
I don't doubt that this can work (it has for other businesses!). However, a given doctor wants to retire soon. Can you point him to a concrete plan to set this up? As in a firm that will have said plan ready, does all the legal work, and manages the terms with the existing employees/customers? The doctor already has his hands full treating patients and running the business.
If you cannot point him to such a resource, then do you see why he'd just sell to PE?
Nobody else will buy it. The alternatives are shutting down the practice or forcing oneself to keep working. Particularly in medicine, the latter is dangerous.
> solution I'd want to see for situations like this is to find a way to sell to the people who have a continuing interest in how the business is run
Sounds like a buy-out strategy! Seriously. Berkshire Hathaway could negotiate good deal terms by making this promise.
New doctors are not trained or expected to run businesses. Getting money from medicare or insurance is a nightmare. Patients want access to more services than ever before. The entire idea of a private practice is anathema to modern ideas of healthcare oversight and access equity. Even getting private malpractice insurance is almost impossible now.
There is a reason almost nobody is starting private practices anymore. So to give the doctors a bit of credit this is a chance to slip quietly into the night.
Maybe if voters didn't want such system, they might vote different people into power, or vote to change the system.
POSIWID. https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_wha...
- Doctors partner with the person that will take over their practice for years before retiring. PE is destroying this system and the latest crop of doctors will lose out on mentorship and the opportunity to run a practice. Everything will become big corporate offices and everyone will suffer
Of all the doctors I personally know, only one was interested in working in such a practice (let alone owning one). Where is the existing doctor going to find other doctors to partner with? Especially when they can get paid more to work elsewhere?
You are missing a qualifier: "at the current market price."
If you prevent or disincentivize PE from buying these types of businesses, the price would drop to the level of its new adjusted demand.
To the broader picture though, this is a double edged sword if you want more private family practices. Less doctors are going to go through the work and cost of starting their own business if they have to take a haircut on its net worth at retirement.
Had a family member receive an LOI at 10x EBITDA so they decided to sell (not sure where they closed).
They mentioned that if a doctor would have purchased the practice, it would be 1x or 2x at best.
Related: they would have been interested to scale up, but didn't know how and were afraid of the complexity of trying to manage a 3rd location.
I'm all for healthcare reforms, but it's a pity that we didn't pursue a simple voucher or cash-based system over our insanely complex system.
I mean, this must be a huge factor. Ignoring doctor's offices for a moment--even regular mom-n-pop small businesses. Few actual humans can afford one, so PE gobbles them all up. I'd love to own a small local business. Know why I don't buy one? I just can't afford any, it's that simple! Same reason fewer and fewer people can buy houses: They simply can't afford them. So PE swoops in and buys housing, too.
This seems to be one of the many ill effects of America being set up so there are fewer and fewer rich people, and those fewer own more and more of the pie. If wealth were distributed more evenly, maybe more Average Joes would be able to buy and run their own businesses. But our society doesn't encourage this broad base of wealth. It instead encourages a shrinking elite owning everything.
But even outside of that, if you ignore that part of it, there's monopolization costs coming from other directions. Many physicians are getting squeezed by decreases in their options, as hospitals and clinics merge, which creates efficiencies that make it hard for small clinics to compete with, which in turn leads to fewer administrative options should a physician choose to try somsething else. My sense is it's even worse than that, because even if you still have a few large hospital systems to choose from, the administrators are being incentivized in the same ways across the chains, so it's one flavor of hyperprofitized healthcare corporation versus another flavor of hyperprofitized healthcare corporation. Basically, it's hard for small clinics to compete even if someone wants to, because healthcare has become a cuthroat profit-driven market, with lots of big money and plenty of opportunities for those in power to take advantage of advantages.
I guess what I'm saying is it's not just the debt for the young physician: it's a very risky thing to do, period, being a small clinic versus an oligopoly of large chains. "A doctor knows what his practice is worth and wants every cent he can get out of it" is one possibility, but another is that that seller is in a position of survivorship bias, and can't find buyers because they don't see it as a rational decision even outside of the debt question.
The reason why you don't see this with landscapers or plumbers or whatever is because those markets have far more competition, and they're not overregulated (at least to the same extent). Healthcare as a market is characterized by obstacles to competition everywhere: if you ignore the rationale for those obstacles, and just look at it for what it is, you're left with an infrastructure that's constituted largely of barriers and costs to entry and participation. Basically, the market has become too expensive even for practitioners to participate fully in, so the only thing left are financial heavyweights.
If you look at the richest people in America in 1985 and adjust their wealth for inflation no one even makes the top 100 in 2023.
