Article doesn't really dig into the angle I personally find most horrifying, strip-mining social capital.
In my area PE is gobbling up mom-and-pop apartment complexes, plumbing companies, restaurants, and generally making customers and employees alike pretty miserable.
Hard-working founders should be able to cash out, but there has to be a better system than this one. Succession, maybe. Not that we should push an unmysterious destiny on our children, but maybe more ought to consider pulling one?
How will that work - for example Y Combinator classes. They cannot be acquired? What about acquihires? Cant stop that - employees have their own agency.
> How will that work - for example Y Combinator classes. They cannot be acquired?
For the record: national economic policy shouldn't revolve around Y Combinator classes and similar startups.
I'm totally fine if it turns out a sensible antitrust policy completely destroys the acquisition exit pathway for tech startups. I'm not saying one will, but I'm saying that's a cost I'm willing to pay.
YC startups could just become mature businesses. Nothing wrong with providing a good service, earning a good profit, and employees maturing into stable careers.
The OP explicitly answers this: go back to pre-80s antitrust policy. Companies can be bought and sold but not if it creates concentrations of economic power that allow them to dictate prices to vendors or customers.
> Should Microsoft and Amazon have been able to buy Anthropic and OpenAI 5 years ago?
Antitrust enforcement can be done retroactively as well, if it appears that a large company abuses its financial firepower to undercut competitors or a marketshare gets too dominant.
If the acquirer has too big or dominant position already in the specific sector no. They should not be able to sweep the board of all companies doing single thing.
If the acquirer attempts to acquire a startup (regardless of investor) for anti trust reasons, or there are anti trust concerns, the M&A activity is disallowed by regulators. A recent example is Figma and Adobe.
I am not an anti trust enforcer or scholar, so I'm going to defer to experts in the field: Lina Khan, Matt Stoller, etc. That is the point of experts in a domain.
Quite clearly the word "consolidation" is referring not to acquisitions, but to M&A activity that achieves a certain level of, you know, consolidation.
Generally you don't hold a market dominant position in any sector that anti-trust regulators care about at 15 employees?
Frankly this stuff is impossible to talk about in the abstract. The details of every individual case matters. If you're actually curious (instead of just playing a shell game), you can go look up the types of analysis that FTC does to evaluate market dominance and whether a given transaction will excessively consolidate a market.
free market capitalism will always end like this though. the end goal of capitalism is the consolidation of all things into a megacorporation or oligarchy that controls everything, creates nothing, and earns infinite money
I simply don't understand why leveraged buy-out(LBO) is allowed in the first place. It is like paying for the company with the money from the company you are buying.
As a business owner, if you want cash today because you are done with a business. You could go to a bank and get a loan to pay dividends. This is a bad deal for the bank as you have no incentive to operate the business after you cash out the loan. A private equity firm comes in and operates the business on the model that they still keep some of the profits after the loan value.
The crappy side comes in as a customer, the PE firm can do this to an arbitrary number of firms in the area and raise prices on each/cut services. PE firms can trivially build out monopolies. Many of these monopolies will be invisible as they leave the existing branding etc. in place.
That in itself is reasonable. However governments choose to encourage it with tax systems that mean you pay less tax by increasing debt. This is the main thing that breaks capital structure irrelevance: https://moneyterms.co.uk/capital-structure-irrelevance/
> As a business owner, if you want cash today because you are done with a business. You could go to a bank and get a loan to pay dividends.
If you are a business owner you could borrow yourself using the business as security.
LBOs are much worse than that. It's like buying a rental property where the mortgage is owed by the a shell corporation that owns the property. The shell corporation, not the purchaser, owes the debt.
It's like taking out a mortgage on a house, but letting the house owe the debt.
Yes, those exist in industrialized countries as a result of public policy decisions. We do not have 3 or 0% mortgages because that’s what the market naturally bears or produces: we have it because mortgage debt is backstopped by the state.
It’s possible to “understand” mortgages by understanding that conditions for stable home markets don’t arise by themselves—we collectively make them possible because the outcome is desired—then wonder WTF because what social function is creating conditions for private equity getting us.
In residential real estate, I think stems in large part from a desire to help people who don’t come from money to own personal real estate (which is one of the best ways to go from $0 or negative net worth to positive six figure net worth).
Not only is that politically attractive, I think it’s more good than bad as public policy.
Turning back to PE/LBOs:
Having limited liability entities (companies) also serves good public purposes. Having companies being able to borrow money also does. Having companies being able to own other companies also does. I think that’s the only three ingredients you need for the PE model to operate and I don’t think that the public is helped by barring any of those three things.
It is analogous to a mortgage, you put down X% and the house itself secures the loan, along with PMI if your equity is below 20%. The assets of the business secure the loans in the same way a house secures a mortgage.
It is not analogous because if you sell your house and the sale money is not enough to cover your mortgage you are still on the hook for what's left of the principal.
A leveraged buyout is exclusively on the purchased company's books, so if the company goes to zero the PE parent company is not on the hook for a single penny.
