Private equity bought America's essential services

https://rubbishtalk.com/economy/how-private-equity-bought-americas-essential-services/

by NoRagrets • 2 months ago

552 480 2 months ago

dd36• 2 months ago

End consolidation. Go back to pre-1980s antitrust policy. Encourage competition and bust the trusts.

How will that work - for example Y Combinator classes. They cannot be acquired? What about acquihires? Cant stop that - employees have their own agency.

jgalt212• 2 months ago

I think 5-15 person employee businesses do not concern trust busters.

Ekaros3• 2 months ago

If the acquirer has too big or dominant position already in the specific sector no. They should not be able to sweep the board of all companies doing single thing.

toomuchtodo4• 2 months ago

If the acquirer attempts to acquire a startup (regardless of investor) for anti trust reasons, or there are anti trust concerns, the M&A activity is disallowed by regulators. A recent example is Figma and Adobe.

https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...

palmotea2• 2 months ago

How will that work - for example Y Combinator classes. They cannot be acquired?

For the record: national economic policy shouldn't revolve around Y Combinator classes and similar startups.

I'm totally fine if it turns out a sensible antitrust policy completely destroys the acquisition exit pathway for tech startups. I'm not saying one will, but I'm saying that's a cost I'm willing to pay.

jonstewart• 2 months ago

Statutory antitrust regulation would be fantastic. Instead of litigation, the regulators, corporations, and shareholders know when a business must split or divest. The firm files a plan, it gets approved, everyone wins except monopolists.

smallmancontrov2• 2 months ago

Progressive business taxes. At a certain income level, natural pressure starts mounting to split.

muddi9003• 2 months ago

The pre 1980s standards were ridiculous though. However, even if the US moves to some 3 quarters of the way towards now would be a huge improvement.

The "consumer harm" standard is idiotic.

mmooss3• 2 months ago

Would you share a more detailed argument? Right now we only have adjectives: "ridiculous", "idiotic".

The US economy generally did very well with those standards, maybe the best it ever did, especially considering distribution of benefits.

no_wizard• 2 months ago

I don’t see how they were ridiculous on the face it. The economy during that regulatory period grew into a huge juggernaut.

Most of the R&D that laid the future of the world happened during that period. The middle class grew to its largest portion during that period.

I don’t think the economy was hamstrung in the least

sega_sai• 2 months ago

I simply don't understand why leveraged buy-out(LBO) is allowed in the first place. It is like paying for the company with the money from the company you are buying.

quickthrowman3• 2 months ago

It is analogous to a mortgage, you put down X% and the house itself secures the loan, along with PMI if your equity is below 20%. The assets of the business secure the loans in the same way a house secures a mortgage.

kokken2• 2 months ago

It is not analogous because if you sell your house and the sale money is not enough to cover your mortgage you are still on the hook for what's left of the principal. A leveraged buyout is exclusively on the purchased company's books, so if the company goes to zero the PE parent company is not on the hook for a single penny.

sokoloff5• 2 months ago

You understand mortgages, though, right?

Even 3% or 0% down mortgages?

cj• 2 months ago

LBO's are like buying a rental property where the mortgage is approved based on expected future rental income from the property.

That's why the parent is saying "It is like paying for the company with the money from the company you are buying.".

adampunk• 2 months ago

Yes, those exist in industrialized countries as a result of public policy decisions. We do not have 3 or 0% mortgages because that’s what the market naturally bears or produces: we have it because mortgage debt is backstopped by the state.

It’s possible to “understand” mortgages by understanding that conditions for stable home markets don’t arise by themselves—we collectively make them possible because the outcome is desired—then wonder WTF because what social function is creating conditions for private equity getting us.

lumost2• 2 months ago

It provides liquidity to business owners.

As a business owner, if you want cash today because you are done with a business. You could go to a bank and get a loan to pay dividends. This is a bad deal for the bank as you have no incentive to operate the business after you cash out the loan. A private equity firm comes in and operates the business on the model that they still keep some of the profits after the loan value.

The crappy side comes in as a customer, the PE firm can do this to an arbitrary number of firms in the area and raise prices on each/cut services. PE firms can trivially build out monopolies. Many of these monopolies will be invisible as they leave the existing branding etc. in place.

graemep• 2 months ago

That in itself is reasonable. However governments choose to encourage it with tax systems that mean you pay less tax by increasing debt. This is the main thing that breaks capital structure irrelevance: https://moneyterms.co.uk/capital-structure-irrelevance/

As a business owner, if you want cash today because you are done with a business. You could go to a bank and get a loan to pay dividends.

If you are a business owner you could borrow yourself using the business as security.

Aurornis3• 2 months ago

Private parties are allowed to make bad business decisions: Lenders can give loans that might not pay back. Businesses can take on a lot of debt and cash out the owners if allowed under the terms of the loan. A PE buyout isn’t even necessary to do this. The owners could load the company up with debt and pay themselves a lot of money if they negotiated the right loan terms. One of the suppliers I used for a while did exactly this, enriching the owner and then collapsing.

One correction is that it’s not like paying for the company with money from the company you’re buying, because that obviously wouldn’t benefit the sellers. The money comes from a lender and they get terms to take the business if the loan terms aren’t meant. The lenders are the effective new largest owners of the company with the PE firm being a smaller owner but the expected primary operator.

_DeadFred_3• 2 months ago

This was called corporate raiding in the 1980s and even Reagan era America looked upon the practice as horrific, vilifying it in books/movies. That it's now an acceptable norm even after 40 years of it making things worse says a lot about the state of our nation. 'Money above all else' is more believed today than 1980s Reagan America.

missedthecue2• 2 months ago

That's the exact same concept as a mortgage. But instead of securing the loan with the equity value of the house, you are securing the loan with the cash flows of the business. It's hard to see what's wrong with this.

In an analysis of "European companies around their buyout event in the period 2000 - 2008," private equity was found to "select companies which are less financially distressed than comparable companies prior to the transaction and that the distress risks increase after the buyout" [1]. Critically, however, "the distress risk in private equity-backed companies does not exceed the distress risk in comparable companies three years after the buyout," and, "despite this risk increase, private equity-backed companies do not suffer from higher bankruptcy rates than the control group."

More broadly, an analysis of "17,171 worldwide leveraged buyout transactions that include every transaction with a financial sponsor in the CapitalIQ database announced between 1/1/1970 and 6/30/2007" found bankruptcy rates around 6% [2]. This isn't exceptionally high.

[1] https://madoc.bib.uni-mannheim.de/31366/1/dp11076.pdf

[2] https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121 Table 2

stult• 2 months ago

That's an asinine comparison that completely ignores the underlying economic substance of the transaction. You can't pay yourself fees from a mortgage.

ThrustVectoring• 2 months ago

How would you ban it? Once the new owners have bought the company, they own the rights to taking out debt in its name, so long as they can find lenders willing to extend a loan on terms they find acceptable.

Brushfire• 2 months ago

Why is there so much attention paid to the buyer (private equity) and no attention paid to the folks who sold the businesses to them?

kokken2• 2 months ago

Because a sale for cash is a basic legal contract that predates modern society by millenia, whereas a LBO that PE uses to purchase companies is a weak spot in American Capitalism created at the intersection of:

1.Shareholder primacy. Under Delaware corporate law (which governs most large U.S. public companies), once a board decides to sell, directors have a fiduciary duty to maximize the price shareholders receive. A premium cash offer from a PE firm is hard to refuse without legal exposure.

2.Interest deductibility. The tax code lets companies deduct interest payments but not dividends, which makes debt-heavy capital structures more tax-efficient. LBOs exploit a feature of tax law that exists for many reasons unrelated to private equity.

3.Freedom of contract and limited liability. Sponsors can put a thin equity check into a holding company, have that company borrow on the target's assets, and walk away if it fails, because limited liability is the foundation of corporate law generally.

skinfaxi• 2 months ago

What would that attention look like? "Long-time pillar of the community local pediatrician retires and sells their practice"?

How would you know this attention is getting paid or not unless you are consuming local news from the places this is happening?

pelotron• 2 months ago

"Long-time pillar of the community pediatrician unveils true self by selling practice to Devil"

magicalist2• 2 months ago

no attention paid to the folks who sold the businesses to them?

Why would the retiring dentist selling their practice be a trust or collusion problem?

AndrewKemendo3• 2 months ago

Because their customers, who they built a trusting relationship with, get hosed when the owner wants to cash out.

That’s the whole math of it. That cash out comes from the future business increasing profit, which is over the longest term cutting service quality.

Start small biz > be successful > want to retire > find someone to buy biz

There’s a lot of pathways with a giant c corp, almost none for the local successful small biz.

I had a acquaintance sell three local trash companies to LRS which is exactly what happened.

wffurr2• 2 months ago

Run a small business for 20 years, work yourself to the bone, and then contemplate a big check from a buyout offer.

tech_ken• 2 months ago

Because the buyer is the one monopolizing industries and stripping them for parts

pjc505• 2 months ago

The buyer generally runs the service in a much worse way, so it's their management which comes under attack.

bko4• 2 months ago

The premise is that PE firms invest in companies, load them up with debt, and maximize profit. And it's especially nefarious in industries where people have "no choice but to pay"

The result is a backlog that reads like a financial opportunity in earnings calls and a crisis in every fire station in the country. As of 2025, REV Group’s backlog stands at $4.5 billion. Wait times for a custom fire truck run to four years. Prices have doubled in a decade: a pumper truck now costs around $1 million; a ladder truck runs over $2 million. Profit margins in the industry have tripled — from the historic 4-to-5 percent range to over 13 percent.

The article goes on to talk about how a backlog is actually genius. Here's a quote from a senator:

“This didn’t just happen to you accidentally. This is a business decision, isn’t it? You keep these backlogs like this. […] Another word for this would be a heist. This sounds to me like private equity came in; bought up all of these small companies; combined them; shut down their production; rolled up a huge backlog; massive profits; stiffed these guys; and now you’re making out like bandits.”

So you make money by ... not delivering? I'm missing something.

The fire truck industry is the most publicly documented case, but the underlying playbook — acquire, consolidate, reduce supply, extract margin — appears across essential sectors with alarming consistency.

Sure, anyone can reduce supply and increase prices if they're a large enough supplier. But companies don't produce up to the point where marginal price is equal to marginal cost out of the goodness of their heart. It's the profit maximizing level. This is economics 101. The article doesn't even try to explain beyond hand waving. No one cares about profit margin, they care about maximizing profit, and you don't do that by creating backlogs. So something is off here and the author is either too incompetent to ask basic questions or just wants to write another PE bad article

dapperdrake2• 2 months ago

Learn how businesses are priced.

The buyer (who PE sells to) is "thinking about" collecting on the backlog.

Obviously, the backlog is "fake".

