Comment by asdfman123
2 years ago
Private equity takeovers are often just scams to convert customer trust to short-term profits, but labeled as growth.
You can get away with cutting quality for a little while, but eventually customers are going to lose trust and you're not going to get it back.
the whole point is to flip the business in 5ish years.
Sometimes it is. The more cynical version of this, though, is to engage in a protracted liquidation of the business, and get as much return on the assets as possible in the short term, with no intention of the business surviving into the long term.
Optimistically, you could see this as a way of freeing operating assets from underperforming businesses and putting them back into circulation, clearing the way for superior competition. But that only works if there is superior competition to fill the gap, and the whole economy isn't saddled with dysfuction, perverse incentives, and bad leadership. Unfortunately, it seems like we're getting closer and closer to that latter situation every day.
I think your'e right that the playbook in reality looks more like a short term squeeze of cashflow with schemes far less imaginative than you'd think.
Some recent news stories I have enjoyed on the matter
*about Authentic Brands Inc - which in short parks on defunct retail brands and liscences out the manufacture while owning no capital themselves. https://www.npr.org/2023/11/02/1209684529/retail-bankruptcy-...
Two part podcast on implications of private equity form Freakonomics (I find balanced, rigorous, and asks challenging questions of its contributors)
1) https://freakonomics.com/podcast/should-you-trust-private-eq...
2) https://freakonomics.com/podcast/are-private-equity-firms-pl...
So goodfellas, basically: https://www.youtube.com/watch?v=ZPtjyqgZAUk
this is so funny. I hadn't thought about this movie in a while. Weird how many similarities there actually are
But that is the PE playbook. Take businesses and squeeze as many profits out of them before they die.
https://www.nytimes.com/2023/04/28/opinion/private-equity.ht...