What I don't understand is how the cost of banks repossessing these companies in case of default don't make the math unviable. Unless the company have a lot of fairly stable semi-liquid assets (like real estate) banks should be charging fairly high interest on these loans which would make most of these business unprofitable.
Which would increase the rate of defaults (if they are authorized in the first place) and in turn increase interest even further. I guess the PE is always maxxing out the leverage on every deal at _just_ the projected break-even point for loan repayment? But that leaves no room for error or changing market conditions which also increase the rate of defaults and so on.
Non-bank entities being in play is likely part of the problem. If you can sell the bad debt to some other entity say a fund that got investment from pension you win. For fund managers these things can look great on paper and that is everything that matters. Even if things do not workout they can on paper extend and pretend or take payment-in-kind. Meaning well you are short on interest payments so you just tack it on the principal.
And everyone gets their management fees until people start asking their money back...
That varies by state. Twelve states are fully non-recourse states (lenders can’t go after borrowers beyond the loan security); in other states they may be able to, but borrowers who default on their mortgage may not be particularly asset-rich targets in the first place.
If the company wasn’t able to borrow money for itself, a wrapper company could which would still have very closely the same effect as being an asset-poor borrower.
Yes, this is the crucial distinction. (I wish that articles criticizing PE were framed in terms of LBOs + bankruptcy-law instead, because that's the root of the policy problem.) Corporations can go bankrupt without risk to the human beings who are owners/investors in the corporation.
Note that from the lender's perspective, the risk is the same and in a perfect-information universe could be mitigated by charging higher interest. The problem for society is the externality that the business's services get worse.
Yes, it's using bankruptcy and limited liability to extract value from companies that may well be completely solvent and functional with little/no downside or risk to PE.
> so if the company goes to zero the PE parent company is not on the hook for a single penny.
Sounds like a problem for whoever is providing the financing. Not really my concern unless you're saying there's some systemic problem it causes like with mortgage securitization during 2007. The lender will charge a high interest rate if what you're saying is true.
It’s the shareholders of the purchased company that provide the financing, in the form of debt in the company’s books. Then they exit, and the company lays off people to service the debt, and you and I as taxpayers cover unemployment and other social harms.
It’s literally a way to extract revenue from our broader social institutions by spreading the pain across so many people that individuals don’t complain (or, in some cases, don’t even understand how it harms them).
It's the concern for the community who pays in higher prices, and the employees in their job stability.
Has everyone forgotten the social contract? We do not exist as communities to make a small number of people richer. If the trade doesn't work for all involved, we change the rules.
One thing I don't see is the other side of this story: the sellers.
I don't get why sellers are selling to PE. Can these services not "IPO"? Why do these companies need to sell?
When PE takes over medical practices, my understanding is there just isn't enough capital available for a dentist to "cash out". The options are either they find another dentist to buy it, the close the practice, or they sell the private equity...
How is local doctor's office going to IPO? An IPO is just selling to the public instead of a private buyer. Not to mention the amount of paperwork and ongoing reporting requirements of actually IPOing.
Talking to a single buyer is easier than arranging an IPO and I would imagine the diligence far less onerous.
Out of the gate you need $27.5m in cash flow with $2.2m in profit. I doubt there are many single practice dentists doing that kind of volume.
You can’t just IPO because you want out of the business. There’s lots of reporting and regulatory requirements to ensure you aren’t screwing investors.
Interesting seeing a quote from Sen. Josh Hawley that I agree with...
Quote (from article)
“This didn’t just happen to you accidentally. This is a business decision, isn’t it? You keep these backlogs like this. […] Another word for this would be a heist. This sounds to me like private equity came in; bought up all of these small companies; combined them; shut down their production; rolled up a huge backlog; massive profits; stiffed these guys; and now you’re making out like bandits.”
The people behind these funds are playing Monopoly IRL, and this in particular makes me very angry.
The UK high street has been a notable victim. Gradually, over the past couple of decades, company after company has been snapped up by PE. Not just shops, but restaurants too. Suddenly you realise that the 5 or 6 high street chains that were competing are now owned by the same fund. Quality collapses, prices rise, not just at one chain but everywhere. People stop going, the chain collapses, another empty unit, the fund moves on. It's easy to point at Amazon and internet shopping as having degraded the British high street, but there are several other factors, and PE is a big one.
As a consumer, there are many non PE owned restaurants and pubs you can frequent. While you might not be able to change the game, you can absolutely vote with your wallet. The small guys will thank you.
Same for Amazon vs going direct to the manufacturers, which is more often than not, China.
How would you phrase this though? Plenty of PE firms have the funds to buy your local veterinary clinic or auto body shop with cash; the leverage comes later, when they direct the business that they own to get a loan. How can you make it illegal for the business to get a loan?
If you just keep gutting companies with leveraged buyouts, you're not taking on any real risk.
If you're buying up firms that deliver "essential services", you're likely engaging a monopoly. Again, low risk, high reward. A direct violation of the rules of how investments should work. Regulate the monopoly and this goes away.
Setting aside the obviously LLM-generated headings (if not text), this is a serious problem. PE has purchased fire inspection companies in my city such that every company that needs these must contract with the same PE overlord no matter which of the previous 15 companies they used to work with.