EDIT: The backlog is fake or worthless in the sense, that dollars worth of reputation (a.k.a. Brand) were given away to get pennies worth of backlog. Customer satisfaction is real, even in a business valuation sense.

ses19844• 2 months ago

Let’s compare two hypothetical companies. They are equal in every way except one has a $4.5b backlog and one has a $0 backlog. Which company would you rather own?

brainwad• 2 months ago

The way to get to a backlog is by not having made sales you could have made in prior years. So they shouldn't be equal in every way - the one with $0 backlog should have more cash, and that is probably preferable unless your business has diseconomies of scale.

bko4• 2 months ago

Not sure. On one hand, a huge backlog means they're not meeting their demand. Operations may not be in order. Everything else is the same so sales and everything else is equal so I guess money is just deferred? Also huge backlog encourages competition and if you can't deliver, you're going to lose.

But such a big backlog suggests that they're underpricing. So it may be as simple as increasing price and ramping up your production, even though it would likely mean higher marginal costs.

Overall no one wants a backlog. It's not good business

wffurr2• 2 months ago

There's no competition left to drive the marginal profit back down to a reasonable level.

scionaura• 2 months ago

So much condescension in your comment. So little to back it up.

So you make money by ... not delivering? I'm missing something.

Precisely. Let's review imperfect competition. Although it's you who so unpleasantly insists on framing the discussion in econ 101 terms, it's your comment that is sunk by a misunderstanding of elementary economics.

What you're missing is evidently the things one learns when they go past chapter 1 of an intro textbook!

It's the profit maximizing level.

Not all markets match the assumptions of the simple "perfect competition" ideal you learn about first. The efficient equilibrium you describe requires an assumption that there are no barriers to entering the marketplace as a producer. An extreme example breaking this assumption is the "monopoly market", where there is only one seller of the good because barriers prevent other sellers from viably entering the marketplace. That's why the consolidation in OP is relevant to the discussion...

In the extreme case the market equilibrium is reached when a monopoly jacks up the price and produces less than it would in a competitive market. Deliberate scarcity! The (single) producer makes more money in this kind of market. The consumer is worse off. But the every extra dollar the monopolist makes in profits takes more than a dollar away from the consumers. Deviating from the perfectly competitive equilibrium results in a market inefficiency called "deadweight loss".

The article also nodded to the price-inelastic demand for the equipment enabling emergency services. Inelastic demand makes this phenomenon more extreme. It's pretty intuitive that fire departments' demand for firetrucks would be price-inelastic.

So anyway. Your comment implied that you don't want to be mad about the consolidation and price gouging for e.g. firetrucks if you're in the "woohoo go free markets" tribe. Couldn't be more wrong. You should be just as mad if you're in that tribe. The extraction of monopoly rents from emergency services is not just dangerous, and not just unfair, but also a textbook case of market inefficiency.

bko4• 2 months ago

In the extreme case the market equilibrium is reached when a monopoly jacks up the price and produces less than it would in a competitive market

Wrong. The amount produced is still the point at which marginal cost is equal to marginal revenue under a perfect competition. However the amount charged is higher. Below is the monopoly model, chapter 7-2 :-)

The monopoly firm maximizes profit by producing an output Qm at point G, where the marginal revenue and marginal cost curves intersect. It sells this output at price Pm.

Basic economics doesn't not apply when you go past chapter 1.

https://uw.pressbooks.pub/microman/chapter/7-2-the-monopoly-...

bonsai_spool• 2 months ago

Setting aside the obviously LLM-generated headings (if not text), this is a serious problem. PE has purchased fire inspection companies in my city such that every company that needs these must contract with the same PE overlord no matter which of the previous 15 companies they used to work with.

The new PE overlord will do things like send you a bill for inspection after you inquire about their pricing ("Well, our guy was in the area so he took a look!") while billing you for gas from their home location.

This is disgusting on so many levels—no competition here at all, just oppression by those with a lot of money.

fredley• 2 months ago

The people behind these funds are playing Monopoly IRL, and this in particular makes me very angry.

The UK high street has been a notable victim. Gradually, over the past couple of decades, company after company has been snapped up by PE. Not just shops, but restaurants too. Suddenly you realise that the 5 or 6 high street chains that were competing are now owned by the same fund. Quality collapses, prices rise, not just at one chain but everywhere. People stop going, the chain collapses, another empty unit, the fund moves on. It's easy to point at Amazon and internet shopping as having degraded the British high street, but there are several other factors, and PE is a big one.

TheOtherHobbes2• 2 months ago

The combination of PE extraction and "property values = rent we want to change, even if the property is empty" has been economically catastrophic.

PE is often just legalised larceny.

c16• 2 months ago

As a consumer, there are many non PE owned restaurants and pubs you can frequent. While you might not be able to change the game, you can absolutely vote with your wallet. The small guys will thank you.

Same for Amazon vs going direct to the manufacturers, which is more often than not, China.

mschuster912• 2 months ago

Same for Amazon vs going direct to the manufacturers, which is more often than not, China.

That comes with a bunch of problems. Taxes, import duties and import refusals are the biggest one. With Amazon, at least as long as it's sold or fulfilled by Amazon, no matter what, you are going to get the product in a reasonable time frame (1-3 days IME).

Shipping... depends. If you're in bad luck, the seller doesn't ship Fedex or DHL, but Yanwen or another one of the usual bunch of "aggregators" that bundle weeks worth of shipment to forward it to the US or Europe and unbundle the shipments there.

Assuming your product shows up at your doorstep, legally, you are now the importer and fully responsible for anything related to that specific product - say, an electrical appliance that sets your house on fire. You can't hold anyone accountable but yourself.

And finally, if there's defects, you only have to deal with Amazon. Free shipment back, done. With anything straight out of China, you are now responsible for shipments.

glitchc• 2 months ago

You're only thinking from a consumer perspective. When it comes time to sell a business, original owner wants to retire or what not, most small businesses have a hard time finding a buyer. This forces the owner to continue working beyond their time or face destitution. Having a market where PE can snap up a small business is a god-send for these owners. It meets a market need.

_DeadFred_3• 2 months ago

Hard sell in a world where the average worker is expected to survive without a nice final buyout and told to budget/plan for that shit.

CalRobert• 2 months ago

You're well served if you want incredibly overpriced sweets at least.

amazingamazing18• 2 months ago

Seems strange to me:

1. No one forced these people to sell. Is the idea that you can’t sell to an entity with more money? If you block that good luck with the world economy.

2. If above is ok is the idea that the new owner is inherently worse because they have more money, whereas as the smaller would be OK then where are the new entrants?

3. Going to the article it is clear enough. These industries just are not lucrative to begin with. PE buys them and raises prices, but this only works because people complain instead of starting rival business.

4. Somehow leaving money on the table in the form of a backlog is bad? Why don’t others start a business and take those orders? Why don't they? Not profitable or worth the hassle.

Well there you go.

Separately, American manufacturing just seems very uncompetitive.

consp• 2 months ago

but this only works because people complain instead of starting rival business.

This reads like fiction. When they corner the market it's of course trivial to just jump in and take that share. No way they will try to be disruptive to you or sue you to hell and back and of course the bank will loan you the pile of money to start a new company since there is no giant corporation to compete with who can squeeze you out in an instance.

amazingamazing18• 2 months ago

Your comment is the one that seems like fiction. You are saying PE is unbeatable? Per the article there is a backlog of orders. What is stopping one of the previous owners from creating another company and taking them?

Sue for what exactly? Of course they will be disruptive, that is what competing means.

DangitBobby4• 2 months ago

If you own a business and wish to retire, your options are pretty much to sell, pass it on to someone, or dismantle it. I don't know how this is even a question really. Where in the article or the comment section is anyone saying they shouldn't be selling?

amazingamazing18• 2 months ago

Your comment is entirely conjecture. Even if we assume it is correct, no young person is creating similar businesses? If so that’s the root cause, not PE, since the alternatives would be all of these businesses shut down anywhere per your reasoning, backlog increase and the remaining businesses increase prices anyway.

a4isms• 2 months ago

Two connected anecdotes:

1. In the 90s, I had a struggling one-man Mac ISV, and would do gig programming on the side. I did a lot of work for boutique investment banks, and also for a "consulting" firm that did about 75% of their business with the finance industry. The owner of that firm praised me, but didn't like that if my business took off, he'd lose me.

"What would it take to get your commitment to this firm?"

50%

"Where will you get the money to buy half my company?"

A loan from the firm?

When the dust cleared, the business loaned me the money to buy in, and I paid it back with 50% of my profit sharing payouts. This is not some weird financial alchemy, a lot of partnerships are run this way.

———

2. My Duathlon racing buddy was a mold-maker, very specialized and good at his trade. He worked for an elderly entrepreneur who had built his mold business up over decades. Said entrepreneur sent his own kids to university to become "professionals."

What to do about succession when he was ready to retire? My buddy literally photocopied my own arrangement, bought 50% so the business would have a successor it could count on, and bought the remainder when the founder retired. He is now a comfortably wealthy automotive sector entrepreneur.

———

The huge LBOs in the news always seem like space-age deals, but little LBOs for succession purposes are remarkably common.

goda90• 2 months ago

People aren't starting competitor businesses because the hassle has become astronomically expensive, also largely due to rent seekers[0]. You need a space, but real estate is absurdly inflated. You need trained employees, but education is absurdly inflated and also poorer quality for the baseline. You need to pay a living wage and give healthcare benefits to attract labor, but cost of living and healthcare are skyrocketing.

Ultimately the influence of rent seekers has grown and the category of people who can take risks by starting a business was the first to collapse, leaving only the wealthy who don't care and the people who can't risk their own survival.

[0]https://en.wikipedia.org/wiki/Rent-seeking

_DeadFred_3• 2 months ago

Then there is regulatory capture in some markets. In this case:

You need a street legal product, which takes certification You probably need multiple firefighter associations, which takes not only meeting criteria but politicking with associations (don't know about firefighters but some associations are themselves captured and limit approval to their friends/connections).

hnthrow0287345• 2 months ago

PE has a bad reputation, maybe for LBOs, maybe for buying up doctors' offices and retirement homes, and hospitals and making them objectively worse in terms of patient care.

My family doctor underwent that along with several of her local peers and got out from under it and started her own practice. I'm obviously not her only patient, so yes, heightening stress on caregivers by demanding more work to drive profits higher is justifiable of a bad reputation.

Leaving things like medical care, food, water, shelter at the mercy of for-profit dynamics leaves the possibility open that those services stop being provided because it is unprofitable at the expense of the population.

America is deciding it likes profit over its population.

jmyeet4• 2 months ago

1. No one forced these people to sell.

Why do we need antitrust laws? Why do mergers need government approval? Or are you a libertarian who believes in unfettered capitalism?

Where does it end? What if I threatened you with violence to sell your business? Is that OK? You might correctly say "that's illegal". If so, does that stipulate we do need laws? How far can coercion go while still being legal? What if I also own your key suppliers? What if you run a veterinarian practice and I jack up the price of all your meds, radiological film, etc if you don't sell? What if I own the major pet insurance providers and decide that your practice, if you don't sell, is no longer covered by my insurance?

2. If above is ok

It's not.

3. Going to the article it is clear enough. These industries just are not lucrative to begin with

They're engaged in anticompetitive behavior but on a local level so it tends to escape scrutiny. Unfortunately, if you dog is sick and you like in Cincinatti, you don't really have the option to go Reno where there's (for now at least) a cheaper option.

