The Secretive Industry Devouring the U.S. Economy

[NWRatCon]

This article is from The Atlantic. I will try to post a non- subscription link:

The Secretive Industry Devouring the U.S. Economy​

"The publicly traded company is disappearing. In 1996, about 8,000 firms were listed in the U.S. stock market. Since then, the national economy has grown by nearly $20 trillion. The population has increased by 70 million people. And yet, today, the number of American public companies stands at fewer than 4,000. How can that be?

One answer is that the private-equity industry is devouring them. When a private-equity fund buys a publicly traded company, it takes the company private—hence the name. (If the company has not yet gone public, the acquisition keeps that from happening.) This gives the fund total control, which in theory allows it to find ways to boost profits so that it can sell the company for a big payday a few years later. In practice, going private can have more troubling consequences. The thing about public companies is that they’re, well, public. By law, they have to disclose information about their finances, operations, business risks, and legal liabilities. Taking a company private exempts it from those requirements."

I have been concerned about this trend for some time. It's refreshing to know I'm not alone and this is a really good article discussing why, as well as the ins and outs of the problem.

 

[Loulit01]

This article is from The Atlantic. I will try to post a non- subscription link:

The Secretive Industry Devouring the U.S. Economy​

"The publicly traded company is disappearing. In 1996, about 8,000 firms were listed in the U.S. stock market. Since then, the national economy has grown by nearly $20 trillion. The population has increased by 70 million people. And yet, today, the number of American public companies stands at fewer than 4,000. How can that be?

One answer is that the private-equity industry is devouring them. When a private-equity fund buys a publicly traded company, it takes the company private—hence the name. (If the company has not yet gone public, the acquisition keeps that from happening.) This gives the fund total control, which in theory allows it to find ways to boost profits so that it can sell the company for a big payday a few years later. In practice, going private can have more troubling consequences. The thing about public companies is that they’re, well, public. By law, they have to disclose information about their finances, operations, business risks, and legal liabilities. Taking a company private exempts it from those requirements."

I have been concerned about this trend for some time. It's refreshing to know I'm not alone and this is a really good article discussing why, as well as the ins and outs of the problem.

I read that article. This is one way money flows uphill to the 1%.

 

[Integrityrespec]

This article is from The Atlantic. I will try to post a non- subscription link:

The Secretive Industry Devouring the U.S. Economy​

"The publicly traded company is disappearing. In 1996, about 8,000 firms were listed in the U.S. stock market. Since then, the national economy has grown by nearly $20 trillion. The population has increased by 70 million people. And yet, today, the number of American public companies stands at fewer than 4,000. How can that be?

One answer is that the private-equity industry is devouring them. When a private-equity fund buys a publicly traded company, it takes the company private—hence the name. (If the company has not yet gone public, the acquisition keeps that from happening.) This gives the fund total control, which in theory allows it to find ways to boost profits so that it can sell the company for a big payday a few years later. In practice, going private can have more troubling consequences. The thing about public companies is that they’re, well, public. By law, they have to disclose information about their finances, operations, business risks, and legal liabilities. Taking a company private exempts it from those requirements."

I have been concerned about this trend for some time. It's refreshing to know I'm not alone and this is a really good article discussing why, as well as the ins and outs of the problem.

So are you opposed to private ownership of property?

 

[Loulit01]

So are you opposed to private ownership of property?

Wow. Absolutely no reading comprehension whatsoever.

 

[NWRatCon]

I'm quite certain the majority of us don't see the coming disaster. We didn't live through Reconstruction, the Great Depression, or WWII. The Supreme Court's ultra-right majority is quickly dismantling the safeguards we put in place to protect ourselves from those social and economic disasters, so we may yet get that opportunity. 1986,1989, 2008 and 2016 are just appetizers in comparison.

In the meantime, the ultra-rich and shadiest operators are inventing new ways to get rich and avoid responsibility. As in past economic disasters, they will remain largely immune from those effects, but the public will get clobbered.

 

[NWRatCon]

Wow. Absolutely no reading comprehension whatsoever.

You make an unwarranted assumption. He never reads.