The new PE overlord will do things like send you a bill for inspection after you inquire about their pricing ("Well, our guy was in the area so he took a look!") while billing you for gas from their home location.
This is disgusting on so many levels—no competition here at all, just oppression by those with a lot of money.
1. No one forced these people to sell. Is the idea that you can’t sell to an entity with more money? If you block that good luck with the world economy.
2. If above is ok is the idea that the new owner is inherently worse because they have more money, whereas as the smaller would be OK then where are the new entrants?
3. Going to the article it is clear enough. These industries just are not lucrative to begin with. PE buys them and raises prices, but this only works because people complain instead of starting rival business.
4. Somehow leaving money on the table in the form of a backlog is bad? Why don’t others start a business and take those orders? Why don't they? Not profitable or worth the hassle.
Well there you go.
Separately, American manufacturing just seems very uncompetitive.
PE has a bad reputation, maybe for LBOs, maybe for buying up doctors' offices and retirement homes, and hospitals and making them objectively worse in terms of patient care.
My family doctor underwent that along with several of her local peers and got out from under it and started her own practice. I'm obviously not her only patient, so yes, heightening stress on caregivers by demanding more work to drive profits higher is justifiable of a bad reputation.
Leaving things like medical care, food, water, shelter at the mercy of for-profit dynamics leaves the possibility open that those services stop being provided because it is unprofitable at the expense of the population.
America is deciding it likes profit over its population.
People aren't starting competitor businesses because the hassle has become astronomically expensive, also largely due to rent seekers[0]. You need a space, but real estate is absurdly inflated. You need trained employees, but education is absurdly inflated and also poorer quality for the baseline. You need to pay a living wage and give healthcare benefits to attract labor, but cost of living and healthcare are skyrocketing.
Ultimately the influence of rent seekers has grown and the category of people who can take risks by starting a business was the first to collapse, leaving only the wealthy who don't care and the people who can't risk their own survival.
If you own a business and wish to retire, your options are pretty much to sell, pass it on to someone, or dismantle it. I don't know how this is even a question really. Where in the article or the comment section is anyone saying they shouldn't be selling?
1. In the 90s, I had a struggling one-man Mac ISV, and would do gig programming on the side. I did a lot of work for boutique investment banks, and also for a "consulting" firm that did about 75% of their business with the finance industry. The owner of that firm praised me, but didn't like that if my business took off, he'd lose me.
"What would it take to get your commitment to this firm?"
50%
"Where will you get the money to buy half my company?"
A loan from the firm?
When the dust cleared, the business loaned me the money to buy in, and I paid it back with 50% of my profit sharing payouts. This is not some weird financial alchemy, a lot of partnerships are run this way.
———
2. My Duathlon racing buddy was a mold-maker, very specialized and good at his trade. He worked for an elderly entrepreneur who had built his mold business up over decades. Said entrepreneur sent his own kids to university to become "professionals."
What to do about succession when he was ready to retire? My buddy literally photocopied my own arrangement, bought 50% so the business would have a successor it could count on, and bought the remainder when the founder retired. He is now a comfortably wealthy automotive sector entrepreneur.
———
The huge LBOs in the news always seem like space-age deals, but little LBOs for succession purposes are remarkably common.
Your comment is entirely conjecture. Even if we assume it is correct, no young person is creating similar businesses? If so that’s the root cause, not PE, since the alternatives would be all of these businesses shut down anywhere per your reasoning, backlog increase and the remaining businesses increase prices anyway.
> but this only works because people complain instead of starting rival business.
This reads like fiction. When they corner the market it's of course trivial to just jump in and take that share. No way they will try to be disruptive to you or sue you to hell and back and of course the bank will loan you the pile of money to start a new company since there is no giant corporation to compete with who can squeeze you out in an instance.
Your comment is the one that seems like fiction. You are saying PE is unbeatable? Per the article there is a backlog of orders. What is stopping one of the previous owners from creating another company and taking them?
Sue for what exactly? Of course they will be disruptive, that is what competing means.
It's the same around the world. 99% of the time if something has gone to shit, it's because it was bought by private equity and milked for every last penny.
The premise is that PE firms invest in companies, load them up with debt, and maximize profit. And it's especially nefarious in industries where people have "no choice but to pay"
> The result is a backlog that reads like a financial opportunity in earnings calls and a crisis in every fire station in the country. As of 2025, REV Group’s backlog stands at $4.5 billion. Wait times for a custom fire truck run to four years. Prices have doubled in a decade: a pumper truck now costs around $1 million; a ladder truck runs over $2 million. Profit margins in the industry have tripled — from the historic 4-to-5 percent range to over 13 percent.
The article goes on to talk about how a backlog is actually genius. Here's a quote from a senator:
> “This didn’t just happen to you accidentally. This is a business decision, isn’t it? You keep these backlogs like this. […] Another word for this would be a heist. This sounds to me like private equity came in; bought up all of these small companies; combined them; shut down their production; rolled up a huge backlog; massive profits; stiffed these guys; and now you’re making out like bandits.”
So you make money by ... not delivering? I'm missing something.