This is all just rent-seeking behavior. Nothing about this is productive. The people who engage in this should be treated the same way profitters are in wars and natural disasters, which historically hasn't been a fine or legal sanctions. I'll put it that way.

4. Somehow leaving money on the table in the form of a backlog is bad?

That's what rent-seeking is. It's unproductive extraction of wealth by removing all other options.

Wait until PE comes for your ISP and suddenly a 1gig fiber connection is $300/month. What are you going to do then? Start your own ISP? Good luck with that.

andai• 2 months ago

Who controls the spice...

philipwhiuk• 2 months ago

Leveraged buyout should be illegal.

elevation4• 2 months ago

How would you phrase this though? Plenty of PE firms have the funds to buy your local veterinary clinic or auto body shop with cash; the leverage comes later, when they direct the business that they own to get a loan. How can you make it illegal for the business to get a loan?

yread2• 2 months ago

How can you make it illegal for the business to get a loan?

That would also be legal. But if you take the assets out of the daughter company you would go to prison for https://web.archive.org/web/20141030194421/http://www.sfo.go...

hylaride• 2 months ago

I think they should be perfectly legal, but there probably shouldn't be tax advantages for it (carried interest rule, etc).

herf• 2 months ago

Link to the Musharbash article that spurred the congressional investigation (2025):

https://www.thebignewsletter.com/p/did-a-private-equity-fire...

tadzikpk• 2 months ago

which contains links to its claims and an author with a name, unlike the above article...

lenerdenator4• 2 months ago

Again, we have broken higher risk, higher reward.

If you just keep gutting companies with leveraged buyouts, you're not taking on any real risk.

If you're buying up firms that deliver "essential services", you're likely engaging a monopoly. Again, low risk, high reward. A direct violation of the rules of how investments should work. Regulate the monopoly and this goes away.

airstrike3• 2 months ago

Do you think losing the equity portion of the investment means no risk? It's not fully debt financed.

And that debt financing bears an interest proportional to the riskiness of the asset's cashflows.

There are lots to hate about LBOs but they aren't entirely devoid of value

strgcmc2• 2 months ago

The risks are asymmetric in real world terms. For the PE side, the worst-case outcome is bankruptcy of the company they bought via LBO, but because it was an LBO their own exposure is relatively minimal (the lender is the one with the one most capital at risk). At the end of the day, it's a balance sheet item, a cost of doing business, a few digits on a spreadsheet.

But for the company that was bought? Those are people's jobs, their livelihood. A community that depended on those jobs to sustain a town's economy. And for company's providing essential services with inelastic demand (like fucking fire trucks), the downside is loss of those services, broken fire trucks, and ultimately loss of life.

When you hear "profits over people" as a complaint, it sounds abstract. It is not. Though this specific article is AI slop, the underlying phenomenon is very real (that other commenters have shared other links to better reporting). A very real dollar figure can be crystallized against very real human lives that have been harmed or sacrificed.

Most "regular people" (you know, the ones who just want firefighters to have working trucks and ladders, and to come quickly when there's a fire) don't care about the most hyper-efficient allocation of capital through some skewed financial engineering and legal wizardry (especially when the definition of "efficient" allocation is a biased one, that doesn't account for externalities properly, like people fucking dying due to broken or not-enough trucks). But regular people don't really get a "vote", when it comes to LBOs (and I am specifically focusing on the ones that affect essential services). They just get screwed with the increased tax bills that fund the increasing profit margins of the PE firms. That seems unfair to me, but fairness is a matter of politics and not finance.

---

Personal disclosure: I made a post a few months back about a related topic (https://news.ycombinator.com/item?id=46307300), of PE buying up and consolidating the companies that used to provide software to emergency services, and jacking up the price and taking advantage of inelastic demand. This is a topic I am personally passionate about, and I am still exploring different options for fighting back in various ways.

lenerdenator4• 2 months ago

Do you think losing the equity portion of the investment means no risk? It's not fully debt financed.

To quote the bandana-clad bard of Venice, CA, Mike Muir: "it's the difference between a Porsche and a Rolls Royce".

If you're playing the LBO game at the level where you're looking at buying up chunks of a community's essential services, you are unlikely to be doing business in a way that presents meaningful risk to your personal financial situation.

fsckboy• 2 months ago

LBOs but they aren't entirely devoid of value

LBOs are encouraged by tax law. Stop it by stop making interest on debt tax deductible. Equity is an investment and represents ownership interest, and so does debt. From the company's perspective, interest deductiblity increases profits when the company takes on debt.

Homeowner interest deductibility should also stop. Want to incentivize home ownership? Give people the money, leave the tax code alone. You know what would happen then? the rest of the people would rebel, "why are you giving these people money!?" Hiding it in the tax code is just that, hiding, and that's not healthy for an open society.

basisword• 2 months ago

It's the same around the world. 99% of the time if something has gone to shit, it's because it was bought by private equity and milked for every last penny.

jjmerle• 2 months ago

Interesting seeing a quote from Sen. Josh Hawley that I agree with...

Quote (from article) “This didn’t just happen to you accidentally. This is a business decision, isn’t it? You keep these backlogs like this. […] Another word for this would be a heist. This sounds to me like private equity came in; bought up all of these small companies; combined them; shut down their production; rolled up a huge backlog; massive profits; stiffed these guys; and now you’re making out like bandits.”

wmeredith• 2 months ago

As a Missourian who is regular embarrassed by Senator Hawley, I must say that he brings the goods when he has the opportunity to grill an oligarch.

randusername2• 2 months ago

Article doesn't really dig into the angle I personally find most horrifying, strip-mining social capital.

In my area PE is gobbling up mom-and-pop apartment complexes, plumbing companies, restaurants, and generally making customers and employees alike pretty miserable.

Hard-working founders should be able to cash out, but there has to be a better system than this one. Succession, maybe. Not that we should push an unmysterious destiny on our children, but maybe more ought to consider pulling one?

rocketpastsix4• 2 months ago

I think part of the problem with the succession idea is that a lot of people in these positions worked these hard jobs to try and give their kids a better life. They encouraged their kids to go to school for their passions and now those kids are in careers far removed from what their parents did.

Instead of succession, I wonder if there is a way to make it easier for these people to sell their company when its time to retire to someone who is looking to start the next step of their career. A lot of software engineers joke about becoming farmers, but if they could instead make an easy transition into a small business by buying a small business, we could prevent PE from raiding things.

ryandrake3• 2 months ago

The vast majority of people can’t just go out and buy a machine shop or laundromat and then start running the business. It’s a risky asset, not like a house where you put down 20% and any bank will loan you the rest. I’d love to own a small franchise restaurant or something in my town but they cost millions that I don’t have.

And that’s before you even make it to the question of “can the person that manages to buy it actually live off of it as a lifestyle business?”

maltyr• 2 months ago

I think the other thing is the older generation are of the opinion that a steady paycheck is somehow safer than owning your own company, mostly because most of them never sat in the other side of the table.

This leads to them pushing their kids to be employees even though that's...really contradictory to their actual lived experience.

deepfriedchokes2• 2 months ago

We should be encouraging employee stock purchase plans with tax incentives. [0] It’s better for the businesses and better for our communities than PE.

[0] https://en.wikipedia.org/wiki/Employee_stock_purchase_plan

giraffe_lady2• 2 months ago

Hard-working founders should be able to cash out

Why? Operating a successful business should be remunerative on its own, or else it's not successful. Owners who don't want to do it anymore can let it become worker owned. If they don't want it, it can dissolve. What else do you need? The very concept that the end of a successful business is a big payday for its creator is itself the poison here. There is no end just another workday, success is ongoing not final. This is natural and correct.

randusername2• 2 months ago

I think you're right to zoom in on that point.

My guess is owner-operator selflessness is a key ingredient in a lot of beloved small businesses. I don't know for certain that the winning personality for getting a business off the ground on all the bad days is the same one that raises rates proportionally with their success.

So it becomes all-or-nothing. It's my friends and neighbors when I'm working, when I sell-out it's purely business. No in-between.

bryanlarsen• 2 months ago

When my parents started farming they had about a half dozen large loans for the base farm, land, equipment, buildings and an operating loan to purchase seeds and other inputs in the spring.

When they retired they didn't have any money in the bank besides the proceeds from their final harvest, but all their loans were paid off. That's where the profits went -- paying off the loans.

The farm was their retirement savings. They sold it off for high six figures, and that's what funded their frugal but comfortable retirement.

The neighbor's son bought the farm; I hope he's pretty much paid off the loan he took out to buy it.

thinkingtoilet• 2 months ago

I agree. It's a major problem that people who are usually, not always, already very well off decide to do a final "fuck you I got mine" and sell their business to a company they damn well know is going to strip it for all it's worth.

darkwater2• 2 months ago

I generally agree, but this point of view shifts the blame from one big, evil, soulless PE firm to thousands of small shops owners that just wants to "retire comfortably". It's not easy to sell because one can easily sees oneself as that small owner, but not as a big evil PE.

It's the same with gentrified zones: yes there are some dark patterns going on as well, but mainly is previous, smaller owners that want to make big bucks by selling to someone with money from outside rather than someone local like themselves for less money.

dandellion• 2 months ago

This scene from Ubik has been coming back to my mind very often recently:

The door refused to open. It said, “Five cents, please.”

He searched his pockets. No more coins; nothing. “I’ll pay you tomorrow,” he told the door. Again he tried the knob. Again it remained locked tight. “What I pay you,” he informed it, “is in the nature of a gratuity; I don’t have to pay you.”

“I think otherwise,” the door said. “Look in the purchase contract you signed when you bought this conapt.”

In his desk drawer he found the contract; since signing it he had found it necessary to refer to the document many times. Sure enough; payment to his door for opening and shutting constituted a mandatory fee. Not a tip.

“You discover I’m right,” the door said. It sounded smug.

From the drawer beside the sink Joe Chip got a stainless steel knife; with it he began systematically to unscrew the bolt assembly of his apt’s money-gulping door.

“I’ll sue you,” the door said as the first screw fell out.

Joe Chip said, “I’ve never been sued by a door. But I guess I can live through it.

- Philip K. Dick, Ubik

sdwr• 2 months ago

That's amazing! The "machines as woodland fairies" conceit imagines them as natural creatures, but nature has no laws

"In developing countries, everything is possible and nothing works. In developed countries, everything works and nothing is possible."

Aurornis3• 2 months ago

Hard-working founders should be able to cash out, but there has to be a better system than this one. Succession, maybe.

The large PE buyouts that came from the ridiculous ZIRP period could deliver better financial stability than handing the business down.

I know two families with businesses that attracted huge PE offers in the past few years. One of them took the buyout and the family members slowly left their jobs at the company because they effectively been early retired by their buyout.

Now the kids are looking at new businesses to buy and start for themselves with this new financial freedom that has come to the family. One of their considerations is starting another business in or around their old line of work that was sold off. They have to wait until the contractual non-compete expires, but if the PE owners are really making both the employees and customers miserable then it becomes a golden opportunity for experienced operators to come in and run a good business in the vacuum. Even many of the old employees have expressed a desire to join.

