The joys of private equity firms

[Shaun @ Tru6]

Private equity firms are one nail in the coffin of this country. One of my vendors was purchased by one, got an email saying prices were going up. I thought not a big deal, everything is going up, easy to absorb and pass along as necessary.

I just got an invoice, first one after the email, it's 2.5 times what it used to be. So what was $1000 worth of work is now $2500.

That seems reasonable.

[masraum]

Sheesh! Avarice is going to be the downfall of society whether it's due to ridiculous price hikes, or consumers wanting the best stuff practically free which drives production to countries where labor is practically slavery.

[wildthing]

They think they can squeeze profitability out of everything they touch.

[wdfifteen]

No wonder China, Mexico, etc are "stealing" our jobs. Our business leaders are giving consumers no choice but to buy elsewhere.

[gacook]

Lots of people cried loudly about it in the 80s (jobs moving overseas/things being made in China). Getting that back is gonna be incredibly difficult. We are an extremely fickle and cheap society.

[908/930]

So you need to find out who was you're vendors competition and hope their prices are still reasonable, good luck with that.

[Shaun @ Tru6]

Originally Posted by 908/930

So you need to find out who was you're vendors competition and hope their prices are still reasonable, good luck with that.

That's one of the problems that skirts the boundary between micro and macro economics, whether it's a competitor charging more or a tariff on a foreign good, ALL prices rise to meet the highest because capitalism.

But the real issue is I have to train vendors to get the aesthetic and quality I need which is both exhausting and hits the bottom line hard. Especially today when blue collar has stopped meaning pride in work and been replaced with we'll take anyone with a pulse.

[LWJ]

I have had so many clients sell to PE. It seems almost universal that they can take a profitable company and run it into the ground asap. Just weird. Not a fan.

[Alan A]

Originally Posted by LWJ

I have had so many clients sell to PE. It seems almost universal that they can take a profitable company and run it into the ground asap. Just weird. Not a fan.

They milk as much out of it as possible by loading it with debt then flip it to some sucker.

As an aside two of the few companies that cater to LBCs were sold to PE within months of each other and then the other of that triumvirate lost everything in a fire - that had some unusual circumstances associated with it.

Waiting for the fallout there to show in pricing. PE isn’t doing it for the benefit of the customers…

[Scott Douglas]

A friend of mine who races his kit Cobra out at WSIR informed me that the track has been bought by a PE out of Boston of all places.

[Seahawk]

So, just to be clear, a business is offered money to sell and accepts it and folks here think it is the buyers fault, the buyer is to blame?

Here is an idea, you partner with the company, buy the company that is for sale or convince them not to sell.

Or not, blame the buyer.

[zakthor]

Serious question: isn’t an incompetent overpriced vendor just an opportunity for someone else to swoop in and do it better? PE done right has the potential for good, doesn’t it?

Looks to me like there’s too much money sloshing around and it’s just being spent stupidly.

[Shaun @ Tru6]

Originally Posted by zakthor

Serious question: isn’t an incompetent overpriced vendor just an opportunity for someone else to swoop in and do it better? PE done right has the potential for good, doesn’t it?

Looks to me like there’s too much money sloshing around and it’s just being spent stupidly.

Good point and worth discussion as on the surface it's what anyone would expect. There are some real challenges that any new business would have to overcome. There are of course the normal list that every new business faces. In those some can't be overcome in part because government regulation, sometimes created by long time existing business in the space as anti-competetive regulation and sometimes environmental. Two come to mind immediately:

Liquor licenses here in Boston have historically been impossible to get and when you can, they can be as much as half a million dollars. That is changing this year because too many restaurants were going under in part because they couldn't serve alchol.

Another is cadmium plating. That was outlawed decades ago but companies running cadmium then were grandfathered in. So if you want to open a plating shop in the country, you are limited to zinc, etc. and that means you won't be doing as much defense and aerospace and space as you could be if you also had cad.

For me, I can spend high 4 figures training a new plater to get the look and quality I need. Good example, many times allen keyed cap screws, and many other cavitied pieces will have voids (no plating and/or chromate) if they aren't wired a certain way, hung a certain way, rinsed a certain way... to say nothing of chromate time and temp to get the right color. I polish the insides of every cap screw. Having to do strip, tumble, polish, wire brush threads again is extremely expensive for me. So once I have trained a plater, I need to keep them and can't just jump to another especially since there aren't very many to choose from and most just want to do 1000 pieces that are identical the customer could not care less about aesthetics.