> The fire truck industry is the most publicly documented case, but the underlying playbook — acquire, consolidate, reduce supply, extract margin — appears across essential sectors with alarming consistency.
Sure, anyone can reduce supply and increase prices if they're a large enough supplier. But companies don't produce up to the point where marginal price is equal to marginal cost out of the goodness of their heart. It's the profit maximizing level. This is economics 101. The article doesn't even try to explain beyond hand waving. No one cares about profit margin, they care about maximizing profit, and you don't do that by creating backlogs. So something is off here and the author is either too incompetent to ask basic questions or just wants to write another PE bad article
Let’s compare two hypothetical companies. They are equal in every way except one has a $4.5b backlog and one has a $0 backlog. Which company would you rather own?
The way to get to a backlog is by not having made sales you could have made in prior years. So they shouldn't be equal in every way - the one with $0 backlog should have more cash, and that is probably preferable unless your business has diseconomies of scale.
Not sure. On one hand, a huge backlog means they're not meeting their demand. Operations may not be in order. Everything else is the same so sales and everything else is equal so I guess money is just deferred? Also huge backlog encourages competition and if you can't deliver, you're going to lose.
But such a big backlog suggests that they're underpricing. So it may be as simple as increasing price and ramping up your production, even though it would likely mean higher marginal costs.
Overall no one wants a backlog. It's not good business
The buyer (who PE sells to) is "thinking about" collecting on the backlog.
Obviously, the backlog is "fake".
EDIT:
The backlog is fake or worthless in the sense, that dollars worth of reputation (a.k.a. Brand) were given away to get pennies worth of backlog. Customer satisfaction is real, even in a business valuation sense.
Because a sale for cash is a basic legal contract that predates modern society by millenia, whereas a LBO that PE uses to purchase companies is a weak spot in American Capitalism created at the intersection of:
1.Shareholder primacy. Under Delaware corporate law (which governs most large U.S. public companies), once a board decides to sell, directors have a fiduciary duty to maximize the price shareholders receive. A premium cash offer from a PE firm is hard to refuse without legal exposure.
2.Interest deductibility. The tax code lets companies deduct interest payments but not dividends, which makes debt-heavy capital structures more tax-efficient. LBOs exploit a feature of tax law that exists for many reasons unrelated to private equity.
3.Freedom of contract and limited liability. Sponsors can put a thin equity check into a holding company, have that company borrow on the target's assets, and walk away if it fails, because limited liability is the foundation of corporate law generally.
Article doesn't really dig into the angle I personally find most horrifying, strip-mining social capital.
In my area PE is gobbling up mom-and-pop apartment complexes, plumbing companies, restaurants, and generally making customers and employees alike pretty miserable.
Hard-working founders should be able to cash out, but there has to be a better system than this one. Succession, maybe. Not that we should push an unmysterious destiny on our children, but maybe more ought to consider pulling one?
End consolidation. Go back to pre-1980s antitrust policy. Encourage competition and bust the trusts.
How will that work - for example Y Combinator classes. They cannot be acquired? What about acquihires? Cant stop that - employees have their own agency.
> How will that work - for example Y Combinator classes. They cannot be acquired?
For the record: national economic policy shouldn't revolve around Y Combinator classes and similar startups.
I'm totally fine if it turns out a sensible antitrust policy completely destroys the acquisition exit pathway for tech startups. I'm not saying one will, but I'm saying that's a cost I'm willing to pay.
YC startups could just become mature businesses. Nothing wrong with providing a good service, earning a good profit, and employees maturing into stable careers.
> I'm totally fine if it turns out a sensible antitrust policy completely destroys the acquisition exit pathway for tech startups.
And it should also prevent the acquihire.
YComb was just an example, though. Should companies be able to be bought and sold at all? My opinion is yes. Agree or disagree?
But "corporations are people" and those types of markets have closed since 1865 in the united states.
The OP explicitly answers this: go back to pre-80s antitrust policy. Companies can be bought and sold but not if it creates concentrations of economic power that allow them to dictate prices to vendors or customers.
This is vague and not actionable. Should Microsoft and Amazon have been able to buy Anthropic and OpenAI 5 years ago?
People always give these vague guidelines (and even the guidelines in the 80s were) and wonder why they are easily circumvented.
This is actually how anti-trust works - if you decide a company gets too big you Ma Bell it and break it up, its very actionable, just hard.
How is going back to a policy that used to work "vague and unactionable"? It literally had been actionable.
> Should Microsoft and Amazon have been able to buy Anthropic and OpenAI 5 years ago?
Antitrust enforcement can be done retroactively as well, if it appears that a large company abuses its financial firepower to undercut competitors or a marketshare gets too dominant.
If the acquirer has too big or dominant position already in the specific sector no. They should not be able to sweep the board of all companies doing single thing.
If the acquirer attempts to acquire a startup (regardless of investor) for anti trust reasons, or there are anti trust concerns, the M&A activity is disallowed by regulators. A recent example is Figma and Adobe.
https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
Seems vague. What is an anti trust reason? Figma and Adobe id a great example. Both are doing very poorly.