The bad PE phenomenon buyout is annoying, but businesses that become miserable for the customers and employees are not stable long-term businesses. When they decline because competitors show up to do a better job and retain better talent, it becomes a transfer of money from the lenders to the old owners and an annoying churn in the local business scene. As we see more of these failures, the willingness of banks to lend for these buyouts will go down.

trevithick• 2 months ago

Companies need to brand as "Not owned by PE" the same way health food has prominent labels on the packaging.

bombcar11• 2 months ago

I knew of a family-run hoagie shop that sold to "investors" (not sure if it was PE, probably was) three times, each time they ran it to shit amazingly quickly, and they were able to buy it back for a song and fix the damage.

doom2• 2 months ago

The bad PE phenomenon buyout is annoying, but businesses that become miserable for the customers and employees are not stable long-term businesses

What happens when those businesses are hospitals, for example? I've read too many stories of hospitals getting bought by PE and either shutting down or staying (while offering increasingly poor service). In one outcome, it reduces the accessibility to healthcare. In the other, it forces those most unable to choose to stay with subpar care. In both cases, it's not like other health systems are rushing in to replace what has been lost. We just end up with fewer and shittier hospitals.

antasvara2• 2 months ago

Succession is hard for businesses with a majority "intangible" value. Think private practice doctors: your patients are with you because they like you as a doctor, so the "value" of your business is tied directly to your continued involvement.

Family businesses have traditionally gotten around this by having their children involved for 10+ years prior to taking over. That way, you slowly transfer your "social capital" to the new owner (in this case your kid). This is understandably harder to manage with a stranger, because you can't transfer the value before they buy it, but they won't buy it if they can't guarantee you'll help them transfer the value.

yoyohello13• 2 months ago

You can have succession without passing it on to a biological child. Train a replacement who understands the company values. Hell, you could even do adult adoption the ‘carry on the name’ if you really want to.

jraby3• 2 months ago

It used to be much easier to go public and cash out. These days the qualifications are much higher and the legal reporting requirements are incredibly expensive.

missedthecue2• 2 months ago

"Hard-working founders should be able to cash out, but there has to be a better system than this one."

The entire SBA loan program exists to solve this.

phkahler• 2 months ago

> a structure where 50 to 90 percent of the purchase price is financed by debt, and that debt is loaded onto the balance sheet of the acquired company, not the firm making the acquisition.

This just seems wrong. The buyer takes out a loan, how does that become the responsibility of the company they purchased? I thought loans used to buy a business treated the business as collateral, like a home mortgage. What lender would participate in this? and why?

NoboruWataya2• 2 months ago

The buyer takes out a loan, how does that become the responsibility of the company they purchased?

Because the company they purchased is now a part of them.

As for why a lender would agree to it, it's because these transactions are not as simplistic or universally disastrous as they are usually described. A lender will obviously only make that loan if it has a reasonable expectation of being paid back, and most of them are. They may get additional collateral like parent/affiliate guarantees and the loans will have covenants relating to financial performance etc.

elevation4• 2 months ago

Not all PE problems are existential; they will be outcompeted.

What keeps a newly graduated Veterinarian from opening her own clinic and undercutting the PE competition? With no massive loans on her books, she can profitably offer lower prices than PE can. She may even drive the local PE clinic out of business.

rocketpastsix4• 2 months ago

who are these grads graduating without massive loans hanging over their heads?

DoneWithAllThat2• 2 months ago

Yet there is no evidence of this happening in any industry or area where PE has become the dominant player. Why not? What you’re saying is nice economic theory but it’s clearly not happening.

bombcar11• 2 months ago

Because the pain is bearable and not too much.

If it becomes too much, things actually happen.

(This is the dark side of financialization, as it can be used to maximize human misery.)

ambicapter• 2 months ago

"Lower your prices to compete with massive sources of capital" Great idea.

brendoelfrendo3• 2 months ago

With no massive loans on her books,

Except every newly-graduated veterinarian does have a massive loan on their books, in the form of student loans. And even if she didn't, where does the startup capital for her clinic come from? Whether in human or animal medicine, starting your own practice--especially as a new grad--is usually the course of action with the highest-risk-to-lowest-pay ratio.

burkaman2• 2 months ago

How is a new graduate supposed to start a business without a loan?

elevation4• 2 months ago

Could a veterinary business not be bootstrapped?

Assuming you had $$$ for some supplies but couldn't afford to lease a commercial building, you could provide small mammal services from your vehicle, driving to people's homes to give vaccinations and well care.

Being mobile would also allow you to serve a larger market than a fixed clinic; you could serve a couple small towns on Monday, a couple others on Tuesday, and server a larger metro on the weekends.

Once you're consistently profiting $$$$/day you'll be able to start saving for the equipment you'll need for a commercial lease somewhere because you have both the cash, cash flow, a loyal customer base, and critically, a good sense of where a good location would be to serve them from.

Aunche• 2 months ago

People had no problem starting clinics in the past and they probably could today if they really wanted to, but there is little incentive to for the past few decades while the stock market has been booming. Why spend 80 hours a week struggling to run your own clinic and paying off loans when you can work 40 hours a week working for somebody else's clinic and invest your savings in the stock market?

charcircuit• 2 months ago

Find an investor.

vjvjvjvjghv• 2 months ago

First, opening a clinic requires some serious money. Then, if the new clinic gets traction, PE can make a very good offer for a buyout and the owner would have to be stupid or very stubborn to refuse. Most big companies these days just buy up competition. Good for the owners but bad for the customers.

the_sleaze_2• 2 months ago

Another thing which I've seen personally is that in general getting from 0 to 1 required HEROIC effort to the point that it requires a personality type.

How many veterinarians got into the game to become relentless, driven, scrappy and indomitable business owners vs because they love furry things and helping?

mamonster2• 2 months ago

With no massive loans on her books, she can profitably offer lower prices than PE can

Depends entirely on fixed vs variable costs. Rollups (which are very common now) work mainly because most "mom and pop" businesses can easily be "unlocked" by pooling the treasury, HR, accounting, commercial banking, supplier negotiations etc.

spyckie25• 2 months ago

The irony is that PEs exist largely because of pension funds. So to sum it up (not so nicely) we are transferring value from our current standard of living to pay for retirement checks for our old folks.

Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent. If they do not have the higher PE returns, they basically go out if cash in 10 years and everyone would scream bloody murder. But with the higher returns from PE they have 40-50 year runways and people can pretend everything is fine.

So PE firms exist to extract value from basically all high quality goods and services to show a high ROI to prop up pensions. They extract wealth by buying up companies and gutting the “extra” things in them - for luxury goods, it’s quality, customer service and warranties (like my venta humidifier or reformation dresses), for services it’s stripping the underlying excess risk management and quality control. One can argue that PEs make the business more efficient but in my opinion they just turn worker or consumer related benefits into profits (stakeholder and business benefits). It’s a transfer of value from worker and consumer to business and asset holders at a massive scale.

But sadly it’s not some evil dudes at the top doing this transfer, the market force behind it is because we promised old people way too aggressive paychecks when they retired. Pensions need to invest massive amounts of money into higher rates of return and PEs just happened to be the medium that is the most successful. Sure the people running the PE firm extract a ton of value drying up all luxury quality and robust services from the daily lives of working families, but their take home is a tiny fraction of the wealth they extract (but yes they take home a massive amount of wealth for an individual). Instead the wealth extracted shows up on a 1400$/m for some old person probably living in a retirement home somewhere.

So if you wanna fix or ban PE, solve pensions.

didip• 2 months ago

Had pension fund just invest in VOO, PE won't need to exist.

nemomarx3• 2 months ago

Why don't pensions just invest in index funds generally? High required rate of returns or?

alistairSH• 2 months ago

Yes, underfunded relative to future payout promises, so higher rates of return required to remain solvent.

pjc505• 2 months ago

They do (and will generally track the index themselves), but PE offers a higher risk/return profile and diversification.

mamonster2• 2 months ago

There are multiple reason:

1. If you assume that P.E is uncorrelated/has a low correlation to the stock market (subject of many years of diatribes), then you decrease volatility of your portfolio by adding it.

2. Because a pension fund has a lot of years until they need start to paying out, then it is natural for it to attempt to harvest the illiquidity risk premium.

3. The (edit: removed extra words) "high required rate of return problem" is really a defined benefit problem. A DC plan can (and probably should) just be in mostly straight indices unless it's so big it can negotiate a good fee with asset managers for other classes.

ninjagoo3• 2 months ago

Why don't pensions just invest in index funds generally?

Answering the implied statement - pensions invest in PE only to the tune of about 14%. [1]

[1] https://publicplansdata.org/quick-facts/national/

thijson• 2 months ago

I wonder if this creates opportunity for spinning up competitors to these PE owned companies. If they are underinvesting in their products in order to extract value eventually their offerings will not be competitive.

throw10920• 2 months ago

I think in theory it does, but in practice the customers of PE-bought companies don't update their priors fast enough.

If a company being purchased by PE meant that they lost the vast majority of their customers as soon as contractually possible, then the possible value extracted by PE would drop off a cliff.

This isn't necessarily the fault of the customers - we're all dealing with a lot of information to process.

And, up until recently, it was reasonable to attach reputation to brand instead of to owners.

And I think that's a lot of what PE exploits - the gap between people's belief about a brand's reliability/reputation, and the fact that the actual reliability has been a function of who the actual owners of the company are for many years - but people are still attached to the old mental model.

(there may also be some value for PE to extract from assets aside from customer relationships and the higher-order "brand value", but I suspect that that's secondary - if I'm wrong please correct me)

mcphage4• 2 months ago

eventually their offerings will not be competitive.

How so?

matheusmoreira2• 2 months ago

Interesting perspective. I had never considered that before.

halfcat• 2 months ago

we are transferring value from our current standard of living to pay for retirement checks

Isn’t this just what happens when you have an inverted pyramid (older population is larger than the younger population)?

One can argue that PEs make the business more efficient

I’ve never seen it (I agree with you). To improve something they’d have to understand the business and do a bunch of work. Mostly they show up at quarterly meetings and want spreadsheets that measure some number that will go up (regardless if that number means anything).

if you wanna fix or ban PE, solve pensions

How does one solve pensions?

nekusar• 2 months ago

How does one solve pensions?

I was thinking that Covid and widespread antivaxxer mentality would have.

But no. This will be the latest ladder-pull by the boomers and silents to extract the last bit of wealth from all the younger generations. And this will impoverish gen-x and all younger generations even more so than we already are.

fny2• 2 months ago

A 30-year treasury offers 5% and A-grade corporate bonds offer 6.5%. You don't need to exploit essential services for the other 50bps.

[0] https://fixedincome.fidelity.com/ftgw/fi/FIYieldTable?popupM...

pjc505• 2 months ago

.. now. Five years ago that was more like 2%.

