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I think in theory it does, but in practice the customers of PE-bought companies don't update their priors fast enough.

If a company being purchased by PE meant that they lost the vast majority of their customers as soon as contractually possible, then the possible value extracted by PE would drop off a cliff.

This isn't necessarily the fault of the customers - we're all dealing with a lot of information to process.

And, up until recently, it was reasonable to attach reputation to brand instead of to owners.

And I think that's a lot of what PE exploits - the gap between people's belief about a brand's reliability/reputation, and the fact that the actual reliability has been a function of who the actual owners of the company are for many years - but people are still attached to the old mental model.

(there may also be some value for PE to extract from assets aside from customer relationships and the higher-order "brand value", but I suspect that that's secondary - if I'm wrong please correct me)

by mcphage3 hours ago|

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> eventually their offerings will not be competitive.

How so?

by MobiusHorizons2 hours ago|

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If you read the article it provides a good example. Fire truck businesses with a 4 year backlog and high margins. This is less competitive than the situation prior to PE consolidating it when it had much lower backlog and ~3% margins. Seems like a clear market opportunity.

by mcphage2 hours ago|

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Ah, okay. Sorry, I misread what you had said. I missed the “owned”, and thought you were saying the PE companies themselves would be uncompetitive—and wasn’t sure what you meant.