Everything is vague to you. All you're doing is concern trolling for monopolists
I am not an anti trust enforcer or scholar, so I'm going to defer to experts in the field: Lina Khan, Matt Stoller, etc. That is the point of experts in a domain.
Given the vagueness it is no surprise nothing happens.
> Given the vagueness it is no surprise nothing happens.
Lots of success during the last admin for those paying attention.
https://www.ftc.gov/news-events/news/press-releases/2025/01/...
https://www.economicliberties.us/press-release/lina-khans-tr...
https://www.economicliberties.us/our-work/factsheet-the-ftc-...
Most of these are not blocking merges or sales. What is your point? We are talking about the original comment which advocates ending consolidations.
Quite clearly the word "consolidation" is referring not to acquisitions, but to M&A activity that achieves a certain level of, you know, consolidation.
It's not vague. You can go look it up.
I think 5-15 person employee businesses do not concern trust busters.
Whats the connection between the number of employees and anti trust? Also, there are plenty of YC companies with far more than 15 employees.
Generally you don't hold a market dominant position in any sector that anti-trust regulators care about at 15 employees?
Frankly this stuff is impossible to talk about in the abstract. The details of every individual case matters. If you're actually curious (instead of just playing a shell game), you can go look up the types of analysis that FTC does to evaluate market dominance and whether a given transaction will excessively consolidate a market.
Sounds like communism /s
Its called "free market capitalism". I have been in favour of it for decades: https://pietersz.co.uk/2009/11/fix-capitalism
I am somewhat more inclined to some socialist policies now though.
free market capitalism will always end like this though. the end goal of capitalism is the consolidation of all things into a megacorporation or oligarchy that controls everything, creates nothing, and earns infinite money
I thought “socialism” was the current bogeyman
most americans don't know the difference
I simply don't understand why leveraged buy-out(LBO) is allowed in the first place. It is like paying for the company with the money from the company you are buying.
It provides liquidity to business owners.
As a business owner, if you want cash today because you are done with a business. You could go to a bank and get a loan to pay dividends. This is a bad deal for the bank as you have no incentive to operate the business after you cash out the loan. A private equity firm comes in and operates the business on the model that they still keep some of the profits after the loan value.
The crappy side comes in as a customer, the PE firm can do this to an arbitrary number of firms in the area and raise prices on each/cut services. PE firms can trivially build out monopolies. Many of these monopolies will be invisible as they leave the existing branding etc. in place.
That in itself is reasonable. However governments choose to encourage it with tax systems that mean you pay less tax by increasing debt. This is the main thing that breaks capital structure irrelevance: https://moneyterms.co.uk/capital-structure-irrelevance/
> As a business owner, if you want cash today because you are done with a business. You could go to a bank and get a loan to pay dividends.
If you are a business owner you could borrow yourself using the business as security.
You understand mortgages, though, right?
Even 3% or 0% down mortgages?
LBO's are like buying a rental property where the mortgage is approved based on expected future rental income from the property.
That's why the parent is saying "It is like paying for the company with the money from the company you are buying.".
LBOs are much worse than that. It's like buying a rental property where the mortgage is owed by the a shell corporation that owns the property. The shell corporation, not the purchaser, owes the debt.
It's like taking out a mortgage on a house, but letting the house owe the debt.
Exactly. That is largely how commercial lending is underwritten: by ensuring the DSCR (debt service coverage ratio) is over 1.0.
Sure that is commercial lending.* And the acquirer owes the debt. But that's not how LBOs work. In an LBO the target owes the debt.
*Coverage of 1:1 is an accident waiting to happen, but otherwise sure.
Yes, those exist in industrialized countries as a result of public policy decisions. We do not have 3 or 0% mortgages because that’s what the market naturally bears or produces: we have it because mortgage debt is backstopped by the state.
It’s possible to “understand” mortgages by understanding that conditions for stable home markets don’t arise by themselves—we collectively make them possible because the outcome is desired—then wonder WTF because what social function is creating conditions for private equity getting us.
In residential real estate, I think stems in large part from a desire to help people who don’t come from money to own personal real estate (which is one of the best ways to go from $0 or negative net worth to positive six figure net worth).
Not only is that politically attractive, I think it’s more good than bad as public policy.
Turning back to PE/LBOs:
Having limited liability entities (companies) also serves good public purposes. Having companies being able to borrow money also does. Having companies being able to own other companies also does. I think that’s the only three ingredients you need for the PE model to operate and I don’t think that the public is helped by barring any of those three things.
It is analogous to a mortgage, you put down X% and the house itself secures the loan, along with PMI if your equity is below 20%. The assets of the business secure the loans in the same way a house secures a mortgage.
It is not analogous because if you sell your house and the sale money is not enough to cover your mortgage you are still on the hook for what's left of the principal. A leveraged buyout is exclusively on the purchased company's books, so if the company goes to zero the PE parent company is not on the hook for a single penny.
What I don't understand is how the cost of banks repossessing these companies in case of default don't make the math unviable. Unless the company have a lot of fairly stable semi-liquid assets (like real estate) banks should be charging fairly high interest on these loans which would make most of these business unprofitable.
