[model-15-DAV]

How has private equity become such a strong force today? They are eating the world it seems. Blamed for strangling stable chain-restaurants[1], shuttering toy stores[2], and now ruining bowling!

Of course, these were not the best performing stores, and perhaps large chains are out of fashion in the contemporary era. Is private equity simply the scavenger, feeding off the walking-corpses of these businesses, encouraging new growth? I would be more OK with that if it didn't end with shadowy rich finance bros owning everything. The kind of disruption that these PE firms accomplish feels a lot more like corruption to me.

1: https://www.nbcnews.com/business/consumer/private-equity-rol... 2: https://www.theatlantic.com/magazine/archive/2018/07/toys-r-...

[onion2k]

VCs all read Peter Thiel's book 'Zero to One' and embraced the idea of owning a monopoly. Rather than starting a business that grows and outperforms all the competitors, they're just leveraging massive sums of money to buy all the competitors to create one instead.

[keiferski]

That’s a pretty uncharitable interpretation of the book’s main idea, which is better stated that you should seek to invent something entirely new that is a defacto monopoly, rather than engage in competition with others doing the same (old) thing. His background in the hyper competitive world of law was the key connection point toward that realization. Basically, he says that ambitious people often end up competing against each other in law/consulting/finance etc. but they should invent something new instead.

[SJC_Hacker]

Yeah but lawyers/consultants/financiers still make bank

[toss1]

US politicians stopped valuing actual capitalism and stopped supporting anti-trust actions, accelerated by the SCOTUS Citizens United decision essentially equating money to free speech and allowing effectively unlimited corporate political donations.

Since then, there has been no downside to becoming an effective monopoly, so why make a better product?

Theil and his followers are exploiting a weakness in the system. If they can take all the money, why should they give a flip about anyone else in the system that supports their lifestyle? After all, it may take until they are dead for it to collapse.

[cameldrv]

Because antitrust laws are no longer enforced, so you’re allowed to create monopolies and jack up prices/cut service, and the government will no longer stop you.

[throwaway-blaze]

Actually it's because antitrust laws are stretched to the point that big acquisitions are no longer likely to win approval, so "alternative" exits are the only option.

Not to mention that until interest rates rose a few years ago, these PE acquisitions could be funded with cheap borrowed money.

[rs999gti]

Shouldn't you focus on the firms selling to PE's instead?

The PE's can only hostile take over public companies, the rest have to sell themselves.

I think the growth of PE's is due to the firms' owners realizing they don't want to be in business anymore, having the goal of eventually selling to someone (ala selling to FAANG in the DOT COM space), or the owners can't scale their businesses beyond what they are now.

[stackskipton]

>Shouldn't you focus on the firms selling to PE's instead?

Kind of but I also don't blame someone when PE firm shows up with briefcase full of life changing money and asks to buy. Few people can resist that temptation, especially as they get older.

[kentlyons]

And for small businesses, there is a massive wave of boomers retiring. Either they sell or go out of business. For the better ones, PE is buying and rolling them up.

[stevenae]

It is illegal, as a fiduciary (owner or director of a business), to not take a financially expedient deal (of course someone would need standing, ie as an investor, to sue). It is often seen as immoral to refuse one which would benefit, eg, friends or family who have invested.

[danaris]

This is not true.

As per Burwell v. Hobby Lobby Stores, Inc. - https://www.law.cornell.edu/supremecourt/text/13-354

> While it is certainly true that a central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so. For-profit corporations, with ownership approval, support a wide variety of charitable causes, and it is not at all uncommon for such corporations to further humanitarian and other altruistic objectives. Many examples come readily to mind. So long as its owners agree, a for-profit corporation may take costly pollution-control and energy-conservation measures that go beyond what the law requires. A for-profit corporation that operates facilities in other countries may exceed the requirements of local law regarding working conditions and benefits. If for-profit corporations may pursue such worthy objectives, there is no apparent reason why they may not further religious objectives as well.

[stevenae]

Thank you for the info. I am curious: is there a corollary, by which minority owners could sue majority ones, for lost profit? I suppose the key caveat to my argument earlier is that one must have standing to sue: if owners disagree (board decisions need not be unanimous), is there valid standing to sue.

