re: My Experience with Private Equity

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Find a small, solo vet. I did and she is worth it. Her fees are very fair in today’s vet market and she just keeps getting busier bc she cares about the animal and isn’t price gouging. Many vet offices have been taken over by PE, most of the larger clinics are PE these days.

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Yeah it seems they targeted some industries where there was a lot of bad management and lack of maximization of profits, but the market can and will react if they affect things too far. We just haven't had enough time to see that yet with the vet/dentist PE stuff.

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Family company of about 200-250 employees that I work for sold majority ownership of company to PE group. PE comes in and the first year is “business as usual”. CEO and management stays the same for the most part. They are very deceitful. Second year they start cleaning house. They insert their own CEO, HR gets wiped out and replaced with their own little moles, and then they really start trimming the fat in other departments. They demand 20% revenue growth for all sales reps no ifs, ands, or buts. Live and die by the numbers. Management by fear. They try to get the operating cost down and profit up as much as possible with the end goal of selling the company for a quick profit. They are leveraged against their investors and the bank. It’s basically like flipping houses except they’re flipping businesses. They’ve micromanaged us like I’ve never seen before, and turned a pretty good company in to a horrible place to work. Morale is lower than I’ve ever seen. PE will be the end of America.

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Welcome to every PE deal ever pretty much. Blame your former owners, G2 or 3 or whoever sold wanted another 1/4 turn of revenue in the valuation.

They could have sold to a family office whose investment philosophy was more aligned with the original owners/founders but they answered the greed bell the PEG was ringing.

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They’ve micromanaged us like I’ve never seen before, and turned a pretty good company in to a horrible place to work. Morale is lower than I’ve ever seen. PE will be the end of America.

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The beautiful aspect is the company dies a slow, painful death, and in its place creates a new opportunity for another company to rise up and take its place. This is why so many founders grow a company, sell it to PE, wait the required period, then start a competitor company. Their old clients return to them and they rob the PE vampires of what’s left of the company, then the cycle repeats itself

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really start trimming the fat in other departments.

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Nothing wrong with this.

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turned a pretty good company in to a horrible place to work.

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And this is what happens every time

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You know you have the ability to leave and go somewhere else?

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That's what I did.

Except it was a publicly traded company, not (officially) a hedge fund.

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This is why so many founders grow a company, sell it to PE, wait the required period, then start a competitor company.

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Michael Scott Paper Company

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Oh yeah, did I forget to mention they brought in their own executive crew and dismissed amd ignored hundreds of years of experienced people who had been doing this their whole lives? They ran me off... and had to hire 3 newbies who still call me for advice.

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Worked for a company that went private to public with PE backing. They would buy successful companies to “add capabilities to the company’s portfolio”. Within 6 months of purchase, they ran off most of the people who made the company successful and backfilled them with people with no knowledge of the business. By the next year or so, the company was usually running on fumes and barely getting by mostly on brand recognition in the industry but that only lasts so long. Rinse and repeat. It basically turned into a giant shell game.

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What is “too much money”?

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Poor choice of words. People who have enough money that making more is more for sport than necessity.

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What do you mean about the “debt vehicles”?

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PE firms buy struggling companies and then leverage their assets to acquire debt to "fix" their problems. Essentially, they are using their own "reputation" to take out large loans in the name of their new acquisition under the guise of saving companies, then hot shot the business to show a false sense of sustainability OR they piece them out and let them fail allowing the acquired company to default on the debt, and moving on to the next venture.

All it would take is for private equity to be required to provide their own funding for business revitalization for the first 24-36 months and the predatory nature of PE firms would significantly decrease. If they have skin the game, accountability for foolish business decisions would fall on them, and not feed the perverted incentive structure for banks to hand out new debt and bankruptcy law to protect all parties involved.

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Micromanagement sounds like good business management to you?

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No, but holding people accountable to improvement goals does. As I wrote in my post, I can’t judge your particular situation. I’ve been involved in a few P.E. deals, one of which is ongoing and a couple of more in consideration (in each case I am investing parallel to P.E. companies). I’ve functioned as VC in a few companies. A couple have gone tits up, and a few have done very well. I’ve yet to see the PE group be a negative factor.

In each of these cases PE was consultative and appreciated by management. I have seen some caustic cases. One is by a PE group that functions a lot like a conglomerate. If I mentioned the guy’s name who owns it you’d almost all know of him. He is a prick, and in doing due diligence on an impending offer from his PE group, we found that the management team at every company he bought (that we spoke to) hated him and rued the day they accepted his offer. Needless to say, we didn’t.

In my opinion, based on a substantial number of cases but by no means exhaustive, I think the caustic deals are a small minority and mostly limited to a few operators who mostly specialize in taking over underperformers. And sometimes that “bad medicine” is just what these underperformers need. Other times it is counterproductive and is just what you are complaining about.

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PE firms buy struggling companies and then leverage their assets to acquire debt to "fix" their problems. Essentially, they are using their own "reputation" to take out large loans in the name of their new acquisition under the guise of saving companies, then hot shot the business to show a false sense of sustainability OR they piece them out and let them fail allowing the acquired company to default on the debt, and moving on to the next venture.

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Isn't this what happened with Toys R Us?