Which would increase the rate of defaults (if they are authorized in the first place) and in turn increase interest even further. I guess the PE is always maxxing out the leverage on every deal at _just_ the projected break-even point for loan repayment? But that leaves no room for error or changing market conditions which also increase the rate of defaults and so on.
Non-bank entities being in play is likely part of the problem. If you can sell the bad debt to some other entity say a fund that got investment from pension you win. For fund managers these things can look great on paper and that is everything that matters. Even if things do not workout they can on paper extend and pretend or take payment-in-kind. Meaning well you are short on interest payments so you just tack it on the principal.
And everyone gets their management fees until people start asking their money back...
Does "the bank" know that it is unviable?
That varies by state. Twelve states are fully non-recourse states (lenders can’t go after borrowers beyond the loan security); in other states they may be able to, but borrowers who default on their mortgage may not be particularly asset-rich targets in the first place.
If the company wasn’t able to borrow money for itself, a wrapper company could which would still have very closely the same effect as being an asset-poor borrower.
Yes, this is the crucial distinction. (I wish that articles criticizing PE were framed in terms of LBOs + bankruptcy-law instead, because that's the root of the policy problem.) Corporations can go bankrupt without risk to the human beings who are owners/investors in the corporation.
Note that from the lender's perspective, the risk is the same and in a perfect-information universe could be mitigated by charging higher interest. The problem for society is the externality that the business's services get worse.
Yes, it's using bankruptcy and limited liability to extract value from companies that may well be completely solvent and functional with little/no downside or risk to PE.
Pure parasitism.
bingo
> so if the company goes to zero the PE parent company is not on the hook for a single penny.
Sounds like a problem for whoever is providing the financing. Not really my concern unless you're saying there's some systemic problem it causes like with mortgage securitization during 2007. The lender will charge a high interest rate if what you're saying is true.
It’s the shareholders of the purchased company that provide the financing, in the form of debt in the company’s books. Then they exit, and the company lays off people to service the debt, and you and I as taxpayers cover unemployment and other social harms.
It’s literally a way to extract revenue from our broader social institutions by spreading the pain across so many people that individuals don’t complain (or, in some cases, don’t even understand how it harms them).
It's the concern for the community who pays in higher prices, and the employees in their job stability.
Has everyone forgotten the social contract? We do not exist as communities to make a small number of people richer. If the trade doesn't work for all involved, we change the rules.
11 USA states have Non-Recourse mortgages where you also are "not on the hook for a single penny."
Link to the Musharbash article that spurred the congressional investigation (2025):
https://www.thebignewsletter.com/p/did-a-private-equity-fire...
Oh no!
Who would have guessed that turning social human constructions into businesses that 'have to make profits' could result in such deaths!?
What on earth could be next?
Defining margins again and again until these businesses suddenly actually are totally compliant and suddenly there are even more deaths?
Oh how will we ever solve this strange behaviour!?
/s^s
One thing I don't see is the other side of this story: the sellers.
I don't get why sellers are selling to PE. Can these services not "IPO"? Why do these companies need to sell?
When PE takes over medical practices, my understanding is there just isn't enough capital available for a dentist to "cash out". The options are either they find another dentist to buy it, the close the practice, or they sell the private equity...
How is local doctor's office going to IPO? An IPO is just selling to the public instead of a private buyer. Not to mention the amount of paperwork and ongoing reporting requirements of actually IPOing.
Talking to a single buyer is easier than arranging an IPO and I would imagine the diligence far less onerous.
Out of the gate you need $27.5m in cash flow with $2.2m in profit. I doubt there are many single practice dentists doing that kind of volume.
You can’t just IPO because you want out of the business. There’s lots of reporting and regulatory requirements to ensure you aren’t screwing investors.
You don't understand! It's because it's not a truly free market. If it was truly free of regulation and government oversight it would be incredible.
Interesting seeing a quote from Sen. Josh Hawley that I agree with...
Quote (from article) “This didn’t just happen to you accidentally. This is a business decision, isn’t it? You keep these backlogs like this. […] Another word for this would be a heist. This sounds to me like private equity came in; bought up all of these small companies; combined them; shut down their production; rolled up a huge backlog; massive profits; stiffed these guys; and now you’re making out like bandits.”
The people behind these funds are playing Monopoly IRL, and this in particular makes me very angry.
The UK high street has been a notable victim. Gradually, over the past couple of decades, company after company has been snapped up by PE. Not just shops, but restaurants too. Suddenly you realise that the 5 or 6 high street chains that were competing are now owned by the same fund. Quality collapses, prices rise, not just at one chain but everywhere. People stop going, the chain collapses, another empty unit, the fund moves on. It's easy to point at Amazon and internet shopping as having degraded the British high street, but there are several other factors, and PE is a big one.
As a consumer, there are many non PE owned restaurants and pubs you can frequent. While you might not be able to change the game, you can absolutely vote with your wallet. The small guys will thank you.
Same for Amazon vs going direct to the manufacturers, which is more often than not, China.
The combination of PE extraction and "property values = rent we want to change, even if the property is empty" has been economically catastrophic.
