I've thought about this a bit. This concentration shift seems good for the economy in the short term but a massive loss for society as business increasingly becomes a chains or centralised. Especially in areas that are traditionally owner run like restaurants, pubs, vets, dentists, GP clinic, pharmacy, hardware etc. Capitalism is the best system but we too often forget a core tenant for govt to create a level playing field. We seem to have forgotten this and make it increasingly hard for small business which should be a significant driver of innovation and improvement.
I think some possible solutions would be to;
1) Significantly lower taxes for smaller businesses vs larger. Even better bring personal rate inline to company rates... but this would be a very difficult shift for governments.
2) Tax benefits for companies listed and actively traded, so companies are encouraged to list and share wealth/growth.
3) A 'not in the national interest' law for companies that continually pay little to no tax where you would expect them to. Have tax department give something like a 3 year warning they are on the 'consideration list' and if things dont change the tax office can make them sell, or if they prefer close. And then they remain on said list for a couple decades or so to verify. This, while being risky for overuse, would be an effective tool on the worst tax dodgers and wielded in a limited capacity quite useful for those that have high end tax strategists that keep getting around the rules.
4) Limit investment ownership in residential so people dont spend their life trying to buy a house. This will allow people to take some business risk and invest in their entrepreurship far more easily.
5) Put a low market cap limit on core local business like those mentioned above like vets, dentists, GP clinic, pharmacy. Or maybe a progressively sliding scale annual asset tax past a value/outlet of X. Something that limits how big these organisations can get.
6) Stop large consumer distributors selling their own brand product. Not sure how to word this exactly but places like Amazon or large supermarkets, they should be a retailer of other business goods only. Stop them sticking their own rip-off product next to the other.
I think it will be a cyclical thing. The PE firms actually do run those businesses much more efficiently, but they also become homogenized and that's offputting, which opens the door for new entrants to differentiate themselves.
Efficiently is a bit of a stretch. I worked at a company making consumer electronics that got bought by PE. They promptly drained all accounts and just ran the company on minimum possible funding such that they never got to make any capital investment or perform any R&D.
As others have stated, great short term, it's going to absolutely bite us in the ass shortly thereafter.
It depends on the PE firm and the company, but the median PE acquisition outperforms its peer group even after the PE firm has exited. Of course there are plenty of cases where that hasn't happened and plenty of cases of mismanagement by PE firms but at least statistically they aren't the norm.
I'm not 100% on this cyclical thing. Some reasons;
1) A well know component of capitalism is capital concentrates. When that 300 store pharmacy does get run inefficiently, local guy doesn't replace the pharmacy, some other PE goes and buys the badly run chain and fixes it, likely merging another company with a bunch of pharmacies on the way vs new entrants competing.
I dont see the cycle returning to owner run, only being replaced by bigger and more efficient.
2) In my career I used to think companies with short term money extraction, like PE, were 'wrong' and should take a long term view for better business. However over time too often I see the 'quick buck focus' tends to win as while they do often erode the value/reputation of a company in that approach, they extract enough value quickly that they go buy the next company that was more conservative, rinse and repeat, and keep growing that way. This especially during the last era of cheap debt, though maybe that will change if rates go up.
The "quick buck" thing is a catchy meme but not really reflected in the statistics. While there are notable examples of companies that have been destroyed by PE investors they are rare and as a whole PE backed companies outperform after the PE group exits.
That is similar to other data I've seen, and given how loathed the industry is, the fact that it's hard to find contrary data suggests to me that it is accurate.
The PE firms have to exit their investments so they are either selling to dumb buyers who don't realize that PE is value destroying, or they are actually creating value by improving operations and selling to intelligent buyers who are willing to pay for the improved company. The former is definitely possible but you'd think after 40 years buyers would get smarter if that were the case.
I think some possible solutions would be to;
1) Significantly lower taxes for smaller businesses vs larger. Even better bring personal rate inline to company rates... but this would be a very difficult shift for governments.
2) Tax benefits for companies listed and actively traded, so companies are encouraged to list and share wealth/growth.
3) A 'not in the national interest' law for companies that continually pay little to no tax where you would expect them to. Have tax department give something like a 3 year warning they are on the 'consideration list' and if things dont change the tax office can make them sell, or if they prefer close. And then they remain on said list for a couple decades or so to verify. This, while being risky for overuse, would be an effective tool on the worst tax dodgers and wielded in a limited capacity quite useful for those that have high end tax strategists that keep getting around the rules.
4) Limit investment ownership in residential so people dont spend their life trying to buy a house. This will allow people to take some business risk and invest in their entrepreurship far more easily.
5) Put a low market cap limit on core local business like those mentioned above like vets, dentists, GP clinic, pharmacy. Or maybe a progressively sliding scale annual asset tax past a value/outlet of X. Something that limits how big these organisations can get.
6) Stop large consumer distributors selling their own brand product. Not sure how to word this exactly but places like Amazon or large supermarkets, they should be a retailer of other business goods only. Stop them sticking their own rip-off product next to the other.
Obviously a load more...