[manifoldgeo]

There's a recent book called "Plunder: Private Equity's Plan to Pillage America", and seeing this news makes me want to revisit it. The author outlines the usual tactics used by private equity firms to turn a functioning business into their own short-term profit factory, often driving the business into bankruptcy in the process. EA already has a reputation as a semi-broken company, but things can probably get a lot worse.

One method they use is the consolidation of a bunch of small, related businesses. For example, PE firms buy out all of the local veterinary offices in a tri-city area, cut costs, lay off the most qualified vets and replace with less-qualified ones, increase prices for services, and operate a local monopoly.

Clearly, that particular tactic is much harder to pull on the massive oligopoly that is the gaming industry, but it was the one that stuck with me from the book. There are more baffling ones like selling off all the company's real estate, making them rent it back at a much higher rate than their current mortgages (which may already have been paid off), and then filter revenues out of the company via "consulting fees" paid to themselves and their friends for this bad advice.

The book is a little bit repetitive, and some of the tactics are beyond my grasp, but I'm excited to make a personal bingo card of them and see which ones get used on EA as they drive it into the ground.

[skeeter2020]

I read this book, and it's OK but both repetitive and biased. Surprisingly more "textbook" oriented works on PE are harder to find. Wiley had one but it's about 10 years old. The term "PE" also covers a lot of different models, from the worst 80's-style LBO "greed is good" ones, to honest invest-advise-stay out of the way funds. These modern huge deals almost always seem closer to the former. Having now been very close to two PE buy-outs and a big VC funding event, I think I actually prefer VC. Everyone is very transparent and open about what they are trying to do: pour rocket fuel on a fire and get rich. PE wants it all: big annual cashflow, cut all mid/long term costs (R&D, investment, etc) a juicy multiplier on the sale when they flip it to the next PE fund. Most recently I was at a 15 year old company that was doing 25% YoY ARR growth - amazing right? Well no, we were not covering our debt servicing from the most recent PE purchase, so had to cut everywhere and had a hiring freeze. You couldn't get any support to build for the next decade, because funds don't last that long and you don't want to be selling a company in the middle of a project that isn't generating revenues this year. It all makes me mad, sad and very tired.

[halJordan]

EA is the perfect candidate for private equity to destroy. There are zombie companies that need to be eviscerated, digested, and then excreted back into the world. The megacompanies of the video game industry are the result of a broken market and this is "nature healing itself." The free market will course correct and private equity is a perfectly acceptable vehicle for something like EA

[jajuuka]

We don't need to guess here though. PIF and Silver Lake have a pretty solid track record of over-investing in companies. Affinity Partners seems to be a shell company for the Trump family so I don't see them being active.