WarmWash2• 2 months ago

Because treasury rates are rising, it now actually puts even more pressure on PE firms to burn furniture.

kome• 2 months ago

I wrote about this not long ago: https://theloop.ecpr.eu/its-not-finance-its-your-pensions/ "It's not finance, it's your pensions"

(it's a blog summary of a much longer, and rather esoteric, academic article)

FuriouslyAdrift2• 2 months ago

Pension funds still exist?

pjc505• 2 months ago

There's $32trn of them: https://fred.stlouisfed.org/series/BOGZ1FL594090005Q

Who do you think is buying .. everything? They're holding substantial fractions of both the whole stockmarket and national debt.

jasode• 2 months ago

The pension plans for many government employees still exist. CalPERS (California Public Employees' Retirement System), Illinois Teachers Pension, etc. (https://en.wikipedia.org/wiki/List_of_largest_pension_scheme...)

It's the corporate businesses that have gotten rid of pensions in favor of 401k plans.

aidenn02• 2 months ago

Many government employees have pensions. Most of the ones I know are also ... skeptical of the future solvency of those funds by the time they retire.

yardie2• 2 months ago

One of the tools we use was bought by PE last summer. When it was time to renew our support contract had tripled in price. I use it across 10 projects so our costs went from $200k to $500k. I let our account manager know this was unacceptable but even his hands were tied. Cancelled those contracts and let them know we were retooling with a competing tool and opensource to fill those gaps. The impression I got was we weren't the only ones. Sales were getting squeezed between customers bailing and PE management wanting to stay the course.

I've seen PE make businesses more efficient by reviewing all contracts and dropping or renegotiating ones that no longer align. Closing product lines that aren't profitable. But that is year 1-2. By year 3 they start the squeeze, layoffs, asset selloffs (stripping), and lowering quality, raising prices. That is where the real teeth of wolf are shown.

cameronh904• 2 months ago

This is just the design of a PE fund. They run on a fixed cycle, so early on they heavily invest into their portfolio with the aim of resolving that risk and maximising the sale value by the end of the cycle.

In principle, I don't think there's anything wrong with this. All investment expects a ROI over some time horizon. Public companies do the same thing. Anyone who founds a start-up is doing it too. The only real distinguishing feature of PE is how successful they have become at aggressively optimising for market value.

The issue is that the sale value at the end of the cycle can be massively influenced by cynical financial engineering. This seems to me to be more of an issue with how every institutional investor apparently now prices companies purely on reductive metrics like EBITDA x the industry standard multiple.

The cause of the rot is widespread over-confidence in dumb financialization models shaping the system.

(Or, since it's HN: if your machine learning model is training well, but misaligned with real life: do you blame AdamW?)

mmooss3• 2 months ago

In this case, why doesn't someone else see a market opportunity and sell competing tools for less?

MisterTea• 2 months ago

When it was time to renew our support contract had tripled in price.

Currently in PE hell myself. Company I work for was bought out few years ago when the owner cashed out. Right out of the gate it was a numbers go up game. New sales person was hired and their first order of business was - drum roll please - triple prices! Customers balked. Some walked. In addition, some employee benefits evaporated, vacation time cut drastically, shitty health insurance switch, employee perks like the monthly pizza Fridays were canned as if ~$500/mo in pizza was going to bankrupt the company. Meanwhile, employee morale is at an all time low and quality has faded.

Perhaps there is good PE out there. Somewhere. All I see are vampires.

alexpotato3• 2 months ago

By year 3 they start the squeeze, layoffs, asset selloffs (stripping), and lowering quality, raising prices. That is where the real teeth of wolf are shown.

To play devil's advocate:

Doesn't this also open the market to new entrants?

e.g. young person looking to start a HVAC company in the old days couldn't compete with the established firm that already had contracts and the local market wasn't big enough for two players.

If the established firm gets bought by PE and driven into the ground, wouldn't the newer more nimble firm now have a better competitive market position?

Melatonic• 2 months ago

Seems like their might be an opportunity to start a private equity that buys extracted software businesses for pennies on the dollar and then revive those businesses with actually valuable (to the customer) practices

Or maybe by then nobody trusts the name of the original company and it's just useless

hermitcrab• 2 months ago

One of the tools we use

Does it begin with A and end with X? ;0)

Galanwe• 2 months ago

The irony is that PEs exist largely because of pension funds.

The irony goes way deeper than that.

A large part of PE clients are university endowment funds.

Harvard for instance has close to $60B in its endowment fund, 40% of which is invested in PE. At this point, Harvard is more an investment fund, with a university as side business.

wavefunction• 2 months ago

I don't believe that's ironic. Harvard and other "elite institutions" are the places with massive endowments, not state colleges or anything. Frankly the more I think about it the more it's nothing particularly interesting, just a fractal representation of the privilege of wealth as far as you want to drill down.

spyckie25• 2 months ago

I think, if you were to say there is a way where you can take $10b and have that money make more ROI with less risk than $1000 can, people would look at it and scream this is broken let’s policy this out of our economy. It defies all laws of a balanced economy (not a capitalistic one, a balanced one). It’s just like monopolies and we have strong laws against that.

But… if you were to say hey we need to pay our old people and we desperately need some way we can deploy massive amounts of money at higher rates of return, people will say… hmm well it’s broken but the alternative is worse so we’ll ignore it.

But now imagine you have a way to deploy large amounts of money and get large returns off that money. Every large amount of money (endowments basically) will jump on it because why not? That’s literally an endowment dream scenario.

So pension funds are the moral reason these other huge chunks of money to get large returns. PE firms have become a streamlined business model because they continue to improve what they are good at doing, and it’s insane that we haven’t passed laws against it yet. Except of course we can’t mess with it because it touches government workers.

So yeah even if we wanted to policy it out of our society it’s practically impossible from a social point of view.

jmyeet4• 2 months ago

This reads as apologia, blame-shifting, "I was just following orders".

People have to eat. They need water. They need a roof over their head. Nobody has to buy out all the veterinarians in an area at rates they can't say no to, have them sign non-competes and them jack up all the prices by 300% because, hey, you now own all of them. Nobody has to buy up all the trailer parks, which are normally peopple's last stop before being homeless, and then jack up the ground rent because, hey, where else are they going to go? Nobody has to buy up utilities, spend big on capex because legally you can pass on that charge and effectively double people's electricity bills.

Hannah Arendt coined the term "banality of evil" [1] decades ago and, in all honesty, I think it applies to the predatory nature of PE. It also goes for working for Palantir and a bunch of other companies. "I need to pay my student loans", "I'm just doing data science", "I'm just writing AI software that identifies when somebody is home" and on it goes.

PE serves no useful function in society. It's pure rent-seeking and incredibly predatory in many cases. ~15 years ago, there was a story about Goldman Sachs invented a derivative on the price of wheat and then essentially conspired to jack up the price of wheat [2]. This wasn't just manipulating a ticker on a Bloomberg terminal. It had real-world consequences. People starved and died because of this decision.

Yet I'm sure there were people who argued "I'm just doing legally allowed financial engineering here".

[1] https://aeon.co/ideas/what-did-hannah-arendt-really-mean-by-...

[2] https://theecologist.org/2011/sep/13/how-goldman-sachs-start...

jonhohle• 2 months ago

Worse than vets is hospital system and medical offices. In our area there are about 6 hospitals within reasonable driving distance. 1 is a mayo and the 5 others are split between the two major mega-providers. One of those also partnered with CVS/Aetna to provide marketplace insurance, until they decided that didn’t have high enough margins so they dropped 100k (28%) subscribers.

pphysch2• 2 months ago

Agreed. If we're gonna blame shift PE to pension and university funds, we may as well follow the thread all the way to the glorification of Greed.

spyckie25• 2 months ago

To clarify the main point is it is wrong but because it affects old people no one wants to crusade against it. It has the perfect moral excuse to hide behind.

aaronharnly• 2 months ago

I have no idea how reliable this source is, but it looks plausible - from the "American Investment Council", which appears to be some kind of private equity trade association ( https://www.investmentcouncil.org )

https://www.psprs.com/uploads/sites/1/AIC_PublicPensionRepor...

Some interesting details:

- "Nearly 50 percent of the private equity investment dollars that make their way into American businesses come from public pension funds", which substantiates OP's thesis.

- "U.S. public pension funds invest 9% of their portfolios in private equity, on a dollar-weighted basis." 46% is in public equity, so obviously the lion's share is in still in public markets.

NoboruWataya2• 2 months ago

This isn't surprising. Public companies tend to be lower risk (and therefore offer lower returns) than PE investments and pension funds want a mix of both. They want the juicy returns of PE deals, but a portfolio invested completely or mostly in PE would be unacceptably risky. Most pension fund mandates will set % limits on how much can be invested in different asset classes, with lower limits for riskier asset classes.

derf_• 2 months ago

So if you wanna fix or ban PE, solve pensions.

We solved pensions. People have defined-contribution plans now. I would expect insurance float to dwarf pensions as a source of PE funding.

The real reason PE exists is because it charges high fees. The financial industry does not make products to serve customer needs, though by happy accident that sometimes happens. It makes products to charge fees. Index funds removed a big chunk of the fees that active mutual funds used to charge, so financiers went looking for a replacement.

Even if you snapped your fingers and all remaining pensions (and insurance float?) disappeared, PE is aggressively going after individual retirement accounts, now. Most insidiously, trying to work their way into the "target date" funds that are the defaults for most plans. So "solving pensions" will not make PE go away.

MichaelZuo3• 2 months ago

Huh? Don’t many jobs still have gold plated pensions?

Like millions upon millions?

They need to be paid out somehow.

triceratops3• 2 months ago

The S&P 500 already returns 7%. Why do pension funds need PE?

And like FIRE devotees, maybe they should model a lower withdrawal rate.

bombcar11• 2 months ago

Because if you're hired as pension manager, and you just shove all the money into VTI, you're going to feel like you're doing nothing, and eventually someone will notice your job is redundant, even if you're outperforming your peers.

cameldrv• 2 months ago

You often see them “monetizing the brand.” That’s a nice way of saying “betraying customer trust.” They buy a company that’s known for high quality and then cut the quality. They can keep charging the high prices for a while until people realize that it’s not what it once was. After a while, higher end customers realize what’s happened and stop buying. Then the brand typically becomes a mid market brand and they start selling on Amazon to a less affluent clientele who still associate the brand with quality but wasn’t in their price range before. They usually cut quality again at this stage.

Effectively it’s burning all of the trust built up with consumers as firewood by tricking them into buying mediocre products at high prices.

kridsdale12• 2 months ago

It sounds like you’re on the cusp of an entropy model of commerce.

briffle• 2 months ago

My State is essentially screwed for budgeting, because for years, our public retirement system garunteed "AT LEAST 8%" to accounts. Some years was much higher. I have a parent that make more, 10 years after retirement, then they ever did working.

They moved around the year 2000 to accounts that don't have the AT LEAST clause, and they earn what they earn, but due to the backlog of people still retiring that were grandfathered in, its wrecking our state.

