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Comment by ak_111 | Hacker News Reader

I am surprised there are no private equity like entities that are driven by a single thesis which is to buy non-tech public corporations (or as far away from tech as possible: like commodities and real estate) then cancelling all 'digital transformation' or 'data engineering' contracts with consultancies like McKinsey, replicate the important 10% part of the contract in-house by recruiting a solid small tech team.

Then take the company public later at 10x the valuation, having slashed the cost by 10x without impacting operations or growth.

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Knowing which 10% is the important bit. The problem with these projects is that you need to extract the tacit knowledge from the lower level staff in the company, who have often been incentivised for years to keep it to themselves.

"Manage better" is not a scalable system. Although it does work for some individual takeover merchants; it's a big part of the Warren Buffet success.

This is not supposed to be a scalable model, it depends on deep domain expertise of enterprise IT and also would require some hands-on active management and most importantly recruitment. So it is not your usual private equity play "slash everything by 30%" gain short-term profit, flip it, then watch the company close down in a few years time due to morale and lack of growth strategy.

A semi-generalisable strategy to identify the 90% quick wins in consultancy contracts: look at the consultancy contract, anywhere it says Oracle, IBM, Microsoft, Data Science think about how you can replace that with an open-source stack run by a competent technology team that you will recruit and what impact scrapping all the data science stuff will have.

The crucial bit in this strategy is to offer a package to this new elite tech team that would be competitive with FAANGs, this will be completely surprising to most management of these companies as they are used to paying their tech stuff garbage when in effect they are paying 10x FAANG salaries via the daily rate of McKinsey consultants.

It would be interesting to see it tried. It's effectively "digital transformation" with the host/mutator roles reversed. Rather than have an organisation call in outsiders to do the transformation, the transforming group "eats" (buys) the transformed organisation.

The risk is definitely in the squishy unknown unknowns that are hard to quantify and therefore get obliterated early on in a digital transition.

If you figure out how to identify those 10% and get the business on board with following that, I’d suggest skip the buying companies part and just sell your consulting hours at triple McKinsey rates.

McKinsey doesn't get brought in on the basis of their competence even though it's of course part of the image they project. If you want to go with quality work you'll have to buy your way through because the upper management doesn't have a clue about tech and you will not be able to justify your higher rates if you're a nobody.

Executives at those companies understand that risk and set up all kinds of landmines to scare private equity away.

A simple example would be, they could put the IT support department under the "VP of Crypto" instead of under the "Director of IT". So private equity comes in and fires the entire crypto department because they assume it is useless and then find out that no one can get their passwords reset or computer replaced.

More complex examples involve finance. You could transfer stock in your company to a banker as collateral for a loan with the condition that if the loan is paid off early there is a 1 billion dollar fee. Taking a company private requires that the buyer buy all the public stock.

Are you able to point to resources that document some of those examples? Just curious.

https://www.investopedia.com/ask/answers/042315/how-can-comp...

Anti-takeover measures have been around for 40+ years and generally are referred to as "poison pills".

https://en.wikipedia.org/wiki/Shareholder_rights_plan

Is it really that common to be bought by private equity to see it as an ever present threat?

I'm not about to praise the Musk takeover of Twitter as a good thing, but he did prove you can make massive cuts in a workforce and keep things running just fine. And he's emboldened the rest of tech to do the same.

It's not just data analysis. There's bloat all over tech.

> and keep things running just fine.

For at least a couple of months, yes. The jury is still out as to how his actions affect the long-term sustainability of the company.

If you were a farmer you could stop buying seeds entirely and save a hell of a lot of money. And you'd be perfectly able to continue to grow and reap the current crop. If anything, productivity would increase because time spent buying and storing seeds is freed up to focus on the current crop.

But next year...

It would take firing and replacing most of management...

And when you look at it, yes, there are plenty of funds driven by buying a company, replacing the management, and selling it. Most of them are not long-term driven (you really expect people that flip companies to be long-term driven?) and thus make all kinds of decisions that you'll probably disapprove.

I would qualify this as tech/IT management, but you will not need to touch the management team that is running the core business. In fact in most cases even a big chunk of the IT management is outsourced to third-parties.

Vista Equity Partners?

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