[jogjayr]

If there is, then wouldn't there also be a corollary that allows minority owners to sue for not focusing on <whatever they care about>?

[stevenae]

Are you referring to the idea of "everything is securities fraud"?

[CryptoBanker]

That’s a pretty big over dramatization. You are assuming the company would not be able to operate and provide value to its investors without said deal.

[stevenae]

There is a discussion happening below regarding actual law. I would guess in a court, the argument could be reversed: one cannot assume there would be more profit without the deal, absent evidence.

[SJC_Hacker]

This only applies to public companies. Private enterprises can do whatever they want (within the law of course, and assuming they have majority interest)

And it may not compel a specific action. The law is there mainly to prevent situations whereby corporate officers tank a company on purpose say, for the benefit of another company for which they are the shareholders or receive other benefits. Say, pass on a deal from company X which has more favorable terms vs. company Y for which the CEO sits on the board. In this case the CEO could be held fiscally and potentially criminally liable for acting against the best interests of the company.

Short of a bankruptcy, I'm not sure there is any legal compulsion to sell off any part of a company.

[kgwgk]

> as a fiduciary (owner or director of a business)

An owner has a fiduciary duty to himself and a director is not the one who sells in the end: owners do.

[stevenae]

Sorry, by director I meant board. Eg, one empowered to make such a decision, which a disagreeing minority stakeholder might sue over.

[etc-hosts]

Reminds me of the numerous lawsuits filed against Maxxam for dramatically increasing harvesting of redwood forests in Northern California.

https://www.latimes.com/archives/la-xpm-1997-dec-03-fi-59990...

[matthewdgreen]

Or alternatively is PE identifying and enshittifying businesses that have (1) lots of dedicated customers who are path-dependent and unlikely to switch (e.g., older folks), and (2) perform essential services that have low (short term) elasticity, like emergency veterinarians. This seems like the smart move if you want to extract profit from society without providing much value in return.

There was an opinion piece posted here by Matt Stoller about "economic termites" and this is the pattern I recognize: where corporate involvement makes everything more expensive, while workers' salaries go sideways. https://www.thebignewsletter.com/p/economic-termites-are-eve...

[dpflan]

I too was curious, received some useful discussion here: https://news.ycombinator.com/item?id=40343284

[NoboruWataya]

That kind of value extraction can be very good for investors, so they give PE firms lots of money to deploy, and the PE firms then throw that money at the business owners who find it hard to resist. I suspect that's how.

However:

> Is private equity simply the scavenger, feeding off the walking-corpses of these businesses, encouraging new growth?

I think there is a lot of truth to this. The kind of business that is susceptible to this kind of pillaging tends not to be one with a promising future. A healthy company tends to trade at a healthy premium to its net asset value (reflecting expected future growth) so it makes less sense for someone to buy up the company just to extract the assets. I suspect in many cases the alternative to a PE takeover would be consolidation or just plain old bankruptcy.

There is a separate, but arguably related, problem of PE extracting consumer surplus, ie, buying a company and putting the squeeze on customers (charging more for shittier products) in order to increase profits. But that is far from a PE-specific problem, as can be seen from the many cases of enshittification in public companies.

The other point is that we only hear about PE deals that "go bad" (either for the investors or the company) because that's the juicier story. PE firms are buying up lots of companies all the time, but "PE deal goes okay" is not a good headline. There are probably a lot of brands out there that you don't even know are owned by PE. Contrary to popular believe PE isn't just about stripping the meat from dead or dying companies, though it is a common strategy (and one that is arguably more prevalent in certain parts of the economic cycle).

[graybeardhacker]

It's another example of enshittification. 1. Find something that makes money and has "inefficiencies" 2. Buy a controlling share 3. Make it more "efficient"*

*Here efficient means: remove everything that makes it fun and unique and replace with the least expensive, low quality alternative. Add invasive advertisements. Charge extra for anything that can be carved off the original service or product.

[deepfriedchokes]

Seems like the inevitable outcome of late stage capitalism with a lot of capital concentration and diminishing places to deploy it.

Ultimately they’ll probably just end up with all the land while burning what’s currently on it, as that allows them to put the squeeze on the entire physical economy, and then we’re back to feudalism all over again.