The curse of private equity

[Clitheroekid]

My first ever visit here, but I couldn't decide where to post so on looking down the list it seemed the most appropriate.

I've often been concerned about the way that private equity seems to operate in the UK, which all too often seems to consist of buying a good and reputable company, loading it with debt and trading on its reputation while slashing costs and the quality of the product.

It seems that the situation is possibly even more serious in the US - https://www.theatlantic.com/ideas/archi ... es/675788/

Incidentally, I was surprised to read that private US companies appear to be subject to no disclosure obligations. If that's the case it's a fairly surprising contrast with the UK where all companies' records (or at least the basic ones) are readily available via Companies House. Does anyone with more knowledge of US companies than me know whether this is, in fact, the case, as it seems inherently unlikely?

[odysseus2000]

My first ever visit here, but I couldn't decide where to post so on looking down the list it seemed the most appropriate.

I've often been concerned about the way that private equity seems to operate in the UK, which all too often seems to consist of buying a good and reputable company, loading it with debt and trading on its reputation while slashing costs and the quality of the product.

It seems that the situation is possibly even more serious in the US - https://www.theatlantic.com/ideas/archi ... es/675788/

Incidentally, I was surprised to read that private US companies appear to be subject to no disclosure obligations. If that's the case it's a fairly surprising contrast with the UK where all companies' records (or at least the basic ones) are readily available via Companies House. Does anyone with more knowledge of US companies than me know whether this is, in fact, the case, as it seems inherently unlikely?

As far as I understand it, a private US company has only to declare its revenue to the tax folk, no public disclosure is needed:

https://www.investopedia.com/ask/answer ... e%20public.


This was one reason for the near private move by Tesla, not only are private companies freed of shareholders, they are also free of market prices for their equity which can be a blessing & is apparently one reason why SpaceX is private.

Branson floated Virgin, then hated what analysts & media were doing to the share price via biased articles & so bought it back.

In the UK private equity seen to have done well with Wicked, still trading, still where I often get building supplies.

Pound land is another story with a lot of debt after take over by South African private equity, that at one time threatened to take them under, but they survived seemingly on cash flow being large enough to pay off debt interest, whereas their competitor, Poundworld went bust.

I doubt private equity will do much in the current high interest rate environment, but it’s all the calculus of can a business be bought & a profit made with enough cash to pay interest on the money borrowed to buy the business.

Buffett is not a fan of private equity & certainly some of their activities have a spin like ambiance, but as so often there are good & bad cases of almost everything.

Regards,

[OhNoNotimAgain]

However bad you think PE is, the reality is worse.
If Adam Smith were still around he would describe their activities in two words:

Rent seeking.

[Lootman]

However bad you think PE is, the reality is worse. If Adam Smith were still around he would describe their activities in two words:

Rent seeking.

Hey, that is fighting talk. Some of us made a lot of money from rent.

My approach to investing in PE is to invest in the companies that are doing the deals e.g. Blackstone. And not the target companies, which are invariably struggling entities that are in need of some brutal tough love.

[tacpot12]

I've seen lots of value destroyed by management actions, something because they need to do something and can't see how to create more value so set about destroying it. Given how long some of the value has taken to create, PE firms need to be very careful that they really understand the value of the businesses they are investing in, and don't rape the company for the value, but rather use it to multiple the value.

[Wuffle]

Banking always looked similar to me.
Salaries so spectacularly out of kilter with everything else means you can get in and take punts for the bonus and be out with your 40% tax back before the brown hits the fan.

W.

[dealtn]

Banking always looked similar to me.
Salaries so spectacularly out of kilter with everything else means you can get in and take punts for the bonus and be out with your 40% tax back before the brown hits the fan.

W.

Really. And your practical experience of working for a bank is what? Managing a team in a bank? Recruiting for a bank?

[CliffEdge]

I've never worked for a bank.

[odysseus2000]

Banking always looked similar to me.
Salaries so spectacularly out of kilter with everything else means you can get in and take punts for the bonus and be out with your 40% tax back before the brown hits the fan.

W.

Really. And your practical experience of working for a bank is what? Managing a team in a bank? Recruiting for a bank?

If the allegations made by Farage & now going to court are proved correct then the business of banking, at least at Nat West, is something a very long way from most people’s image of what banks are there to provide.

Regards,