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Comment by chongli | Hacker News Reader

Private equity are the crows of the economy. They pick off weak / dysfunctional businesses and open space for fresh competition (or for other markets to open up).

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As far as I’ve seen that’s as far from the truth as it can be. They in fact consolidate terrible businesses, undercut the good ones and drive them out of the market until only they are left, after which point, they get even worse.

From what I've seen, they take a terrible business and liquify its valuable assets for their investors, freeing up capital to be invested more productively elsewhere in the economy. Of course those investors could take the money and commission a bunch of statues of themselves, but frequently they do something more productive than that.

A lot of the negative reaction to them seems to me to be mostly emotional. They'll dismantle a business that holds a lot of nostalgic value for people, even though it's long since ceased to be a viable and productive company. But it wasn't their fault that the business was in that situation in the first place! Years of mismanagement and neglect or perhaps disruption from a competitor left the business in zombie-like state. PE came along and put it out of its misery rather than allow it to slowly crumble while depreciating the value of its illiquid assets.

> lot of the negative reaction to them seems to me to be mostly emotional

Mine specifically stems from PE buying up all but one 24x7 emergency vets in a 20 miles radius from me. All of them were thriving businesses. There is only one remaining non PE ones has its days numbered. After monopolizing the emergency vet market, they shut down a few locations, which previously acted as competition for each other, effectively cementing monopolies in those individual neighborhoods as well. Now, you pay $200 to just get your pet checked out and always have to wait anywhere between 6-8 hours in triage if your pet isn’t literally dying, because they are perpetually understaffed and there are no other options. They also recommend unnecessary tests and treatments, present them as “optional” but refuse to treat your pet if you don’t agree to their “optional” treatment plan.

Lots of businesses have big positive externalities [1]. They provide more benefit to their communities than they take in for themselves. Unfortunately, these sorts of businesses are easy pickings for PE.

Artists are a classic example. They generate huge positive externalities for a community while reaping almost none of the benefits for themselves. Artists get severely exploited by the economy for this!

To counteract this problem we need other ways of addressing the positive externalities. In the case of artists, this usually comes in the form of public (and private) patronage and endowments for the arts.

[1] https://en.wikipedia.org/wiki/Externality#Positive

Man, it's horrible people have such an emotional connection to art and businesses that keep their pets alive. If only we could transform these into an asset that extracted wealth, now that would be great for society! Think of all the externalities!

Sounds like a problem with lack of competition. Would you have been happier if it was a publicly traded company that did it? Amazon health or some such?

They could do this, but there's not enough targets of this type for the money invested in the sector. They've also proven to not have the advertised & applicable expertise to run companies any more efficiently than current management. Nostalgia had nothing to do with it unless that's one of the company's assets. I've been inside on three PE acquisitions, and 5 sales by PE to new funds. The playbook was the same for them all: predictable, decent cash flow, cut expenses, grow enterprise sales, sell on before long term cracks from lack of strategic investment showed. If anything they accelerated the decline of healthy going concerns, but at each sale the insiders did great.

What you are describing the best-case scenario. They happen.

What also happens is, they take operating businesses with reasonable returns, buy up all it's supply chain or it's competitors to reduce costs or enable monopoly pricing, then load the company up with debt, squeezing it into a terrible company. That is the bad scenario which people object to.

An example: https://pluralistic.net/2024/02/28/5000-bats/#charnel-house

Crows deliberately spreading plague in order for there to be more corpses to feast on, to take the parent's metaphor further.

But seriously. Are there anyone who hasn't interacted with a business systematically enshittified in one form or another by PE?

If only it actually played out that way[0][1][2][3]

Whatever legal and theoretical role they play in the economy does not match the actual, real role they are playing: PE firms are by and large, economic vampires. They have a well documented history of sucking the life out of a sector at the expense of workers and consumers alike

[0]: https://www.wired.com/story/megan-greenwell-bad-company-priv...