PE is often just legalised larceny.
Leveraged buyout should be illegal.
I think they should be perfectly legal, but there probably shouldn't be tax advantages for it (carried interest rule, etc).
How would you phrase this though? Plenty of PE firms have the funds to buy your local veterinary clinic or auto body shop with cash; the leverage comes later, when they direct the business that they own to get a loan. How can you make it illegal for the business to get a loan?
Again, we have broken higher risk, higher reward.
If you just keep gutting companies with leveraged buyouts, you're not taking on any real risk.
If you're buying up firms that deliver "essential services", you're likely engaging a monopoly. Again, low risk, high reward. A direct violation of the rules of how investments should work. Regulate the monopoly and this goes away.
[delayed]
Setting aside the obviously LLM-generated headings (if not text), this is a serious problem. PE has purchased fire inspection companies in my city such that every company that needs these must contract with the same PE overlord no matter which of the previous 15 companies they used to work with.
The new PE overlord will do things like send you a bill for inspection after you inquire about their pricing ("Well, our guy was in the area so he took a look!") while billing you for gas from their home location.
This is disgusting on so many levels—no competition here at all, just oppression by those with a lot of money.
Who controls the spice...
Seems strange to me:
1. No one forced these people to sell. Is the idea that you can’t sell to an entity with more money? If you block that good luck with the world economy.
2. If above is ok is the idea that the new owner is inherently worse because they have more money, whereas as the smaller would be OK then where are the new entrants?
3. Going to the article it is clear enough. These industries just are not lucrative to begin with. PE buys them and raises prices, but this only works because people complain instead of starting rival business.
4. Somehow leaving money on the table in the form of a backlog is bad? Why don’t others start a business and take those orders? Why don't they? Not profitable or worth the hassle.
Well there you go.
Separately, American manufacturing just seems very uncompetitive.
PE has a bad reputation, maybe for LBOs, maybe for buying up doctors' offices and retirement homes, and hospitals and making them objectively worse in terms of patient care.
My family doctor underwent that along with several of her local peers and got out from under it and started her own practice. I'm obviously not her only patient, so yes, heightening stress on caregivers by demanding more work to drive profits higher is justifiable of a bad reputation.
Leaving things like medical care, food, water, shelter at the mercy of for-profit dynamics leaves the possibility open that those services stop being provided because it is unprofitable at the expense of the population.
America is deciding it likes profit over its population.
People aren't starting competitor businesses because the hassle has become astronomically expensive, also largely due to rent seekers[0]. You need a space, but real estate is absurdly inflated. You need trained employees, but education is absurdly inflated and also poorer quality for the baseline. You need to pay a living wage and give healthcare benefits to attract labor, but cost of living and healthcare are skyrocketing.
Ultimately the influence of rent seekers has grown and the category of people who can take risks by starting a business was the first to collapse, leaving only the wealthy who don't care and the people who can't risk their own survival.
[0]https://en.wikipedia.org/wiki/Rent-seeking
If you own a business and wish to retire, your options are pretty much to sell, pass it on to someone, or dismantle it. I don't know how this is even a question really. Where in the article or the comment section is anyone saying they shouldn't be selling?
Two connected anecdotes:
1. In the 90s, I had a struggling one-man Mac ISV, and would do gig programming on the side. I did a lot of work for boutique investment banks, and also for a "consulting" firm that did about 75% of their business with the finance industry. The owner of that firm praised me, but didn't like that if my business took off, he'd lose me.
"What would it take to get your commitment to this firm?"
50%
"Where will you get the money to buy half my company?"
A loan from the firm?
When the dust cleared, the business loaned me the money to buy in, and I paid it back with 50% of my profit sharing payouts. This is not some weird financial alchemy, a lot of partnerships are run this way.
———
2. My Duathlon racing buddy was a mold-maker, very specialized and good at his trade. He worked for an elderly entrepreneur who had built his mold business up over decades. Said entrepreneur sent his own kids to university to become "professionals."
What to do about succession when he was ready to retire? My buddy literally photocopied my own arrangement, bought 50% so the business would have a successor it could count on, and bought the remainder when the founder retired. He is now a comfortably wealthy automotive sector entrepreneur.
———
The huge LBOs in the news always seem like space-age deals, but little LBOs for succession purposes are remarkably common.
Your comment is entirely conjecture. Even if we assume it is correct, no young person is creating similar businesses? If so that’s the root cause, not PE, since the alternatives would be all of these businesses shut down anywhere per your reasoning, backlog increase and the remaining businesses increase prices anyway.
> but this only works because people complain instead of starting rival business.
This reads like fiction. When they corner the market it's of course trivial to just jump in and take that share. No way they will try to be disruptive to you or sue you to hell and back and of course the bank will loan you the pile of money to start a new company since there is no giant corporation to compete with who can squeeze you out in an instance.
Your comment is the one that seems like fiction. You are saying PE is unbeatable? Per the article there is a backlog of orders. What is stopping one of the previous owners from creating another company and taking them?
Sue for what exactly? Of course they will be disruptive, that is what competing means.
