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The most obvious is low interest rates, which is fortunately dying off. The ability to borrow lots of money is something that smaller, well-run companies, are reluctant to do. Why bring in a bunch of cash to expand and take on debt when you are operating at a reasonable profit?
The secondary is the undervaluing of customer goodwill -- what PE firms can do is directly monetize that goodwill by squeezing those customers. The income stream from a reliable customer can be translated into present value, and prices and quality can be adjusted to the point where you can drive a customer's goodwill down to zero while extracting something that approximates the present value of the lifetime income stream from that customer.
Inflation plays a role -- businesses are reluctant to raise prices because they don't want to sacrifice goodwill, but the supply chain costs keep going up. They have to somehow maintain margins, but they do so by raising prices slowly. PE has no such scruples.
Interesting story of how some private equity guys would
- buy hospitals
- sell the real estate for more than they paid for the hospital, signing a long-term lease at a high rent
- pay themselves an immediate huge profit. the higher the rent the hospital promised, the bigger the sale/leaseback deal, so the bigger the profit.
- default, hospital goes bankrupt, the community and the dumb patsy who bought the hospital gets left holding the bag.
classic bustout from Goodfellas or The Sopranos, but mobsters get investigated, PE guys don't.
The thing about a restaurant is that you'll always have business if the food and service are good. You can talk about how the market changed or whatever, but no restaurant can survive at that price point while offering so little.
We had a chain BBQ restaurant in town that had a booming business for more than a decade. Then the quality of the food went downhill and they shut down, citing lack of a market. They had a market for years but there's no market for crap. Red Lobster's situation is no different.
In most cases, the brand name stays the same but the quality falls off a cliff.