If the richest person in America only has 5 billion in 2023 USD then systemically there is just not enough liquidity to think about the risk/reward of buying a vet.
We have basically diluted the price of all businesses and all assets. With the amount of liquidity in the system you can either have it pool and do nothing or buy business you would never have previously.
This is the price we pay for avoiding what probably would have been two depressions from the financial crisis and covid.
Everything in economics is a trade off. It is very hard to say if we would be better off or not. If we had spent the last 15 years of life dealing with two depressions who knows what society looks like now. It is a very different answer if you are 20 or 45 too I imagine.
If you look at other boring "mom and pop" businesses out there, like laundromats, gas stations, car washes, liquor stores, mailbox stores, etc...there's a tons of "acquisitions" entrepreneurs out there buying these things up like crazy and tons of influencers out there (codie sanchez, etc) telling them to do so.
Their are firms that let you sell to your employees via an ESOP. One I know of (though a friend) is https://www.awcfund.com/
Push back more strongly. My partner at the time had been working at a Toys'R'Us store for many years. She said right up to the last day store traffic was as strong as ever - think last minute shopping for your kid's friend's birthday party, buying toys for your own kid's birthday etc. They had significant traffic and sales throughout the year, not just holiday season. Buying a bicycle for our kid? You're going to want to do that in person. You're a mediocre parent that wants to placate your "annoying" kid? take them to Toys'R'Us and let them shop for something. People really underestimate how well TRU was thriving as a brick-and-mortar store.
Also, contrary to what the article says about not figuring out online shopping and logistics, she said associates spent a majority of their time pulling online orders for same-day in-store pickup, and that business was steadily increasing.
Too much debt killed Toys'R'Us, not Amazon. I don't know if it was all acquisition debt, or if they loaded up afterwords to strip-mine value but either way it was the debt period.
To be fair, that doesn't mean thriving at all. It's easy to have tons of customers but be making zero profit because all your revenue is eaten up by costs. It's common for stores to be busy up to the moment they go bankrupt -- because the problem is they're stuck where they can't raise prices (shoppers will evaporate) and they can't lower costs.
> contrary to what the article says about not figuring out online shopping and logistics, she said associates spent a majority of their time pulling online orders for same-day in-store pickup
That sounds like not figuring it out to me. Store employees pulling orders for in-store pickup is generally a losing proposition and has never been sustainable. Big warehouses handle online orders efficiently. Retail stores don't at all, generally speaking.
It's good for the current shareholders, and it's good for the private equity company. It's not good for the business, but if the old owners and the new owners like the deal, who's really got standing to object? How do you force a business to continue to operate in spite of the business being unsustainable and ownership wanting out?
Employees don't like it, but the business is already on a path to death, so whatcha gonna do there? It's probably better for employees if Toys R Us closes stores every year for many years, instead of all of them at once, but those jobs are on borrowed time either way. I'd imagine vendors don't like it, because they're going to lose in bankruptcy, but after PE takes over your client, that's a good time to reevaluate their credit and put them on a shorter leash.
And it's never the PE firm that owes the debt, they're able to get paid back by the thing they buy, and that shell owes the debt. The losses are socialized among the public.
https://www.bloomberg.com/news/articles/2022-10-31/twitter-s....
https://www.moodys.com/credit-ratings/Toys-R-US-Inc-Old-cred...
Do you have any links about this? I'd like to learn more about how this scheme works.
It's a high risk game, anybody investing knows exactly what's up.
It’s looting. They’re asset stripping.
They are literally doing this:
https://youtu.be/ZPtjyqgZAUk
It’s not a metaphor what is happening is actually the same as a common organized crime scheme. They are stealing from creditors.
Other stakeholders, such as government regulators or the extra patients killed when PE takes over their hospitals and nursing homes [1].
[1] https://www.nber.org/papers/w28474
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> the model is that often businesses that service working-class people are attractive because poorer customers don’t have alternatives, so you can raise prices, you can cut quality care
> Private equity firms have donated something like $900 million since 1990 to federal candidates. They have a bench of employees that include former cabinet members, secretaries of state, treasury, defense, chairman of the FCC, SEC.
> it’s almost impossible for a private equity firm to be held legally responsible under common law veil-piercing arguments
> They executed a sale-leaseback, which means they sold the underlying assets of the nursing home chain and had the chain lease it back for a quick hit of money, but now they’ve got a long-term obligation. They executed what’s called a dividend recapitalization, so ManorCare had to borrow money to pay Carlyle and the other investors a profit.
https://edition.cnn.com/2023/06/13/business/instant-brands-b...
And although https://cornellcapllc.com/investments/ provides the shell companies they own, who knows what's under each of those shells, and under those shells.