[1]: https://www.theguardian.com/business/2024/oct/10/slash-and-b...

[2]: https://www.theatlantic.com/ideas/archive/2023/10/private-eq...

[3]: https://doctorow.medium.com/the-long-bloody-lineage-of-priva...

That's not true at all! Funds often look for mature companies with predictable cash flow. They can make returns while also squeezing margins under the illusion of expertise and economies of scale and seek to the next fund for a multiple. They're an alternative to the massive headache of going public and getting a liquidity event, not typically the model for your weak and dysfunctional company.

this would be somewhat arguable as okay except for their introduction into categories like daycare, emergency rooms, drug and alcohol rehab, care homes for the geriatric and disabled, etc. things that probably shouldn’t be profit oriented to begin with yet are and are being snatched up by private equity, worsening outcomes in basically all of them

"shouldn't be profit oriented" is another way to say "costs will quickly grow exponentially", because there's absolutely no incentive not to let them.

Is anyone better off if elderly care becomes too expensive to offer at scale?

1: "Shouldn't be profit oriented"

2: ???

3: "too expensive to offer at scale"

Except that Americans pay far more for these services than places where they aren't profit oriented. Try again. Reality does not support your assertion.

Tell that to former JoAnn Fabrics customers.

They should have paid more for the fabric, I guess. Private equity tends to loot things on the way down. Joann was on the way out regardless.

Lol, the "it's actually good for customers" response is "they should have paid more"? I love it.

Nobody in this comment chain was saying it was good for the customers. The GP was saying that they clear out room for new businesses, and if brick-and-mortar-fabric-superstore were still a viable model someone would be doing it.

I am looking for fabric right now and am terribly frustrated not to have anywhere but limited quilting shops available. Online is not an answer, because you can't handle the fabric for weight, exact color, and stretchiness.

JoAnn drove all the medium-sized fabric stores out and left us with nothing.

The lack of customer density over time drove out all the fabric stores - medium sized or not.

At-home sewing has been declining since I've been alive, and it was just barely hanging on when I was a kid. The demographics simply cannot support these stores in most locations outside of hyper-dense cities.

Not to mention the folks who shop for fabric tend to be some of the most cost-conscious consumers around. They are more or less the prototype of a customer who will go to a B&M store and then price match on-line,.

I'm honestly surprised even Jo-anne survived as long as it did.

How the hell does consolidation, monopolization, externalizing costs and extreme leverage "clear the room for new businesses"?

Even on HN playing the role of PE apologist is not going to fly ...

Consolidation frees up real estate, allowing new businesses to open. Where I live, old supermarkets are now farmers’ markets, trampoline parks, and health clubs, and an old car dealership is a church.

Fantasyland in the house!

The "clear out room for new business" argument is as absurd as it gets. If you think the landscape is packed to capacity with brick-&-mortar stores to the point that it needs "room for new business," you don't live in the USA.

They pick on the weak companies but the basic model is to pick over the corpse and leave someone else holding the bag. Make it look good on the surface, leverage it to the hilt, extract cash and let it die.

I think the avian analogy you are looking for are vultures picking at the remains of road kill.

How do I travel to the alternate universe where private equity apparently makes things better instead of worse?

You stay in this one. If PE wasn't producing value it would disappear. What, you think people dump money into PE because they want to twirl their villainous moustaches?

Most people would say that extracting wealth and concentrating it into an ever shrinking group of elites is making the world worse. They do this both from the companies you and I might work for, but more importantly from the markets that have no defenses.

This is a simpleminded parody of how a market works. Competition isn't concentrating wealth, it's driving down prices. The value ultimately flows to the consumers.

When PE salvages a failing enterprise, it's increasing the overall value of that enterprise, even if that means selling off parts that still have value. Those parts are made available to others at prices lower than they otherwise would have had to pay.

Wealth concentration flows from impediments to competition. There is no shortage of PE firms competing for these opportunities.

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