We really need some sort of trust busting or consumer protection actions against PE. There's so few industries that get touched by PE and come out better for it.
A small part of that is more efficient administration. But the bulk of it is squeezing the customers harder, and squeezing the business for credit. Sometimes combined with a sector roll-up causing a monopoly.
Trust busting would help a little. But a lot of the pain comes from the squeezing of customers. And that’s much harder to fight back on, other than avoiding private equity.
And those who don’t/won’t squeeze as hard get outcompeted - a race to the bottom.
So the company had to pay interest and PE management fees until it finally collapsed.
Yeah, I've been observing that a few times already as well.
A bit off-topic, but:
I believe that's because there is a conflict of perspective between a company's and a PE's goal.
Both parties agree i.e. on a certain profit as the joint goal.
It's like both journeys are straight lines which cross at some point (profit!) but diverge again afterwards.
So while:
1. the company focuses on its line of becoming a successful and profitable entity, and healthy for the travel beyond that crossing,
2. the PE is on a different trajectory, focused on pulling in that crossing as fast as possible, with little care what happens beyond that point of intersection.
In my observation this can work, but only if the relationship is dissolved in-time and the company can continue its journey.
But in itself the whole concept generally gravitates toward the PE's trajectory, which leads to the company being consumed until the crossing, and ripped into pieces after it.
But generally PE does greatly improve 'efficiency', meaning they take for themselves (the owners) any 'extra' value that used to accrue to customers, lenders, employees, etc and the company becomes exactly as painful to deal with as market pressures allow.
Not necessarily. Following Clayton Christensen's theory, a business would acquire another company either for its Resources, its Processes or its Business Model.
In that theory, a business (which also has all these elements) cannot aim to acquire all three elements from outside and fold them into their own company (because it would lead to TWO companies, not ONE), they need to focus on one, maximum two of those aspects.
If a business buys a company from a PE before or close to their stated revenue/profit-goal, it's a company currently delivering on those metrics.
None of this however states that all three elements are in a condition for the company to continue to compete on its own. But: Some elements can create additional value if they complement the business of another company (which is in most cases the goal of a buyer)
That's the thing, the PE strategy for business gutting generally involves the PE firm selling assets to themselves.
For example, Sears and Kmart. Profitable brands got spun off into their own companies (Cabelas I believe), the realestate was sold for a song to leasing companies also owned by the owners of sears. Rent was maxed out to suck out every penny from the likes of Sears and Kmart, and when the two eventually collapsed under the weight of their debt they declared bankruptcy and walked away having looted everything of value while leaving all the debt.
They created a giant game of hot potato with banks, shareholders not in the know, and the federal government (tax payers) ultimately paying the price.
This strategy has been so successful that multiple companies are trying it outside of PE. If they get into legal hotwater they'll create a new business who owns all the liabilities, spin it off, and then let bankruptcy absolve them of their liabilities. [1]
[1] https://www.cnbc.com/2021/11/12/jj-shares-jump-after-ceo-say...