 

[NWRatCon]

"private equity has matured into a multitrillion-dollar industry, devoted to making short-term profits from highly leveraged transactions, operating with almost no regulatory or public scrutiny. Not all private-equity deals end in calamity, of course, and not all public companies are paragons of civic virtue. But the secrecy in which private-equity firms operate emboldens them to act more recklessly—and makes it much harder to hold them accountable when they do."

Two recent examples have made it into the public consciousness in a big way: the Trump Org, and Deutsche Bank. Disclosure about their operations demonstrate just how incestuous and reckless such operations can be. But the thing is, they are not the exceptions. "Hook or crook" seems to be their mantra. We've already allowed incredible malfeasance in public companies - think WorldCom, Enron and FTX. Imagine who wants to avoid that scrutiny and why. Here's a clue:

Forbes built a Hall of Shame for all the questionable people on its 30 Under 30 lists

The Forbes 30 Under 30 lists have included some people who turned out to be dubious, or even criminals, such as Sam Bankman-Fried and Martin Shkreli.

www.google.com

George Santos? Amateur.

 

[Nomad4Ever]

So are you opposed to private ownership of property?

I can't speak for OP, but yes, I certainly am actually.

 

[reflechissez]

This article is from The Atlantic. I will try to post a non- subscription link:

The Secretive Industry Devouring the U.S. Economy​

"The publicly traded company is disappearing. In 1996, about 8,000 firms were listed in the U.S. stock market. Since then, the national economy has grown by nearly $20 trillion. The population has increased by 70 million people. And yet, today, the number of American public companies stands at fewer than 4,000. How can that be?

One answer is that the private-equity industry is devouring them. When a private-equity fund buys a publicly traded company, it takes the company private—hence the name. (If the company has not yet gone public, the acquisition keeps that from happening.) This gives the fund total control, which in theory allows it to find ways to boost profits so that it can sell the company for a big payday a few years later. In practice, going private can have more troubling consequences. The thing about public companies is that they’re, well, public. By law, they have to disclose information about their finances, operations, business risks, and legal liabilities. Taking a company private exempts it from those requirements."

I have been concerned about this trend for some time. It's refreshing to know I'm not alone and this is a really good article discussing why, as well as the ins and outs of the problem.

I don't know that I'm particularly concerned about "secrecy;" I'm more concerned about what the impact of fewer publicly-traded companies means for the valuations of the remaining publicly-traded ones (see: the magnificent 7). In addition, I recently read an interesting article about how the PE space has sucked out the returns on IPOs. Companies used to go public when they were "younger," meaning more investors had a shot at getting a bigger upside. Now, PE firms suck up the outsized returns and then spit the company out when they're done with it. The result is that many IPOs of "older" companies have languished in the secondary market.

 

[Donatello]

I'm quite certain the majority of us don't see the coming disaster. We didn't live through Reconstruction, the Great Depression, or WWII. The Supreme Court's ultra-right majority is quickly dismantling the safeguards we put in place to protect ourselves from those social and economic disasters, so we may yet get that opportunity. 1986,1989, 2008 and 2016 are just appetizers in comparison.

In the meantime, the ultra-rich and shadiest operators are inventing new ways to get rich and avoid responsibility. As in past economic disasters, they will remain largely immune from those effects, but the public will get clobbered.

You mean we should all be very afraid? Is there anything we can do?

 

[Slartibartfast]

So are you opposed to private ownership of property?

People certainly tend to oppose unstable societies that are top heavy. If that gets in the way of some purist and inflexible concept of private property that can't balance against the public interest, then I society will simply have to adjust or fail and eventually be replaced by one that is more reasonable.

I would prefer we didn't have to experience that kind of turbulence though.

 

[Surrealistik]

This article is from The Atlantic. I will try to post a non- subscription link:

The Secretive Industry Devouring the U.S. Economy​

"The publicly traded company is disappearing. In 1996, about 8,000 firms were listed in the U.S. stock market. Since then, the national economy has grown by nearly $20 trillion. The population has increased by 70 million people. And yet, today, the number of American public companies stands at fewer than 4,000. How can that be?

One answer is that the private-equity industry is devouring them. When a private-equity fund buys a publicly traded company, it takes the company private—hence the name. (If the company has not yet gone public, the acquisition keeps that from happening.) This gives the fund total control, which in theory allows it to find ways to boost profits so that it can sell the company for a big payday a few years later. In practice, going private can have more troubling consequences. The thing about public companies is that they’re, well, public. By law, they have to disclose information about their finances, operations, business risks, and legal liabilities. Taking a company private exempts it from those requirements."

