Comment by Brushfire
4 hours 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?
4 hours 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?
> 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?
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.
> Because their customers, who they built a trusting relationship with, get hosed when the owner wants to cash out.
Sure, and it's often a real loss to customers, but are you suggesting mandating that you vet the person you're selling to for their business aspirations and then have some kind of legal covenant that binds them to those stated aspirations, enforced by...something?
Otherwise we can just be satisfied with shaming them, but seems like an awfully convenient way to sidetrack this conversation from the obvious remedies.
> That cash out comes from the future business increasing profit, which is over the longest term cutting service quality.
Which is a problem when the same person buying also bought up all the other dentist offices, so there's no choice, let alone competition, in services.
Eliminate that and the sweetheart buyout offers make a lot less financial sense and we can at least prevent the scales from tippng so steeply toward PE buying up all the dentists, hospitals, retirement homes, HVAC repair, roofing companies, pest control, etc etc
> Because their customers, who they built a trusting relationship with, get hosed when the owner wants to cash out.
Unfortunately people are mortal and everything ends. Even if a someone didn't sell their business to PE, the trusting relationship is over once they retire. There's no guarantee that someone new - even if vetted - is going to be as good as the previous owner.
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?
"Long-time pillar of the community pediatrician unveils true self by selling practice to Devil"
Run a small business for 20 years, work yourself to the bone, and then contemplate a big check from a buyout offer.
The buyer generally runs the service in a much worse way, so it's their management which comes under attack.
Because the buyer is the one monopolizing industries and stripping them for parts
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.