Private Equity – Is it the next major threat to professional industries?

[LS_8750]

It's a tired and bloodied bull viewed through the dust across the ring. Time for the roses.....

https://www.youtube.com/watch?v=PYI09PM ... DG&index=1

[LS_8750]

Some of us were not meant for that sort of thing....

https://www.youtube.com/watch?v=HoLhKJu ... rt_radio=1

[LS_8750]

The angst of the decision....

https://www.youtube.com/watch?v=eReqTYk ... rt_radio=1

[DWoolley]

James, it would have been much easier for me to simply say, “private equity is not the problem.”

The license does not disappear under private equity. What changes is the honesty about what governs. The business model is the issue. Private equity is simply more transparent about it.

When financial return becomes the organizing principle — regardless of ownership — professional discretion becomes subordinate. Not abolished — subordinated. The difference matters.

You cannot blame a private equity firm for pursuing return any more than you can blame a lion for eating a gazelle. It is a capital structure. It behaves as designed. The sun comes up in the east. Capital seeks yield.

If the system consistently rewards revenue velocity over professional judgment, the license does not vanish. It becomes an ornamental credential inside a machine — required for regulatory compliance, but not decisive in direction.

Private equity is different in only one respect: private equity does not pretend otherwise.

Private equity does not drape the structure in sports metaphors (Lombardi, Wooden), war stories (Patton), or framed quotations about toughness and winning — the kind of symbolism that fills leadership vacuums. That theater is left to carnival barkers who rely on mythology to manufacture loyalty. Private equity calls the structure what it is: capital seeking yield.

There is something almost refreshing about that transparency. No pretense of noble stewardship. No suggestion that sacrifice is character-building for its own sake. Just return targets and timelines.

Capital behaves as designed.

The question is whether the professional understands the design he is standing inside.

That is about all I have to say on it.

DWoolley

[Warren Smith]

Dave,

Thanks much for expanding on this topic from the private sector perspective. Although I started in that realm, I have spent the bulk of my career in the public sector. That may be worthy of its own digression sometime.

[LS_8750]

On the topic of barking carnies and mythology.....
Step right up...

https://www.youtube.com/watch?v=kTdScE3 ... rt_radio=1

One of the words the carnies liked to use was "benefits".....

[CBarrett]

I have increasingly seen private equity buying up professional services firms in our industry....

Snipped for brevity....
I have seen lack of ethics in a variety of situations, can't say that I have seen a significant increase with private equity.

Anyone who adopts the attitude of trying to get most money for the least amount of work will edge into the temptation of cutting corners.

Private equity KPI review process can certainly come across as cold, and people react to it in different ways.

But you could also have a yellin' cussin' skirt chasin' private owner who wants to buy a boat.

[jamesh1467]

There is way too much here to dive into everything.

All I want to make a point of is this: It may be bad with licensed professionals, but it will get way worse when non-licensed professionals call the shots. The bigger these companies get, the more they seem to "value" non-licensed professionals because they get too much of a hold on BD, Operations, etc. that you have no idea how to untangle them out of the system once you realize they are bad. Once you get them, they are basically stuck in the system.

I firmly believe that a closed or restricted market for professionals is better than a free and open one in certain lines of work. Doctors, Attorneys, Surveyors, Engineers, etc. There is a greater public good for maintaining those closed markets that offsets the restrictions we allow from a "free" public market. But the more and more you let people chip away at this, the less and less we have a restricted market for the purposes the license was intended for. People will get into the license and profit from it without doing the work to get into it. They already are. Its really just a question of how many you let in until they mass enough power to actually control the license.

You get 25 to 40% of the licensees working for large corporations with executives from other industries at the top, you'll start seeing challenges at the board or the legislature level to open up the license so others can compete with those non-licensed executives. People will want in and claim its not "fair". Then you'll be fighting claims from the public (it'll be backed by benefactors, you can be sure of it) of government efficiency and how much waste is made by having a survey license or an engineering license involved in certain things. "Why do we have to pay them for that?" will be the saying. Things along those lines. Then you will be sitting there with probably millions in funding for some kind of partial or full deregulation at the state level, vs a few thousand surveyors (mostly retirees) saying, "but we keep the public safe, we stop fraud from happening, you can't get rid of us."

Again, the thing going on with Crownholm, Hines, etc., is all about opening up the market. Dropping prices and removing safety controls to protect the consumer because people believe that those controls should be removed. Their claim, at its root, is that the public is smart enough to make its own decisions about using an unlicensed vs. a licensed land surveyor, and we should drop prices and remove the restrictions to allow lower-end services that are currently possible but not legally allowed right now.

Its all the same battle, and its not specific to surveyors. People are just trying to get into the license the other way around with Private Equity by force-feeding certain licensed professionals at the tops of companies gobbles of money to get control of their revenue streams for themselves. It will undermine the license, just as all those court cases will, unless the collective group of other licensed professionals says "no, you can't do that".

That's the point of this post. Keep your enemy out of the industry before they even attack you in 10 years. Because they will attack if they get big enough, and we are pretty likely to lose an organized challenge on the state level. This federal court stuff is a threat, but its people are trying to make a name for themselves, grasping at straws and politics, hoping they serve the justices in power something they are willing to take a bite on and make a political statement. If it ever goes to the state level, it will be a major problem.

I see people get in line to fight contractors with GPS on job sites. Yes, that seems like the most obvious issue because everyone directly sees it; this is the one that could sneak up on you without you realizing it. Again, the people in PE are incredibly smart. You can't underestimate them. You just keep them out to begin with. Years before they actually become a problem. That's how you win the battle before it even begins.