My city has a huge budget deficit, but 24% of its total payroll budget goes to the public retirement system to 'catch up' from years when it did not make 8%. Next year or two, that is supposed to jump to 28% of payroll.

Problem won't start getting better until something like 2034 when the boomers start 'leaving the retirement system'

bombcar11• 2 months ago

The "advantage" for pensions is that they get to "keep the principal" (unless it's setup even more insane than normally) whereas with a 401(k) the residual gets inherited.

regularization2• 2 months ago

Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent.

Pensions fund PE because PE can do a short term cooking of the books in order to smooth out the growth curve. So the return is usually positive each year, not raising problems.

Also what does significant mean? Pensions are the main mechanism non-wealthy people are investing in PE. Being that millions are involved, you would expect pensions would have a sizable portion of the market, but family offices and high net worth offices dominate. If it offers above average returns, why would they not invest? PE is like every other asset class other than housing, the top 1% own a large chunk, the top 20% own the majority, and the bottom 50% own very little. Decisions are not driven by sone fireman, they are driven by the wealthy like everything else. And the origin and continuation of pushing for retirement to come from capital investment comes from the wealthy as well.

subtlejellyfish2• 2 months ago

Significant meaning many PE funds are overwhelmingly (like 75+%) funded by pensions and sovereign wealth funds.

Its been awhile since I worked there, but CalPERS and CalSTRS were the two biggest LPs Blackstone had while I was there.

hdndjsbbs2• 2 months ago

If the government guaranteed basic human needs are met for every person (food, shelter, healthcare) there would be less of a need for giant pools of public money (pensions, insurance) sloshing around.

Mass index fund investment is basically socialism but stupid. My retirement money is going to get invested in the SpaceX IPO against my will. The market is not efficiently allocating capital, it's structured to allow elites to skim off the top while forcing middle class people to subsidize them.

Nasrudith2• 2 months ago

Where the do you think the government gets their tax money from if not the market? That is like saying we shouldn't kill animals from meat, we should just buy it from the store.

bs7280• 2 months ago

I've been saying pensions should not exist, as they are contradictory to our political system. Some politician 40 years ago can promise everyone the moon, and never force the next generation to figure it out. I'm from Chicago which has a nightmare pension system that's keeping me from ever buying a home in the city I love, because my property tax increases just go to retired people who moved to Florida.

I really appreciate this perspective as It helps fill in gaps in my mental model of where our economy has gone wrong the last 50 years. Unrelated but - I've read an interesting paper on how allowing private banks to create money has led to the infinite profit growth goose chase...

jordanb2• 2 months ago

I own a house in Chicago and my property taxes are much lower than my friends in the suburbs.

I live in a working-class southside neighborhood. The people who are complaining about property taxes for SFUs in the city are people in neighborhoods with skyrocketing home values.

Those people stand to receive a massive windfall when they sell. And while it may be annoying for them if they find themselves having to sell when they didn't want to, the they're vastly better off than all then renters in that neighborhood who got priced out much faster with no windfall.

gosub1004• 2 months ago

Your Chicago government has way bigger problems than covering its promises to deliver elderly people the standard of life they earned.

ninjagoo3• 2 months ago

I've been saying pensions should not exist

So what's your alternative proposal for people in retirement?

tonyedgecombe• 2 months ago

We all own the means of production. Communism crept in right under our noses.

wilkommen• 2 months ago

The stuff that old people need in their retirements to live is getting more expensive due to the types of shenanigans that PE firms are doing. So their pensions appear solvent now but when those old folks actually retire, their money won't go as far? Doesn't add up. I think the people who are really benefitting here are the usual suspects - the ultra rich, and the PE guys at the top doing this transfer really are evil.

cucumber3732842• 2 months ago

So their pensions appear solvent now but when those old folks actually retire, their money won't go as far?

The pension people aren't being scored on doing well for their clients. They're scored on money. They don't care.

Ain't no different than some jerk in an insurance/regulator office cooking up a rule about PPE based on first order assessment of a bunch of crappy data. The guy who gets mashed by a forklift he couldn't hear coming doesn't hurt their KPIs. He didn't suffer occupation related hearing loss. MissionAccomplished(TM)

Pretty much every industry that deals at the statistical level whether it's PE making investments or something else runs in this manner.

thrance• 2 months ago

No, if you wanna fix or ban PE, ban PE. PE is just a really easy and safe way for financiers to make extra cash, with huge externalities that everyone else pays for. The people benefiting from this are those who already have a lot of capital, and while it is true that old people generally have more than young people, don't fall for this simplistic generational warfare narrative. PE is also going after retirement homes and elderly care services.

It's just a ploy for the wealthy to extract even more wealth from the rest of us, while stripping the country for parts and dooming the actual economy for years to come.

On the subject, if you have 50 minutes to waste: https://youtu.be/tyNFosOFUDM?is=hwDH5tFCAYc7soHG

bondarchuk• 2 months ago

I don't get it. If pensions stopped existing, would people stop doing PE even though it's profitable? If it is possible to get outsized returns "because pensions need them" then isn't somebody gonna notice and get those returns anyway, pensions or not?

pphysch2• 2 months ago

Yeah, it's like blaming drug users primarily for the violence of the drug trade. Sorry, but the drugs came first.

spyckie25• 2 months ago

Slavery is profitable. People only stopped doing it when it was perceived as immoral.

Lots of things are profitable but immoral. People will do crazy immoral and illegal stuff for money, but we outlaw and slander the more abusive stuff, like monopolies and such.

If it wasn't pensions that were funding PE, I'm sure PEs would get a lot more criticism and would not be allowed to do what they do.

mbesto2• 2 months ago

would people stop doing PE even though it's profitable?

No but there would be a lot less PE dry powder available. To the parent's point - there is currently a trillion dollars in dry powder that is allocated to acquiring businesses. If that trillion dollars drys up then less businesses get acquired - it's that simple.

subtlejellyfish2• 2 months ago

Maybe... but if pensions are gone, how many entities still exist that will commit to locking up billions of dollars for 5+ years?

Joker_vD• 2 months ago

we are transferring value from our current standard of living to pay for retirement checks for our old folks

Well, yes, that's how any retirement (or any social benefit, really) system works: people who actually do work support the people who don't. Those latter include children, the elderly, pop-stars, politicians, etc. So unless you make people work until the day they die (which is possible, and have been done in the past, mind you — it just severely decreases the average life expectancy), we're going to transfer some of the created wealth to the elderly. The exact form of how this transfer is performed is a fascinating topic for discussion (make their direct descendants care for them! make a state-, or charity-funded fund to feed them hot soup once a day! make them save up for retirement themselves! lots of options, really) but it will still happen one way or another. After all, some people simply do have lots of money (and keep getting more) with doing no labour; some of them are retirees.

yieldcrv• 2 months ago

These are side effects of PE fund behavior, and where many of them get investors from

There are also many benefits you don’t notice because they don’t bother you

bigbadfeline2• 2 months ago

But sadly it’s not some evil dudes at the top doing this transfer, the market force behind it is because we promised old people way too aggressive paychecks when they retired.

You seem to be quite confused about pensions, not only "old people" have pensions. Actually the vast majority of contributions to pensions funds come from people who aren't old at all and are actively employed.

If they do not have the higher PE returns, they basically go out if cash in 10 years and everyone would scream bloody murder.

Where would they "scream"? On the internet? And who'd hear them? The answer is nobody in any PE cares about anyone screaming.

PE's operations have nothing to do with screaming old people, that viewpoint simply avoids the real issues and replaces them with red herring age baiting.

mgh952• 2 months ago

You seem to be quite confused about pensions, not only "old people" have pensions. Actually the vast majority of contributions to pensions funds come from people who aren't old at all and are actively employed.

This is exactly how pensions work: newer members to the defined benefits plan pay for older members. This isn't surprising.

Where would they "scream"? On the internet? And who'd hear them? The answer is nobody in any PE cares about anyone screaming.

At the ballot box. There is a reason that public pensions are exempt from the PBGC reserve ratio requirements. People with pensions aggressively vote their interest.

JumpCrisscross• 2 months ago

if you wanna fix or ban PE, solve pensions

PE is a bogeyman, emblematic of a problem but not the problem per se. The problem is leverage. Critical services should have a borrowing limit and prohibitions on any pay-outs to owners while any leverage is in place.

Kicking out private equity and replacing them with family offices doesn’t solve anything; removing the debt does.

swivelmaster• 2 months ago

This is an exceptionally high-quality comment. You on bsky or threads or somewhere I can follow you?

yfw• 2 months ago

Old rich folks

ninjagoo3• 2 months ago

The irony is that PEs exist largely because of pension funds.

Do you have any evidence for this claim?

Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent.

Again, please provide some sources for this claim. The S&P 500 index has returned about 15% on average over the past 10 years, and historically returned about 10% on average. [1]

So if you wanna fix or ban PE, solve pensions.

This is a misinterpretation at best. Pensions do not make operational decisions at PE - PE management does.

This statement mistakes a funding source for the whole business model, which is problematic. Pensions supply capital, but PE’s behavior is from the general PE model: buy companies, use leverage, extract fees, seek exit in 5 to 10 years, and earn management fees plus carried interest. That structure exists whether the capital comes from pensions, sovereign wealth funds, insurers, endowments, family offices, or wealthy individuals. Public pensions are one major funding source, not the whole machine.

This statement also implies that PE is mainly a pension-funding response, which would be a falsehood. PE did not buy nursing homes or hospitals or vet clinics or prison telecoms or ambulance companies or dental chains or infrastructure-like services merely because pensions put in capital.

[1] https://dqydj.com/sp-500-return-calculator/

hakfoo• 2 months ago

I always fancied the idea of 'dedollarizing' retirement.

When you turn 65/70/whatever, your pension/IRA/401(k) isn't paid out as a monthly cheque, but instead as a lifetime lease to an apartment in a retirement complex with subsidized services, and a relatively tiny cash stipend.

The quality of life remains comparable, except we've removed the ceremony of passing most of the money through the hands of the pensioners on the way to landlords, medical providers, etc. But because the goods and services can be preplanned and bulk-contracted and managed long-term, the operation can get get more value out of $1000 than an individual buyer would get out of $1400. This reduces the pressure for high returns.

This also eliminates the risk of outliving your money. With a prepaid obligation to be fed/sheltered/taken care of, the risk is transferred back to the pension scheme, or society as a whole through a state-insurance-backstop fund, which is probably better resourced and capable of swallowing the risk than your typical individual 85-year-old in failing health.

toomuchtodo4• 2 months ago

Medicare, social security, and a senior housing unit?

amluto• 2 months ago

And then PE can buy up those subsidized housing systems and make them suck?

I’m sort of kidding about the PE here us particular. But institutions that aren’t run by people who personally care about services tend to be really bad at maintaining things like food quality or ventilation or furniture or any of the hard-to-measure attributes that make for a nice housing situation.

anon291• 2 months ago

The only person other than me that I've ever seen point this out. The reason PE exists in America is because of pension funds, including government pension funds. This deserves to be called out, because we cannot expect an entity reliant on PE in order to not go broke (the government) to properly regulate PE. The incentives are all wrong.

reenorap• 2 months ago

ZIRP created a level of absurd wealth such that the ultra wealthy can buy large swathes of things that they never could before, and they’re doing it. And societal norms and laws can’t keep up with it to protect us from them.

