>One major question is - is the cost savings of hiring a worker in Texas with less experience at a 30% savings worth it if you're losing a few years of knowledge of internal workings and products?

Maybe not. But even though the new employee might not be as productive there is a very real increase in EBITDA from a decrease in expenses. Greater EBITDA leads to greater valuation. Then all you have to do is show consistent mid single digit percentage revenue growth a few years in a row and convince the public markets/equity analysts the whole thing won't fall apart anytime soon and you can cash out in an IPO.

For most PE firms it seems that it's really about hacking the financials. If comparable firms are selling at 15 times EBITDA, and your EBITDA grows from $200M to $250M over several years due to reorg savings and consistent revenue growth, you can rationalize that the company is worth $3.75B ($250M*15) now instead of $3B ($200M x 15).

Very interesting stuff. If anyone reading this works at a PE firm and is willing to let a finance geek pick their brain please give me a shout at my e-mail in my profile.