Do PE firms create value? How?

https://www.gain.pro/insight-reports/value-creation

by heysidjain • 12 months ago

24 22 12 months ago

VonGuard• 12 months ago

My favorite PE story is about a certain company created by the government that first went public, the PE.

After the PE acquisition, an exec stands up in front of the entire company and says, and I am not kidding:

"This was a telecom company. Telecom companies grow at 10 to 15% a year. This is now a data services company. Data services companies grow at 20 to 25% a year. Get to work."

PE changed nothing else at that time. They simply decided the company was in another category, and thus, this would yield more money. I have always marveled how some business people can simply move things around on a spreadsheet and think that reality will follow.

N_Lens• 12 months ago

Well, the I in MBA stands for Intelligence!

hangonhn• 12 months ago

That's not all that different from all the tech companies and startups that are now suddenly AI companies because they use OpenAI, Anthropic, or AWS Bedrock. People rarely ever do detailed and deep analysis of a company's value. Instead most people invest based on gut feelings and hunches.

parpfish• 12 months ago

Kind of like WeWork saying "we're not a realestate company, we're a tech company"

aigen01• 12 months ago

I can make my house hotter in the winter by burning all my furniture in my fireplace. In the short term I'll feel warmer, but by spring my house is empty.

pempem• 12 months ago

and by spring my home is empty and available for additional investment. It's got great bones!

ltbarcly32• 12 months ago

They extract value in a nonsustainable way, probabalistically, while creating a moral hazard.

Lets look at Vetinarians. They are buying up huge numbers of vet clinics. The owners retire and they bring in H1B or other lower cost vets, and increase prices 3x. My dog got sick and it cost $7k for then to figure out she had Addison's disease. The POC was some business person trained to extract money from you using guilt. They would give cost estimates and thrn ask for triple that every 24 hours. "she is such a sweet dog, I know its a lot of money but it costs so much to run a pet urgent care, we could just put her to sleep" was a paraphrase of every conversation. In the end it cost 2 cents to give her a pill that is the first thing they should have tried and she recovered. More than $7k for a dog to be at the vet for 3 days.

This is not sustainable. I will never take another pet to a facility like this, its impossible to afford it. In the meantime they have several years of burning customers and fantastic financials, plenty to get a massive loan for a second PE firm to buy the business, that PE firm gambling they can extract enough management fees to make back the small % of equity they actually had to pay themselves before it goes bankrupt.

If you made PE firms responsible for even a fraction of the debt of the businesses they operate they would disappear inside of 3 months. They are purely a hack on our laws around corporate debt and too much dumb money flooding the market due to privatization of retirement accounts.

SoftTalker2• 12 months ago

So there should be a great opportunity for young vets to open their own practices and undercut the PE-owned clinics. Why don't they?

pphysch• 12 months ago

The problem with "enshittification" of this sort is that the shitty solution doesn't just go away. It lingers and aggressively defends its territory, possibly in unfair ways. There are network effects. These zombie businesses should get outcompeted, but it's easier said than done.

OkayPhysicist3• 12 months ago

There's the rub: Private Equity represents the decomposers of business world. Healthy, thriving industries don't sell out to PE, in the same way most healthy, thriving animals don't get colonized by fungi. In the case of vets and dentists, historically the practice owner would sell to some young practitioner, and the cycle would continue. But what happens when the businesses are worth too much for the next generation to afford (or the next generation's too broke)?

Enter PE. They buy out the old practitioner, hire the young one that would have ideally bought the place themselves, then proceed to gradually dismantle the business. Divest all the capital assets, fire all the institutional knowledge, and even convert the business's accumulated customer good will into cold hard cash by exploiting the hell out of them.

Then it's just a matter of running the hollowed-out shell of business until a stiff breeze leads to complete bankruptcy.

ivape• 12 months ago

Imagine that new developer that gets hired and immediately determines they know how to rebuild the stack better. It's salesmanship 101, I can offer you a better deal. Maybe? Maybe not.

neilv• 12 months ago

Gain.pro [...] Trusted by >$1 trillion of private capital,

So I'm not expecting PE to be called out in this piece. Maybe instead it's just weenie suckling of PE. Or maybe just posturing filler, for their own sociopathic benefit, to which PE can relate.

donmcronald• 12 months ago

From what I’ve seen they create value for the owners via consolidation so prices can be driven up for everyone else. They aren’t geniuses. They simply have enough capital to manipulate the supply side of the market.

gruez• 12 months ago

Maybe that's what's most visible, but at least in theory consolidation can create value by centralizing back office/G&A operations, bringing in a development team to automate stuff (which is harder to do when the market is fragmented and everyone is trying to do their own thing), and better management (vaguely defined).

spwa4• 12 months ago

Exactly. Ideally they create the difference between a McDonalds and a random private non-themed eatery/restaurant. They create consistency, and actually have a company behind it. Now you can say "there's no value there", but I'm guessing your kids strongly disagree in the McDonalds case ...

blargey• 12 months ago

It’s a (preview for) a slide deck / webinar analyzing a selection of successful PE acquisitions that already completed with an exit, marketed towards the PE-involved/aspirational.

Probably not what people expect based on the submission title (“Do PE firms create value? How?”) which seems removed from the “article” title “The Private Equity Value Creation Report: 2025 From Entry to Exit: How Do PE Firms Create Value?”.

Do PE firms create value? How?

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