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So why aren't the sellers before PE and buyers after PE aware of the fact that no value is being added by PE in the interim, and hence sell cheaply and overpay?

Why is it so obvious to you, but not these other people? How does this charade perpetuate? Maybe there is value in there somewhere?

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People selling to PE can usually see the writing on the wall, so they're eager to leave with whatever cash they can still get. That makes for low prices.

Buyers always think that they have some insight about the business that can materialise some yet-unrealised potential. You've probably done it yourself a few times, "if only Company X did this and that, instead of what they're doing now -- they'd make loads!". Everyone knows PE don't know how to run businesses beyond the basics, so buyers will always see untapped potential. That makes for high prices.

Why aren't the sellers and buyers meeting directly?

Business owners happy to get a payday, banks happy to loan money to a successful business. PE firms happy to be a middleman.

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