The big difference is the extent to which PE will go to juice the quarters earnings. Public companies cannot and will not just fire all staff, fleece customers to the point they won’t return and take on debt that they have no intention of paying back. PE will do all of the above and more if it means they get their money. Which means, you as a customer get screwed over more when PE is involved.
>Public companies cannot and will not just fire all staff, fleece customers to the point they won’t return and take on debt that they have no intention of paying back.
Why? Is there some code of conduct for public companies but not private ones?
> Is there some code of conduct for public companies but not private ones?
No but there’s a difference between private companies and PE owned companies. PE model is very different from regular private companies, and it often involves extracting maximum profits at the expense of the company itself.
And as far as public companies go, shareholders will have to say something about the operation of the company if you start intentionally sinking it.
> PE model is very different from regular private companies, and it often involves extracting maximum profits at the expense of the company itself.
Not all PEs model. The ones you are referring to are often buying large businesses (like the infamous Toys R Us) load them with debt and strip their assets. 90% of the other PEs out there do not do this...in fact the opposite. They put capital on their balance sheet to grow.
What is the "company itself" if not its owners (private equity company that is)? Everything else is just an asset of it. If they see a way to maximise profit by draining the company that's better than any other one, why not? After all if company is then simply liquidated, it frees up market opportunity for new entrants.
Because a PE fund is at most a seven year timeline, and everybody knows it. There is absolutely no incentive to add value beyond the next sale, and often you only need to add the perception of value. To quote my CTO of a PE owned company: "we want to make it look like we're on the road to <big investment in strategic roadmap>", not actually accomplish it
> Because a PE fund is at most a seven year timeline
Berkshire Hathaway is a PE fund with permanent capital.
Broadly speaking, making generalisatios about PE is almost impossible because it's an asset class which is, essentially, all non-public business. Instead, it's more useful to think about which element private equity touches you're specifically complaining about: capitalism in general, financial transparency, leverage and liability.
The problem with PE is only the hyper aggressive and generally terrible ones make the news.
The quiet ones that simply run business well, don't make the news.
There are PE firms that specialize in rescuing distressed companies with potential and turning them around. In many cases not firing anyone and holding onto the form they acquired for a long time.
> Is there some code of conduct for public companies but not private ones?
There's a pattern of behavior, to be sure. The primary control on public companies is shareholder scrutiny. Gutting your company for short term gains, is not always popular. The more diverse the shareholder cohort, the less popular it tends to be.
Private companies don't mind it when they can literally start a new company with the assets from the old without the pesky plebian investors.
> Is there some code of conduct for public companies but not private ones?
It's more about Private Equity firms than private companies. The oversimplified TL;DR strategy for most PE firms is acquire, strip, pump, then dump (combined with all sorts of tax strategies). Most PE firms don't own the companies themselves, but act on behalf of investors and take a cut of the ultimate profits. So it's basically tons of short term thinking.
