If you are a regular reader of this blog - you will know that I am no financial expert. I haven’t even played one on TV - BUT - fascinated by it since the people in finance are (too?) often the one that dictate the funds available to do what I think businesses need to do - focussing too much (IMHO - on cost not value) .. but lets move on.
Today’s topic - PE. Which is NOT the same as VC. Not at all.
🔗🎙️ This podcast is from Decoder
Today, I’m talking with journalist Megan Greenwell about her new book Bad Company: Private Equity and the Death of the American Dream. It comes out June 10th. It’s fantastic and maddening in equal measure. I highly recommend it.
💬 Nilay Patel - (Decoder)
It is - not unnaturally - US centric - and there, for sure, the problem has been growing since KKR and Nabisco back in the 80s. (Made famous by Bryan Burrough’s Barbarians at the Gate book at the time.
Moreover, there are plenty of people far more qualified than I to fill you in on PE. But I can’t resist setting a little scene …
Though the podcast went into the history and problems of PE in the US, it did not explore one of the more insidious aspects of US PE companies - the ‘roll up’.
Example, if you have a pet, you know who your local vet is … BUT - you may not know that between 30 and 50 percent of those ‘local’ veterinary clinics are now owned by a PE company (sorry - hard to get the percentage more specific - but that is also why this can happen). This? Yes - that ownership was just 10%, 10 years ago.
In 2020, NONE of the top 30 CPAs had taken any PE money. In 2025, 50% of the top 30 companies in the U.S.A. are either wholly owned or partially owned by PE.
Today, somewhere between 1/3 and 1/2 of ALL PE investments is into the US ‘consumer services’. Consumer Services is primarily what we call ‘Hospo/Supermarkets’ in New Zealand.
Which brings me to my point. Our language - MY language has been for years; ‘Buy local.’ ‘Buy from the ‘little guy’.’ ‘Support your local community.’ I believe that this idea is very important in New Zealand - but if this takes off in New Zealand - how will we know who is REALLY local?
Case in point …
Transport … I have pushed against Uber since they started - and since arriving in New Zealand - pushed harder - pointing out that for every dollar spent on an Uber takes 25%(ish) not just out of the pockets of the taxi business - but out of the country - because Uber is essentially a Californian Tech company. Fast forward to today and .. scooters.
When I got to Auckland Uber (via Beam) and Lime were the two scooter companies that I was aware of. Beam got thrown out for being ‘🔗 naughty’ and then there was one - ruling the waves until the end of last year when contracts were renewed and ‘Flamingo’ appeared. Look at their site and they describe themselves as being funded by ‘Private Equity’ - but drill in, there is no significant company in there that I can see - just a cabal of local (Kiwi) business people who seem to like Jacksen Love’s idea and invested. TBC - this is GREAT - I am not saying all PE is bad. And giving Lime a run for their money - I am in.
So what about New Zealand - are we going to follow the US - or be different?
I always hope and want for different, but I remain dubious.
In NZ, the majority of PE are locally owned companies (maybe up to 20 of them) and less than a handful of International companies. (3?)
It wouldn’t be fair to measure the number against the US, which operates at a radically different scale to New Zealand - so how about a ‘per capita’ measure.
Turns out that
- in the US there are around 18 PE companies per million people in the U.S.A.
- in New Zealand, there are around 4 PE companies per million people
In New Zealand - PE is roughly 4 times the size of the VC industry - pretty much the same ratio as in the US.
I have no idea of the real power and influence of PE in New Zealand. Certainly the VC world is tiny compared to the US and not really made up of significant players - and valuations are a lot lower than what can be achieved in the US - which is part of the reason we tend to lose out great ideas and companies to the US. (Xero. RocketLabs. Soul Machines. Auror and … and .. and - still it is going on - most recently a tiny little company with big ideas - Grw.ai exported themselves to San Francisco.
So - we do need to grow up - and value properly competitively. Otherwise - who are we kidding. BUT, if we do do that- how do we avoid the ‘greed trap. How do we avoid VCs and worse BIG PEs taking over our local businesses?
Final case in point…
Optimal Workshop - cool company down in Wellington, took a 🔗 PE investment of $10,000,000 (Kiwi) in 2022 from Pioneer Capital - Pioneer are a local PE company - all good.
Here’s the thing. OW are in a very busy and focussed space (depending on how you cut the cloth) and Thoma Bravo - one of the larger US based PE companies ($US184 Billion in assets under management) - just before and just after the OW investment dropped well over 200 times that on a couple of their ‘competitors’ (its complicated) and merged them.
Customer experience is mission critical to organizations, and the combined company will be well-positioned to further market expansion, accelerate innovation, and provide even greater insights to its customers.
💬 A.J. Rohde, Senior Partner at Thoma Bravo
🔗 Pioneer meanwhile owns a majority stake in OW ….
(a share I can't reconcile based on publicly available information - because even a 50% stake would mean a valuation of 20Kiwi - post money - which would point to a revenue of 5Kiwi at a 4x multiple - but any public numbers (none of them from OW) had revenue at 5 to 7 million US - close to double.
BUT - whatever the story - it is not a large number if Thoma wanted to buy them - particularly when you look at their customer base and their ability to grow globally from Wellington. Imagine the possibilities if they were on Market Street, San Francisco?
Pioneer could easily collect a 5 times multiple to their investment from just 3 years ago if Thoma Bravo made them an offer, New Zealand would lose another great company, but the investors? They would be just fine. See how that goes? (Assuming that the New Zealand Commerce Commission approved it - they have stopped such sales before.)
All hypothetical of course, though in the USA it would be a slam dunk decision (apologies for the Basketball reference). But this is the conundrum.
Or is it? What do you think?