> What is stopping one of the previous owners from creating another company and taking them?
You will not find any investors.
The investors that want to invest in fire trucks already invested in the PE fund and will give them money over any new start
That’s the point
There’s no money elsewhere.
How did the original businesses start to begin with? Also where is this information coming from? It isn't in the article.
> What is stopping one of the previous owners from creating another company and taking them?
... they sold the original business to retire??
> ... they sold the original business to retire??
Conjecture unsupported by article
It's the same around the world. 99% of the time if something has gone to shit, it's because it was bought by private equity and milked for every last penny.
The premise is that PE firms invest in companies, load them up with debt, and maximize profit. And it's especially nefarious in industries where people have "no choice but to pay"
> The result is a backlog that reads like a financial opportunity in earnings calls and a crisis in every fire station in the country. As of 2025, REV Group’s backlog stands at $4.5 billion. Wait times for a custom fire truck run to four years. Prices have doubled in a decade: a pumper truck now costs around $1 million; a ladder truck runs over $2 million. Profit margins in the industry have tripled — from the historic 4-to-5 percent range to over 13 percent.
The article goes on to talk about how a backlog is actually genius. Here's a quote from a senator:
> “This didn’t just happen to you accidentally. This is a business decision, isn’t it? You keep these backlogs like this. […] Another word for this would be a heist. This sounds to me like private equity came in; bought up all of these small companies; combined them; shut down their production; rolled up a huge backlog; massive profits; stiffed these guys; and now you’re making out like bandits.”
So you make money by ... not delivering? I'm missing something.
> The fire truck industry is the most publicly documented case, but the underlying playbook — acquire, consolidate, reduce supply, extract margin — appears across essential sectors with alarming consistency.
Sure, anyone can reduce supply and increase prices if they're a large enough supplier. But companies don't produce up to the point where marginal price is equal to marginal cost out of the goodness of their heart. It's the profit maximizing level. This is economics 101. The article doesn't even try to explain beyond hand waving. No one cares about profit margin, they care about maximizing profit, and you don't do that by creating backlogs. So something is off here and the author is either too incompetent to ask basic questions or just wants to write another PE bad article
Let’s compare two hypothetical companies. They are equal in every way except one has a $4.5b backlog and one has a $0 backlog. Which company would you rather own?
The way to get to a backlog is by not having made sales you could have made in prior years. So they shouldn't be equal in every way - the one with $0 backlog should have more cash, and that is probably preferable unless your business has diseconomies of scale.
Not sure. On one hand, a huge backlog means they're not meeting their demand. Operations may not be in order. Everything else is the same so sales and everything else is equal so I guess money is just deferred? Also huge backlog encourages competition and if you can't deliver, you're going to lose.
But such a big backlog suggests that they're underpricing. So it may be as simple as increasing price and ramping up your production, even though it would likely mean higher marginal costs.
Overall no one wants a backlog. It's not good business
Okay, now same question except one small change.
There's only one company: the one with the backlog. The other company either went bankrupt or was bought out and consolidated into the first company.
Learn how businesses are priced.
The buyer (who PE sells to) is "thinking about" collecting on the backlog.
Obviously, the backlog is "fake".
EDIT: The backlog is fake or worthless in the sense, that dollars worth of reputation (a.k.a. Brand) were given away to get pennies worth of backlog. Customer satisfaction is real, even in a business valuation sense.
There's no competition left to drive the marginal profit back down to a reasonable level.
Why is there so much attention paid to the buyer (private equity) and no attention paid to the folks who sold the businesses to them?
> no attention paid to the folks who sold the businesses to them?
Why would the retiring dentist selling their practice be a trust or collusion problem?
Because their customers, who they built a trusting relationship with, get hosed when the owner wants to cash out.
That’s the whole math of it. That cash out comes from the future business increasing profit, which is over the longest term cutting service quality.
Start small biz > be successful > want to retire > find someone to buy biz
There’s a lot of pathways with a giant c corp, almost none for the local successful small biz.
I had a acquaintance sell three local trash companies to LRS which is exactly what happened.
What would that attention look like? "Long-time pillar of the community local pediatrician retires and sells their practice"?
How would you know this attention is getting paid or not unless you are consuming local news from the places this is happening?
Run a small business for 20 years, work yourself to the bone, and then contemplate a big check from a buyout offer.
Because a sale for cash is a basic legal contract that predates modern society by millenia, whereas a LBO that PE uses to purchase companies is a weak spot in American Capitalism created at the intersection of:
1.Shareholder primacy. Under Delaware corporate law (which governs most large U.S. public companies), once a board decides to sell, directors have a fiduciary duty to maximize the price shareholders receive. A premium cash offer from a PE firm is hard to refuse without legal exposure.
2.Interest deductibility. The tax code lets companies deduct interest payments but not dividends, which makes debt-heavy capital structures more tax-efficient. LBOs exploit a feature of tax law that exists for many reasons unrelated to private equity.
3.Freedom of contract and limited liability. Sponsors can put a thin equity check into a holding company, have that company borrow on the target's assets, and walk away if it fails, because limited liability is the foundation of corporate law generally.