[yazr]

A typical PE buys the company with 20% cash down, and 80% debt (i.e. money borrowed from a bank).

They now have to find extra profit to pay the interest. Ideally they also get a healthy dividend or management fee every year.

This inevitably comes down to a. increased sales b. cost (i.e. salary) cuts

They also want to resell/IPO the company in 3-7 years - obviously for money than they paid for it. This is another constant pressure to increase profit (see a & b above).

HOWEVER Growing companies are usually not for sale and are very expensive. They cant be bought by PE. PE often looks for a troubled company which can be bought on the cheap, and can be somehow be kept profitable for a few years.

Hence (a) is difficult leading to focus on (b)

This of course is not all bad. Some academic studies have shown that PE companies do grow over time. The new management can trim the middle management roles and invest more in real r&d and product. YMMV