Investment Thread

CrazyNotCrazie said:
A new trend in PE is rolling up smaller businesses - I have been reading a lot about this. Doctors, plumbers, etc. The joke is that if you graduate from HBS and go to run a plumbing business people will look at you like you are crazy, but if you do it as part of your job at a PE firm, you get a lot of street cred.

We had a major leak in our apartment and our insurer had ServPro handle it - they specialize in cleanup and restoration - it is a roll-up of a lot of small businesses that now has a few thousand locations and is owned by Blackstone. They work relatively seamlessly with insurers which makes life easier for all parties involved.

I assume the angle here is what you mentioned at the end - there are efficiencies from a back office perspective, negotiating with insurers, IT, purchasing supplies, etc. If you are a doctor who likes practicing medicine but not the business side of it (which I don't think they really teach in med school), it allows you to focus more on your core competency.
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I have a friend that founded a company that does this. He started out just pooling money from friends and business contacts as a side business until it got too big and became is primarily business. His most successful investments have been mom and pop places with solid businesses and employees that haven’t been brought forward technological. He’s less about cutting payroll and more about streamlining, finding efficiencies and increasing businesses.
 
TheDevilMadeMeDoIt said:
Reminds me of a company maybe more than a decade ago buying private medical practices. Unfortunately can’t remember the name. That company tried to pay all or part of the purchase price with stock. The smart docs took cash only. A few years or months later the company was bankrupt. The same happened with funeral homes. The Loewen company bought hundreds of locally owned funeral homes. They usually paid with their own stock. They bought two in my then hometown Paducah, KY. Shortly thereafter they were bankrupt and some folks who I had thought were smart businessmen lost a lot of money. Greed rarely ends well. Your dermatologist will probably be able to buy back her practice in a couple of years for pennies on the dollar.
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I practice law and represent sellers of all kinds of businesses, including professional medical, veterinary, podiatry and engineering practices. Private equity is the only exit for many of them. There is typically about 15% of the purchase price that is "rolled over", with the other 85% in cash. In my experience, the rollover part is sold years later at a higher multiple of EBITDA and the sellers do quite well. There is much money sloshing around out there. Instead of investing in public equity markets, it is used to purchase less expensive but cash flowing private businesses which are rolled up. I read about Loewen many years ago so it is not riskless to take rollover, but if most of the purchase price is in cash, and if your only other option is to finance a sale to your employees, private equity deals at reasonable multiples sound really good when you are in your sixties and ready to retire.
 
CrazyNotCrazie said:
A new trend in PE is rolling up smaller businesses - I have been reading a lot about this. Doctors, plumbers, etc. The joke is that if you graduate from HBS and go to run a plumbing business people will look at you like you are crazy, but if you do it as part of your job at a PE firm, you get a lot of street cred.

We had a major leak in our apartment and our insurer had ServPro handle it - they specialize in cleanup and restoration - it is a roll-up of a lot of small businesses that now has a few thousand locations and is owned by Blackstone. They work relatively seamlessly with insurers which makes life easier for all parties involved.

I assume the angle here is what you mentioned at the end - there are efficiencies from a back office perspective, negotiating with insurers, IT, purchasing supplies, etc. If you are a doctor who likes practicing medicine but not the business side of it (which I don't think they really teach in med school), it allows you to focus more on your core competency.
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My only quibble is that rolling up businesses is not a new trend.

I did a deal for an ophthalmology business that was a roll up by a PE shop.

It was a disaster for that fund. In order for it to be profitable/work, you have to be able to get a lot of synergies from rolling up - billing, better rates from insurers, etc. There is a wrinkly that many PE shops were ignorant of which is why some of these have been so bad. When it is owned by a PE owner, you can’t pay the doctors based on profitability - can only pay them based on revenue (it is because if it is by profitability that could adversely affect patient care). Because of that, these doctors don’t have any incentive to manage the office tightly. They tend to have too many admins and nurses working because that makes the doctor’s life easier and they don’t care because it isn’t their bottom line. This doesn’t happen all the time, but it happens enough that I don’t understand why these rollups continue to occur.

