What has private equity ever done for us?
Discussion
Saw this short video on private equity firms buying up British assets:
https://youtu.be/hIyl5SI6OL0?si=3CGai3P_B_e7yT3q
I struggle to see the benefit of private equity firms to the economy. It certainly benefits those individuals working in the industry of course. Or people like me who have worked providing advice to them. But do they really help the economy or the businesses that get bought and sold?
It seems that almost no new money gets invested in the companies themselves to grow them organically and mostly the focus is on cost cutting to generate profits to service the acquisition debt or to give a track record to help with an exit three to five years down the line. Alternatively more money is borrowed to finance acquisitions to plump up the assets (again to make them easier to offload after a few years).
It also seems that the funds and banks that do the majority of investing and lending are taking most of the risk whereas management get a disproportionate upside if it all goes swimmingly. Therefore they are happy to take risks because a few really good deals more than compensates for the failures.
It isn’t all bad I suppose. There are cases where PE funds buy into smaller companies, taking an equity stake and therefore providing funds for growth and sometimes bringing some needed business acumen and connections. I just don’t we the benefit for mature businesses like Morrisons, Pizza Express etc that just get loaded down with debt.
https://youtu.be/hIyl5SI6OL0?si=3CGai3P_B_e7yT3q
I struggle to see the benefit of private equity firms to the economy. It certainly benefits those individuals working in the industry of course. Or people like me who have worked providing advice to them. But do they really help the economy or the businesses that get bought and sold?
It seems that almost no new money gets invested in the companies themselves to grow them organically and mostly the focus is on cost cutting to generate profits to service the acquisition debt or to give a track record to help with an exit three to five years down the line. Alternatively more money is borrowed to finance acquisitions to plump up the assets (again to make them easier to offload after a few years).
It also seems that the funds and banks that do the majority of investing and lending are taking most of the risk whereas management get a disproportionate upside if it all goes swimmingly. Therefore they are happy to take risks because a few really good deals more than compensates for the failures.
It isn’t all bad I suppose. There are cases where PE funds buy into smaller companies, taking an equity stake and therefore providing funds for growth and sometimes bringing some needed business acumen and connections. I just don’t we the benefit for mature businesses like Morrisons, Pizza Express etc that just get loaded down with debt.
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