I have been concerned about this trend for some time. It's refreshing to know I'm not alone and this is a really good article discussing why, as well as the ins and outs of the problem.

It's a combination of excess market/industry consolidation (bad as it tends towards oligopoly/monopoly that is invariably anti-consumer) and the growing dominance of private equity (bad, as it tends towards poisonous/exploitable secrecy and opacity, bubbles and the potential for more outsized gains accruing to a relatively tiny portion of frontrunning elite investors).

 

[NWRatCon]

I don't know that I'm particularly concerned about "secrecy;" I'm more concerned about what the impact of fewer publicly-traded companies means for the valuations of the remaining publicly-traded ones (see: the magnificent 7). In addition, I recently read an interesting article about how the PE space has sucked out the returns on IPOs. Companies used to go public when they were "younger," meaning more investors had a shot at getting a bigger upside. Now, PE firms suck up the outsized returns and then spit the company out when they're done with it. The result is that many IPOs of "older" companies have languished in the secondary market.

We're actually talking about the same things. How, after all, we're these PE firms able to suck out the profits? By being secretive.

 

[Nomad4Ever]

It's a combination of excess market/industry consolidation (bad as it tends towards oligopoly/monopoly that is invariably anti-consumer) and the growing dominance of private equity (bad, as it tends towards poisonous/exploitable secrecy and opacity, bubbles and the potential for more outsized gains accruing to a relatively tiny portion of frontrunning elite investors).

We completely lost our appetite for trust busting. At this rate we are going to end up with a highly consolidated centrally planned economy like the USSR except caused by free markets instead of the state.

 

[BirdinHand]

This gives the fund total control, which in theory allows it to find ways to boost profits so that it can sell the company for a big payday a few years later. In practice, going private can have more troubling consequences

I’ve watched this happen several times in my career. Not only can it be (and often is) devastating for the company, it tends to be devastating for the community surrounding the company.

These giant firms come in and make an offer to a company that they would be stupid to refuse. The company takes it to the board and they accept it. Then eventually, in a VAST majority of cases - they sell it off for “parts” eventually.

Because LOTS of institutional knowledge is lost along the way. Once you trash, for instance, all of the manufacturing capabilities in a legacy company and lay off the legacy workers because you're going to 'revitalize' the company and make the company MORE profitable to get those returns on the initial investment - those prior people and prior functions, equipment, lessons learned over perhaps decades, etc....don't come back. They're GONE.

It is a "one-way" street and when the shiny private equity firm realizes two years or 10 years or 15 years later they made a mistake...eh, they just sell the legacy company off for spare parts, make a profit, and move on. Leaving lots of people holding the proverbial bag.

We've seen this in the automotive and associated industries, pharma/biotech and now moving into tech more and more.

It IS a problem that I don't think many people recognize.

So are you opposed to private ownership of property?

Not in theory. But what has happened is that a class almost above "private ownership" has developed. A class that is gambling EVERYTHING - including a LOT of your retirement savings, etc.

"private equity has matured into a multitrillion-dollar industry, devoted to making short-term profits from highly leveraged transactions

Yep. Always searching for the 'next best' way to turn $1 into $1.01 over and over and over again. And it is built on nothing. It is a house of cards waiting to come crumbling down.



It most definitely is scary. In more ways then I think most people realize.

 

[reflechissez]

We're actually talking about the same things. How, after all, we're these PE firms able to suck out the profits? By being secretive.

I disagree.

 

[Surrealistik]

We completely lost our appetite for trust busting. At this rate we are going to end up with a highly consolidated centrally planned economy like the USSR except caused by free markets instead of the state.

For sure; there are plenty of oligopolies and de facto monopolies that should not be, and it is ultimately reducible to an excess of money in politics and regulatory capture stemming from Buckley v Valeo 1976.