I think there are a lot of companies, big and small, in the same boat. The foundation of business is stable relationships and shared expectations. Private equity doesn't care about that as noted by others above.

[wdfifteen]

Originally Posted by Seahawk

So, just to be clear, a business is offered money to sell and accepts it and folks here think it is the buyers fault, the buyer is to blame?

Here is an idea, you partner with the company, buy the company that is for sale or convince them not to sell.

Or not, blame the buyer.

If the seller had a choice of whom to sell to or whether to sell at all, I would agree there is some amount of responsibility on his shoulders.
But we don't always have a choice - or the choice is too economically devastating to consider.

I'm at an age where I have known more than a couple of business owners who were ready to sell out and retire. If you own a business, retiring isn't like handing in your resignation and going to the beach. A good portion of your net worth is wrapped up in the business, and you need to liquidate that value to have money to retire on. We are in the checkout line in the supermarket of life. Our produce is beginning to rot. Our meat is shrinking and turning gray. We don't have forever to find the right buyer.
I was a 65 year old owner of a company I had been running since 1988. I was sick of it, ready to retire, and couldn't find a buyer.
By age 70, if my only choices were to fund a retirement by selling to a PE outfit and watching them put it out of business, or closing it down myself, retiring, and living on Social Security I would sell out.
And that makes it MY fault the buyer is a dick?

[Seahawk]

Originally Posted by wdfifteen

If the seller had a choice of whom to sell to or whether to sell at all, I would agree there is some amount of responsibility on his shoulders.
But we don't always have a choice - or the choice is too economically devastating to consider.

We always have a choice, both in the moment of selling and the years leading up to the sale.

Now, if the business must be sold, different story.

I simply dislike using terms in a blanket manner, like PE firms bad. That is too simplistic for reasonable discussion.

That was my point.

BTW, I get offers all the time for my small company from PE's, some odious, some not, but I know the space well.

[gsxrken]

To Paul’s point, I was the 7th employee of a PE-backed startup… access to capital allowed us to acquire 4 different companies; between the cross sell upsell and signing new business, have grown to over 900 employees. Some people lost their jobs, many more than that were hired. When it sells, most likely to a strategic or larger PE company, will it be a good day for the founders and investors? Yes it will.
Access to capital is why this country is still the envy of the world. The overly-simplistic “Wall Street” movie plot where PE hollows out, loads up, and sells off assets is not typical. Do they **** things up sometimes, and completely alter the culture of a company? Of course. Life marches on.

[Scott Douglas]

Shaun - I just gotta say, those bolts look really nice. The neighbor I grew up next to worked at Long Lock, the guys who made Nylock bolts, and he'd bring home bolts for us to put our go kart wheels together with and they NEVER looked that good even when new.

[john70t]

Royal👑Peasant @Shazlandia 2d

Private equity firms is why I can no longer buy fabric at a store that I’ve shopped at my entire life
Sewing will become a lost skill….
https://m3.gab.com/media_attachments/ba/92/09/ba920972fefe21761d411e25a6530535.mp4

[sc_rufctr]

Originally Posted by john70t

Royal👑Peasant @Shazlandia 2d

Private equity firms is why I can no longer buy fabric at a store that I’ve shopped at my entire life
Sewing will become a lost skill….
https://m3.gab.com/media_attachments/ba/92/09/ba920972fefe21761d411e25a6530535.mp4

Good Lord what a nightmare!

https://en.wikipedia.org/wiki/Jo-Ann_Stores

[Shaun @ Tru6]

Originally Posted by john70t

Royal👑Peasant @Shazlandia 2d

Private equity firms is why I can no longer buy fabric at a store that I’ve shopped at my entire life
Sewing will become a lost skill….
https://m3.gab.com/media_attachments/ba/92/09/ba920972fefe21761d411e25a6530535.mp4

This hits home for me and know all about it. For polishing aluminum window frames I buy a specific high end fleece that is super soft allowing me to perfectly polish one side of, say, a 911 door frame and then flip it over to the other side without ruining the surface I just put 4 hours into. So I am a regular Joann's customer. Was there last night.

I'm sure I can get it elsewhere in the future but only by mail.

What the PE firm bought when it bought Joanns was the real estate foot print. So it only makes sense to close all the stores and make more and easy money on real estate rent and sales.