Now they are buying fire stations, dentist offices, ski resorts, whatever the fuck they can think of and then raise the prices. Something needs to be done to stop this.

c54• 2 months ago

Good article and discussion but I couldn’t find anything about the author? There’s no bylines or about page anywhere on the site.

Does anyone know about the source?

malfist• 2 months ago

Because it's slop. It even starts the whole article with "It's not X, it's Y"

sbuttgereit• 2 months ago

Check this out...

https://rubbishtalk.com/media-kit/

Whoever put this together couldn't even be bothered to compete the template they were using.

WarmWash2• 2 months ago

Run from investing in PE, run as fast as you can.

I (and leaders at my PE-owned company) cannot say enough bad things about private equity. How anyone who managed to make money in their life decides PE is a good investment blows my mind.

We are now on our 5th PE firm in 10 years, and just completed a "PE lifecycle" of buy -> merge -> sell -> part out -> merge.

None of these PE firms bring anything to the table. Even the hundreds of billions AUM giants. They have zero interest in tangibly improving the company, and lots of interest in cheap window dressings meant to fool other PE firms. Not that they could do much else, because it's mostly business grads with minimal real world exposure, and hunger to be rich above all else.

The most critical thing to understand is that they pay themselves "advisory and oversight fees" for the incredibly difficult work of increasing sales targets 300%. These fees can eat 10% of our revenue, and is one click above theft. Trust me, they will lay-off 75% of the company before even considering cutting back their personal take. Never mind the fees they take from investors too. They bill both sides.

Also, if they kill some of the companies they acquire, it's the investors loss. It is not their loss. They still collect all their fees just the same.

There is a total misalignment between investors and PE firms, where PE firms just want to maximize their looting while investors think they are actually trying to improve the acquired companies. If the invesotrs do see gains, it's mostly because the firm successfully conned another firm into overpaying.

Run from investing in PE, run as fast as you can. Recently they changed the law to allow regular people to have PE in their retirement. They are running out of useful idiots, and want access to the general public. DO NOT FALL FOR IT

htrp• 2 months ago

so basically the principal - agent problem turned up to 11?

matheusmoreira2• 2 months ago

Looting is a rather apt word. What really breaks me is the fact that these are the people who are making it. Destructive people who extract every last cent of value from everything in sight are winning. Society actively rewards this. Constructive people who are actively trying to add value to the world face many more risks and difficulties.

conductr• 2 months ago

Have worked in C levels of many PE portfolio companies across industries and this all tracks for me.

I make a good amount every time the company changes hands so I’m kind of complicit but I also try very hard to run each company the best it can be run from the perspective of all stakeholders. Sometimes they just live in la la land with their expectations. They put together an investment thesis prior to investing and cant wrap their heads around any deviations from some stupid excel model they built with 5-10 year financials all on rose colored assumptions. One business I was a part of had a new government regulation immediately erode 40% of their revenues and every month explaining it over and over why we were down to plan was ridiculous. Then the annual budget we told them would be a readjustment to reality. When we presented it they acted flabbergasted. This same thing went on over and over until I just got fed up telling them I didn’t care about their investment thesis and would only discuss reality and left the company purely because of the investors. Stuff like that is pretty common

scary-size• 2 months ago

Huh, that somehow reminds me of Crassus from Rome [1]

The first ever Roman fire brigade was created by Crassus. Fires were almost a daily occurrence in Rome, and Crassus took advantage of the fact that Rome had no fire department, by creating his own brigade—500 men strong—which rushed to burning buildings at the first cry of alarm. Upon arriving at the scene, however, the firefighters did nothing while Crassus offered to buy the burning building from the distressed property owner, at a miserable price. If the owner agreed to sell the property, his men would put out the fire; if the owner refused, then they would simply let the structure burn to the ground. After buying many properties this way, he rebuilt them, and often leased the properties to their original owners or new tenants.

[1] https://en.wikipedia.org/wiki/Marcus_Licinius_Crassus

b65e8bee43c2ed0• 2 months ago

Upon arriving at the scene, however, the firefighters did nothing while Crassus offered to buy the burning building from the distressed property owner, at a miserable price.

sigma

usui• 2 months ago

Nice establishment you got here—be a shame if something happened to it.

I wonder if the incidence of fires increased during this time.

jihadjihad• 2 months ago

Or a side hustle of exorbitant P&C insurance.

Balgair• 2 months ago

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

For the curious, above is how Crassus died.

TLDR: Got over his skis and mad with power and money. Decides to invade Parthia. Gets wrecked by horse archers. That ends up being typical for Romans, but this was the first-ish time that happened. Some of those captured legionaries may have ended up in China, though it is unlikely.

https://en.wikipedia.org/wiki/Liqian#Lost_Romans_myth

NooneAtAll3• 2 months ago

so instead of simply financing military operation and staying home, he went in himself?

in some sense I even respect that decision

yareally• 2 months ago

Gets wrecked by horse archers. That ends up being typical for Romans

I don't think the Western Romans ever really learned from it did they? The Huns ended up wreaking them pretty hard.

I know the Eastern Romans did learn at some point out of necessity by creating their own professional units and hiring mercs.

themafia• 2 months ago

Historia Civilis did a great video on this battle:

https://www.youtube.com/watch?v=bR7VDPUj5AE

akudha• 2 months ago

If the waiting time for a fire truck is 4 years, can't fire departments import from abroad?

adolph• 2 months ago

An interesting aspect of this story is that America has an idiosyncratic approach toward firefighting vehicles that demands very large bespoke vehicles from a limited set of vendors [0] that are primarily used to bring a set of first responders to medical emergencies. [1] This philosophy carries on to other aspects of fire fighting like the very famous wooden ladders of San Francisco. [1]

Cost insensitive customers with bizarre business requirements, what could go wrong?

0. https://www.slashgear.com/1890538/why-american-fire-trucks-b...

1. https://www.pulsara.com/blog/why-does-911-send-a-fire-truck-...

2. https://sf-fire.org/our-organization/division-support-servic...

thecolorblue• 2 months ago

PE profits sound like other companies opportunities. Unless there are barriers to entry not covered in this article, I would think other companies could move in, deliver a fire truck faster and at a lower cost, and at least take a portion of the market that is able to switch.

muddi9003• 2 months ago

The Capex and Opex requirements to do anything in the US are THE barriers to entry.

Nobody has that kinda cash lying around, banks can't justify such high liabilities, and VCs are not interested in "stable", businesses.

jeddawson• 2 months ago

The purchasing process is the barrier to entry. Municipalities are required to run a request for proposal on anything over ~10k. The RFP gets awarded to a PE owned manufacturer that then takes 4+ years to deliver. The municipality is locked into the vehicles they don't have so a new market entry needs to simultaneously establish a track record that qualifies them for being awarded an RFP and be able to wait out the purchase lag. Not impossible, but easier said than done.

senderista• 2 months ago

This subject deserves better than an AI slop article.

avazhi• 2 months ago

Couldn't get through the first line lol.

Why would anybody expend time reading something that is probably full of hallucinations? And what's crazy is clearly only a few of us have enough experience with Instruct Mode LLMs to even spot it. The rest of these guys don't even know they're reading slop.

triceratops3• 2 months ago

To be fair they warned us with that domain name.

thelastgallon• 2 months ago

PEs own a LOT more than whats on the article. All kinds of home repair (HVAC, Plumbing, electric), child care, dental offices and many others. They buy the local companies, keep the same name (so folks think it is the owner/local company with awesome yelp reviews), enshittify, jack up prices and extract as much as possible with smooth talking sales people.

swayam_41• 2 months ago

I really like the model, privatising it can be far better as a private firm employee & equipment's will work better also if execution is correct, it can be cheaper and more productive.

sanex• 2 months ago

The theme I keep seeing in all of these problems about our economy is unfair access to debt. PE firms get a loan that you can't and then buy out your company? Giant megacorp get a loan for more than your companies value and make an offer you can't refuse. Billionaires live off loans instead of income and avoid paying income taxes. So many of our issues can be traced back to unfair access to debt. Too much cash in the system chasing returns. We need harder money.

forshaper• 2 months ago

If you go after an entire market, they'll close ranks. If you go after specific business groups (such as REV), they'll probably be easier to divide and rule.

xrd• 2 months ago

See also Matt Stoller on fire truck private equity:

https://www.thebignewsletter.com/p/did-a-private-equity-fire...

Sebguer2• 2 months ago

this article is literally just an LLM regurgitation of Stoller / Musharbash's reporting and research on the topic.

billbrown• 2 months ago

And it blames the sidelining of more than half of LA's fire trucks at production delays for new fire trucks? Well, I say "blames" generously—what it really does is "insinuates" since it never connects the consolidation back to the original charge.

Moreover, one company having control of 44% of the market would suggest that there might still be other options available.

What trash.

clearstack• 2 months ago

look at the interest expense line on any PE-backed company 10-K. healthy operating business, absurd debt load. the business doesnt decline — the capital structure slowly kills it.

SoftTalker• 2 months ago

"PE firms load acquired companies with debt, cut costs aggressively, then resell at a profit"

The last part never made sense to be. Where do they find willing buyers for these debt laden, hollowed out husks?

blindriver• 2 months ago

That's where the scam is. They sell to their pension fund and mutual fund buddies, and in return when they get a really good deal, those funds will be first in line. It's a scratch-my-back-scratch-yours kind of deal that is utterly corrupt but no one seems to care because the losses are papered over by these huge funds.

Ozzie_osman• 2 months ago

This is a racket and should be illegal.

game_the0ry• 2 months ago

This is "you will own nothing and you will be happy" in practice.

danielmarkbruce• 2 months ago

PE isn't really the issue. Some things just shouldn't be run for profit - doesn't matter who the owner is.

carabiner• 2 months ago

PE are the management equivalents of slumlords.

pickledish• 2 months ago

clicks

When a fire truck fails to deploy in a burning building and four people die, the cause isn’t just mechanical failure. It’s a business model.

leaves

tavavex• 2 months ago

When a user clicks the 'close tab' button, it's not just sending a command to their browser. It's sending a signal of disapproval.

nargella• 2 months ago

I think an unintended byproduct of prolonged cheap capital is an environment ripe with antitrust issues. I’m all for capitalism mentality but this feels like a logical extreme and is not good for the long term.

Other examples not mentioned: eggs, kids athletics, I’ve heard stories in fintech services as well

dzonga• 2 months ago

a.i written shit - no reading.

30minAdayHN• 2 months ago

I've seen this in K-12 EdTech. Most of the companies are owned by PEs. Digital curriculum companies, Assessment companies, Auth companies (like Clever), etc. And these PEs have portfolio of them and keep expanding. Not saying good or bad, just an observation.

znnajdla• 2 months ago

The Abrahamic religions have a natural safeguard against excessive wealth concentration: ban interest-based loans to private individuals (usury is shunned in the Bible and the Koran) and instead encourage a wealth tax on hoarding that directly transfers charity from the wealthiest to the poorest (tithe or zakaat).