ETA - the one I worked on had six regions which were no where near each other so they weren’t getting a lot of synergies that you would see if they were nationwide or at least contiguous. It’s one of the rare times that I did diligence on a business and my initial thought was “This business has no reason to exist.”
 
ya, I'll be interested in following how this acquisition works out. It's a very well run practice now from what I can tell, so at quick glance I'm not sure where the savings comes from. And as a bidness school prof of mine told us years ago, after asking us "what is synergy," he said "synergy is bullsh*t" and I'm not at all sure he's wrong. I know a few people inside the practice so I may get to hear how things are working out.
 
budwom said:
ya, I'll be interested in following how this acquisition works out. It's a very well run practice now from what I can tell, so at quick glance I'm not sure where the savings comes from. And as a bidness school prof of mine told us years ago, after asking us "what is synergy," he said "synergy is bullsh*t" and I'm not at all sure he's wrong. I know a few people inside the practice so I may get to hear how things are working out.
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Synergies exist, but usually a lot less than the acquirer is predicting.
 
budwom said:
ya, I'll be interested in following how this acquisition works out. It's a very well run practice now from what I can tell, so at quick glance I'm not sure where the savings comes from. And as a bidness school prof of mine told us years ago, after asking us "what is synergy," he said "synergy is bullsh*t" and I'm not at all sure he's wrong. I know a few people inside the practice so I may get to hear how things are working out.
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Also remember a radiologist client of mine whose practice was sold to the local hospital. He made a point to ask me who would you work harder for yourself or a third party. He and his partners were more than happy to take the hospital’s money.
 
TheDevilMadeMeDoIt said:
Also remember a radiologist client of mine whose practice was sold to the local hospital. He made a point to ask me who would you work harder for yourself or a third party. He and his partners were more than happy to take the hospital’s money.
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Right but private equity is a different kind of acquirer. Like everywhere else hospitals are buying practices around here.
 
My MicroStrategy stock is up to 342 since buying the dip around 250.00 that we discussed back on March 2nd, and I think it’s going much higher.
All money I’ve put in is committed for a minimum 3 year hold to help accept the volatility and keep me disciplined.
I didn’t end up buying Tesla on that last dip. Instead, I bought more of that asset that can’t be named.
 
Shocking as it may be, I think I agree with you that what you bought is a better investment (over the next few years) than Tesla stock.

It’s all relative.
 
Wheat/// said:
My MicroStrategy stock is up to 342 since buying the dip around 250.00 that we discussed back on March 2nd, and I think it’s going much higher.
All money I’ve put in is committed for a minimum 3 year hold to help accept the volatility and keep me disciplined.
I didn’t end up buying Tesla on that last dip. Instead, I bought more of that asset that can’t be named.
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Down $20 today. I bunch of firms initiated coverage with over perform ratings and extremely high targets. Real time case study of a recent thread topic on deck.
 
I can’t see buying anything right now until we get some clarity on where the economy is headed. I have tried the old catch a falling knife theory before and it never worked at too well except with Netflix a few years ago. Even then I bought too soon and then failed to add to it as it proceeded down. When it comes to the market being a little late seems to work better than being too early. Speaking of Netflix it at least should be immune to tariffs. But like all stocks it won’t be immune to a recession.
 
I think a few days after these reciprocal tariffs kick in to create an equal economic playing field, the markets will come to see that the world isn’t going to fall apart and off we go.

Just an opinion, for what it’s worth…we’ll know more towards the end of next week.
 
Wheat/// said:
I think a few days after these reciprocal tariffs kick in to create an equal economic playing field, the markets will come to see that the world isn’t going to fall apart and off we go.

Just an opinion, for what it’s worth…we’ll know more towards the end of next week.
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That logic defies actually human history and economics. The last time we had a full on trade war, global trade collapsed and helped bring about the Great Depression. Weekend reading for you: Smoot–Hawley. You would see that on Telegram channels I promise.
 
Kdogg said:
That logic defies actually human history and economics. The last time we had a full on trade war, global trade collapsed and helped bring about the Great Depression. Weekend reading for you: Smoot–Hawley. You would see that on Telegram channels I promise.
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Ok.
I’ve put my opinion out there for everyone here to see. We’ll see what happens next.
 
Kdogg said:
That logic defies actually human history and economics. The last time we had a full on trade war, global trade collapsed and helped bring about the Great Depression. Weekend reading for you: Smoot–Hawley. You won't see that on Telegram channels I promise.
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Fixed a typo.
 
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