Meanwhile, we have people like Zuckerberg aiming to preserve monopoly power and destroy the government's ability to regulate via statutory challenges in that they present an exploitable opportunity with our exceedingly right wing SCOTUS:

https://subscriber.politicopro.com/...utional-in-bid-to-shirk-privacy-case-00129310

The Case That Could Destroy the Government

What was once a fringe legal theory now stands a real chance of being adopted by the Supreme Court.

www.theatlantic.com

 

[gdgyva]

This article is from The Atlantic. I will try to post a non- subscription link:

The Secretive Industry Devouring the U.S. Economy​

"The publicly traded company is disappearing. In 1996, about 8,000 firms were listed in the U.S. stock market. Since then, the national economy has grown by nearly $20 trillion. The population has increased by 70 million people. And yet, today, the number of American public companies stands at fewer than 4,000. How can that be?

One answer is that the private-equity industry is devouring them. When a private-equity fund buys a publicly traded company, it takes the company private—hence the name. (If the company has not yet gone public, the acquisition keeps that from happening.) This gives the fund total control, which in theory allows it to find ways to boost profits so that it can sell the company for a big payday a few years later. In practice, going private can have more troubling consequences. The thing about public companies is that they’re, well, public. By law, they have to disclose information about their finances, operations, business risks, and legal liabilities. Taking a company private exempts it from those requirements."

I have been concerned about this trend for some time. It's refreshing to know I'm not alone and this is a really good article discussing why, as well as the ins and outs of the problem.

You too can be a part of this

I own a nice chunk of KKR, and have for a number of years

KKR & Co. Inc., also known as Kohlberg Kravis Roberts & Co., is an American global investment company that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate, credit, and, through its strategic partners, hedge funds. As of December 31, 2022, the firm had completed more than 690 private equity investments in portfolio companies with approximately $700 billion of total enterprise value.[2]: 7  As of December 31, 2022, assets under management (AUM) and fee paying assets under management (FPAUM) were $504 billion and $412 billion, respectively.[2]: 

Kohlberg Kravis Roberts - Wikipedia

en.wikipedia.org

there are a number of private equity type firms out in the market....

Berkshire Hathaway (Buffett's company) buys companies all the time and plow's them into their horde

Nothing wrong with this....especially for stockholders like me

 

[Rexedgar]

What is the larger strategy?

What happens when all the money is at the top?

The US and probably the world economy at large has been being gobbled up by the big fish corporations. Example: WalMart and Amazon have vacuumed up many small businesses. Goods sales are ripe for this strategy, but the labor heavy markets are a little immune, right now. Example: dry cleaner/alterations, auto repairs, plumbing, electrical repairs and hom—remodeling.


*has been being* sounds wrong, but, I am tired…..

 

[Stealers Wheel]

This is the new way of teaching in business and finance schools. "Don't re-invent the wheel. Leave that to others. It's expensive and time-consuming. Rather, find an enterprise that is working and simply buy it." And there is no downside. Because, if the business is profitable, particularly if it is a mom and pop operation, it can easily be replicated all over the country for maximum profit. On the other hand, if it turns out the company is not profitable, you simply leverage the assets, pay yourself and then put the company into bankruptcy to wipeout any creditors. Easy peazy.

 

[dmpi]

Some people just can't stand others getting rich.

 

[Donatello]

What is the larger strategy?

What happens when all the money is at the top?

The US and probably the world economy at large has been being gobbled up by the big fish corporations. Example: WalMart and Amazon have vacuumed up many small businesses. Goods sales are ripe for this strategy, but the labor heavy markets are a little immune, right now. Example: dry cleaner/alterations, auto repairs, plumbing, electrical repairs and hom—remodeling.


*has been being* sounds wrong, but, I am tired…..

Outstanding question. What will World finance look like in 75 years? Bet someone has a link.

 

[Allan]

So are you opposed to private ownership of property?

A listed company is still privately owned, by investors.

 

[holbritter]

I don't know that I'm particularly concerned about "secrecy;" I'm more concerned about what the impact of fewer publicly-traded companies means for the valuations of the remaining publicly-traded ones (see: the magnificent 7). In addition, I recently read an interesting article about how the PE space has sucked out the returns on IPOs. Companies used to go public when they were "younger," meaning more investors had a shot at getting a bigger upside. Now, PE firms suck up the outsized returns and then spit the company out when they're done with it. The result is that many IPOs of "older" companies have languished in the secondary market.

Where is reflechissez? What have you done with her?

 

[holbritter]

I disagree.

Oh, there you are. Phew!