Some modern economists have suggested this should work theoretically if properly implemented. See Helmut Creutz, Das Geld-Syndrom (1993) and “The Natural Rate of Interest Is Zero” — Mathew Forstater & Warren Mosler.

aeternum• 2 months ago

And which countries does this work for? They all still somehow still manage to have palaces.

There's also a strong argument that charity transfers to the poor does far more harm than good. How do you price a field worth of wheat, a mill, or even a local grocery when an airdrop of processed flour and food rations can arrive at any moment with no warning? And how do you get the capital to start one of those when it's illegal to get a loan?

Of course there are solutions if you have enough tenacity, but the overall result is far fewer businesses started because the friction is just so much higher.

chupchap• 2 months ago

ban interest-based loans to private individuals

LOL, read up on how baking and loans in Islamic countries work. Banks buy whatever you want and then sell it to you partially at a higher rate. The customer then pays a rent for the portion owned by the bank till the principle is paid off. No interest charged technically, but effectively they do pay; except it is now kosher/halal. We humans use language to work around every such restriction by debating on the literal meaning of any such religious restrction.

runeks• 2 months ago

[...] instead encourage a wealth tax on hoarding that directly transfers charity from the wealthiest to the poorest (tithe or zakaat).

Hoarding of what?

Commodities? Should I be taxed for hoarding firewood before winter?

Money? Only poor people hoard money. The wealthy invest it.

Glyptodon• 2 months ago

Putting the financing debt on the books of the thing that's bought instead of the purchaser's shouldn't be legal IMO. Imagine if you could buy houses and leave the mortgage on the house's book instead of your own. It's a total farce.

mountainofdeath• 2 months ago

Of course they would. Private equity looks for the following things 1. Things with an inelastic market and fixed demand. 2. Many overlapping small time competitors. 3. Steady cash flow, preferably with low capital costs though not always

You can take the cash flow, take debt against the companies own cash flow to buy it, pay yourself back, consolidate, then raise the prices on a captive market.

czbond• 2 months ago

Funny that Eric Ries book "Incorruptible" was released yesterday - it applies directly to the PE owners who should possibly rethink their approach.

berellevy• 2 months ago

I wonder if the fractional reserve money system helps perpetuate this in any way?

djoldman• 2 months ago

What's rarely addressed in these articles is the question: if the product/service is so bad relative to the cost, where's the competition? Specifically in this article about fire trucks, they say that margins have tripled... ok, why isn't anyone jumping on that?

tartuffe78• 2 months ago

I imagine it's not trivial to start a fire truck company.

somelamer5672• 2 months ago

The PE vultures are deliberately targeting business sectors with high barriers to entry. It's part of the grift.

jancsika• 2 months ago

why isn't anyone jumping on that

So you're looking to attract investors with smaller margins on specialized $500k trucks that don't yet exist for a sector already monopolized by PE?

BirAdam4• 2 months ago

All of the oldest folks I knew were wrong about many things, but they were right to say that morality must be at the center of all public discourse. Pensions were part of the contract of employment for many old companies. As those companies became more interested in ever higher rates of return without offering higher value to customers, the companies became fragile. Becoming fragile, they were eventually broken. Then the pensions are unfunded by no fault of the employees.

A company doesn’t have to make billions per quarter to be solvent, it only needs to beat inflation. Beyond that, the people running the company should have some basic human decency. If they don’t, we as consumers, employees, founders, whatever can and should cease doing business with them.

kokanee• 2 months ago

We need to figure out how to effectively organize boycotts, and find a way to actually incentivize participation.

I'm spitballing here, but what if we created a browser extension that gives users the option to block various monopolistic/oligarchic tech platforms. If the browser navigates to a blocked platform, we show a "consider these alternatives" page instead. Competitors to the monopolies could offer incentives (raffles, discounts, etc) in exchange for promotion on the recommended alternatives list, creating an incentive to participate in a boycott.

Example: a user opts into an Amazon boycott, but later clicks an affiliate link that leads them to a book listing on amazon.com. The browser extension intercepts this and displays a list of other places to shop for that book. Barnes and Noble offers a 10% discount for people who boycott Amazon, so they're the top recommended alternative, and the user gets the book for a discount.

BirAdam4• 2 months ago

That’d be cool. I am not good at negotiating, sales, or anything g of that sort so I’d be the wrong person to help get companies on-board. I’d love to see something like this tho. I’d certainly use it.

ChaseMeAway• 2 months ago

I was working on something adjacent to this for a little while.

It was a Chrome extension which allowed a user to upload a list (pluggable community-maintained lists, akin to ublock). It would light up when a user was on a site in the list with details about the site, the ownership/board, recent news, etc.

It also had a space for recommended alternatives. I built it because I was tired of giving money to companies who used the profits to make society worse.

I’d be down to pick up work on it again and get development going in the open or shift to work on the more commercial oriented design you describe. Lmk a good way to reach you if you’re open to it.

If you’d rather I can set up an email for this alias I just don’t have one handy to post publicly at the time of writing.

cogman10• 2 months ago

While I'm ok with the notion of boycotts, they aren't effective in a world dominated by monopolies.

It's basically impossible to boycott amazon completely because of AWS which powers everything.

The hard thing needed is better politicians. And to get better politicians we need a better and more politically literate voting public. To get that, we need better journalism.

It's a real hard battle to win especially since a huge portion of the electorate will vote for the incumbent and the incumbents will deploy every dirty trick in the book to stay in power. Including getting people to run to split tickets.

But that's ultimately what must happen. The thing Amazon or Walmart actually fear is a government willing to regulate them or their employees unionizing. And the only way to get regulations is voting for politicians that do that and voting out politicians unwilling to do that. For unions, you have to convince people that even though it may cost them their jobs, it's worth it to drive the likes of Walmart out of town to support more local businesses. It helps to get union friendly politicians into office.

(Un)fortunately, there's a pretty big generational divide. As boomers expire, I have hope that Gen X and Millennials will make things better. The question is how bad things will get before that happens.

amazingman• 2 months ago

All of the oldest folks I knew were wrong about many things, but they were right to say that morality must be at the center of all public discourse

Most of the Trump supporters most everyone here knows are also the oldest folks they know. Funny that.

BirAdam4• 2 months ago

I wrote: “oldest folks I knew” and I was referencing those who are no longer with us, and who were members of generations before boomers…

doctorpangloss2• 2 months ago

Yeah, buddy, lemme tell you, every old person you ever knew, if they had the good luck to have bought a house in California in the 80s or older for kopecks, that they pay basically no taxes on, and then will go onto leave in a completely dilapidated state to sell for $1.5m... suddenly they're not talking about the morality of their windfall, right? How do you not see that?

BirAdam4• 2 months ago

First, I’m not talking about boomers. Second, if I were, those same people paid taxes on that house for decades. Is it not okay for that rate to fall in their latter years? If they sell, they then pay taxes on that sale amount.

Intergenerational war is stupid. Why be angry because someone lived in a time they gave them a benefit? In the case of the boomers, they were also the generation beaten by cops, water cannoned, and shot for being antiwar and pro civil rights. While many boomers are crappy, they’re are also every bit as diverse as any other group.

Finally, the old folks I was thinking of were born in the 20s and 30s, not the 50s.

cadamsdotcom• 2 months ago

burning building and four people die, the cause isn’t just mechanical failure. It’s a business model.

Please edit out the AI-isms in your article. If you do, let me know and I’ll come back and read your thing.

Thank you for your attention to this matter.

casey2• 2 months ago

I haven't read enough Marx to see the thread between PE and a firetruck not being maintained properly or tested before use.

It's a good thing that profit margins for manufacturing have increased, it's a bad that cities don't want to pay what a firetruck is worth in a post-industrial country.

orborde• 2 months ago

Pangram (low false positive AI detector) tags this article as AI-generated: https://www.pangram.com/history/a520d0fd-335f-4cf2-8522-c608...

graphememes• 2 months ago

It's 100% AI generated

ropable• 2 months ago

Everybody gangsta about privatisation until it starts affecting services they personally use.

PE funds seem a bit like the latest manifestation of the 80s corporate raiders to me.

michaelteter• 2 months ago

Unregulated capitalism eats everything, including eventually itself.

There are other greed-based systems which also eat themselves, but we live in the era of capitalism as the vehicle of self-destruction.

Many of us won’t be alive to see it, but it will result in the fall of the US. Maybe it will be 50 years from now, but I suspect sooner.

Once enough safeguards get systematically removed, the rate of growth of the beast becomes unstoppable.

Eventually the few who have not been crushed and who have the (illusion of) control will have to wall themselves off in heavily guarded compounds to prevent the masses of desperate poor from overrunning them. It will be like so many dystopian stories that have already been written.

I see no way to correct it now, at least not in the US. Moneyed interests clearly have control of the government. The few good civil servants and elected officials are increasingly under pressure to give up their principles and accept pay-to-play, lest they lose their jobs or what little power they had to do good.

This isn’t just a right wing problem (US right), because the same money flows to the left. At the end of the day, one side may indeed be more cruel, but they both support the same system.

4b11b4• 2 months ago

Fuck private equity practicioners at every end of the spectrum, I don't care what role you play and how big or small the firm is. I heard some crazy anecdote a few months ago about them buying up firefighting software and then just charging fire fighting departments higher prices while the software still sucked and basically holding it hostage while doing no maintenance. Fuck these motherfuckers, can't they have some fucking dignity to do what's right. How are people so lost.

Another anecdote is private equity buying up psychologist firms providing therapy to people. The dude told me people walk in with their chat gipity transcripts. The goal of the PE firm was to buy out and make money and then somehow offer some software to give these people a "productive" chat gipity conversation

Just get the fuck out of here already? How many fingers up your own ass do you gotta have to keep up that kind of work?

FireBeyond4• 2 months ago

The fire apparatus examples are no exaggeration, either.

2017 my city bought a Pierce ladder truck for $1.1M. The same-specced model that we ordered at the start of 2025 was $2M.

Our ambulance costs have gone from $250K to $250K. Engines from $400K to $800K.

And everything takes years - we're having to order multiple years ahead of time. Even a "simple" brush truck we waited for 30 months for delivery (and that's counting day 1 being "the day the Ford chassis was delivered to the factory for the brush truck build").

panhandler• 2 months ago

This is an SEO AI-slop article on an AI-slop publication. The bottom of the article advertises the SEO company. Its goal is to be engagement bait to generate plausible backlinks to rank higher in web search.

If it sounds substantial, it’s because it’s paraphrasing actual reporting, or it’s hallucinating. I found one of article it’s plagiarizing [1]. Other “articles” on the same site link to the real sources that the AI is regurgitating.

The topic is interesting and discussion is thoughtful, but I’m saddened to see it under a fake article like this.

[1]: The intro is an AI rewording of this: https://www.atlantanewsfirst.com/2025/12/08/burnout-fire-tru...

Private equity bought America's essential services

Related Stories