Posted by NoRagrets 9 hours ago
That would also be legal. But if you take the assets out of the daughter company you would go to prison for https://web.archive.org/web/20141030194421/http://www.sfo.go...
Now they are buying fire stations, dentist offices, ski resorts, whatever the fuck they can think of and then raise the prices. Something needs to be done to stop this.
https://www.thebignewsletter.com/p/did-a-private-equity-fire...
> 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
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 point of the exercise is not to suppose what other things could have been different to allow these two hypothetical companies to end up in the described state. The point is to actually freeze everything else, do not allow it to vary, and look at the backlog in isolation. Obviously such a situation would never actually arise. Even if things were trending in that direction, the two companies would very quickly diverge from ceteris paribus.
Obviously having a backlog is better than no backlog because unless you make a new sale tomorrow, you have a problem. You will have idle capital and labor resources. Which company do you think has easier access to credit?
Private equity is very much interested in the margins. That is one of the key differences between private and public companies. Public companies are under pressure to grow at all costs. PE would probably be satisfied to make half the profit and double the margin, especially if it also happens to position the company for a more favorable sale. Would you rather buy a business that's at 5 or 10% margin?
The depth of the backlog also happens to be a pretty decent proxy for how much competition there is the market. A deep backlog means there isn't another firm around to fill that demand. That makes your company look better.
Let's go a little left/up the funnel. Imagine two startups, all things equal, their sales funnel goes wide > qualified > sale. They consistently convert 5% of qualified leads into sales. Do you want to be the company that has zero qualified leads, or $4.5b of qualified leads?
For the sake of argument, we're imagining both startups have equal levels of investing/funding secured, equally talented founders and employee, equal access to equal networks (i.e. I'm imagining something like defense or aerospace, to make it a little easier to imagine a startup getting $4.5b in qualified leads), equal technology or IP, equal EVERYTHING as per your hypothetical... and yet somehow one startup has $4.5b in qualified leads and the other does not.
I truthfully would rather buy into the one with zero leads, because presumably, under ceteris paribus conditions, that startup must be priced at a discount to the other one, since it has no leads... and yet, EVERYTHING ELSE is equal (equally strong team, equally good tech, equal networks, etc.), and so it seems to me, that I would be able to buy a larger equity stake for a discounted price, and have EQUAL odds of winning future business since this startup is EQUAL in all other respects expect for the odd qualified leads backlog.
Would you rather buy shares in NVIDIA, or buy shares in another company that is equal to NVIDIA in every way (same talent, same tech, same everything), but just happens to have no backlog of confirmed orders? I think I'd like to buy this shadow-clone of NVIDIA, because I would buy into the thesis that there is more room for growth, vs buying the incumbent... after all, ceteris paribus, right?
It's like me saying "all things being equal except you're a duck"
You can't be a duck and have all things equal. Same way a company can't be equal to another company and have a $4bn backlog. This isn't an independent variable like the color of your logo.
> PE would probably be satisfied to make half the profit and double the margin, especially if it also happens to position the company for a more favorable sale. Would you rather buy a business that's at 5 or 10% margin?
So PE doesn't maximize profit but instead maximizes profit margin? This makes no sense. Why?
The demand curve for a business could be such that you sell 100 widgets and get $100 profit, sell 200 widgets get $101 profit. Why bother trying to sell more than 100 widgets?
Maybe you can sell 50 widgets and make $90, that sounds like a pretty good deal. Instead of making 50 more widgets you could do something else and make more than $10 profit in the same time.
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.
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.
> So you make money by ... not delivering? I'm missing something.
Precisely. Let's review imperfect competition. Although it's you who so unpleasantly insists on framing the discussion in econ 101 terms, it's your comment that is sunk by a misunderstanding of elementary economics.
What you're missing is evidently the things one learns when they go past chapter 1 of an intro textbook!
> It's the profit maximizing level.
Not all markets match the assumptions of the simple "perfect competition" ideal you learn about first. The efficient equilibrium you describe requires an assumption that there are no barriers to entering the marketplace as a producer. An extreme example breaking this assumption is the "monopoly market", where there is only one seller of the good because barriers prevent other sellers from viably entering the marketplace. That's why the consolidation in OP is relevant to the discussion...
In the extreme case the market equilibrium is reached when a monopoly jacks up the price and produces less than it would in a competitive market. Deliberate scarcity! The (single) producer makes more money in this kind of market. The consumer is worse off. But the every extra dollar the monopolist makes in profits takes more than a dollar away from the consumers. Deviating from the perfectly competitive equilibrium results in a market inefficiency called "deadweight loss".
The article also nodded to the price-inelastic demand for the equipment enabling emergency services. Inelastic demand makes this phenomenon more extreme. It's pretty intuitive that fire departments' demand for firetrucks would be price-inelastic.
So anyway. Your comment implied that you don't want to be mad about the consolidation and price gouging for e.g. firetrucks if you're in the "woohoo go free markets" tribe. Couldn't be more wrong. You should be just as mad if you're in that tribe. The extraction of monopoly rents from emergency services is not just dangerous, and not just unfair, but also a textbook case of market inefficiency.
Wrong. The amount produced is still the point at which marginal cost is equal to marginal revenue under a perfect competition. However the amount charged is higher. Below is the monopoly model, chapter 7-2 :-)
> The monopoly firm maximizes profit by producing an output Qm at point G, where the marginal revenue and marginal cost curves intersect. It sells this output at price Pm.
Basic economics doesn't not apply when you go past chapter 1.
https://uw.pressbooks.pub/microman/chapter/7-2-the-monopoly-...
Why would the retiring dentist selling their practice be a trust or collusion problem?
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.
Sure, and it's often a real loss to customers, but are you suggesting mandating that you vet the person you're selling to for their business aspirations and then have some kind of legal covenant that binds them to those stated aspirations, enforced by...something?
Otherwise we can just be satisfied with shaming them, but seems like an awfully convenient way to sidetrack this conversation from the obvious remedies.
> That cash out comes from the future business increasing profit, which is over the longest term cutting service quality.
Which is a problem when the same person buying also bought up all the other dentist offices, so there's no choice, let alone competition, in services.
Eliminate that and the sweetheart buyout offers make a lot less financial sense and we can at least prevent the scales from tippng so steeply toward PE buying up all the dentists, hospitals, retirement homes, HVAC repair, roofing companies, pest control, etc etc
Unfortunately people are mortal and everything ends. Even if a someone didn't sell their business to PE, the trusting relationship is over once they retire. There's no guarantee that someone new - even if vetted - is going to be as good as the previous owner.
How would you know this attention is getting paid or not unless you are consuming local news from the places this is happening?
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.
Why would anybody expend time reading something that is probably full of hallucinations? And what's crazy is clearly only a few of us have enough experience with Instruct Mode LLMs to even spot it. The rest of these guys don't even know they're reading slop.