A friend sent me a fascinating article about the American Gentry, American Gentry (substack.com) I thought it was an interesting read. It's not terribly surprising in many ways, particularly if you've done LMM/MM banking you've run into individuals who either have built a middle market business or inherited one. In many ways these people are incredibly different from we bankers who serve them. Even if we are making comparable amounts, the guy selling a $3MM CNC machining shop for 10x has a $30MM exit. Meanwhile the MD servicing that account might have to bust their ass for decades to ever see that kind of net worth. The tax code also treats wages much worse which is a non-trivial part of the problem.
In addition, SMEs have benefited from the multiple decades of the Fed expanding multiples as asset inflation has taken businesses that might have sold for 3x in the 1970s and made them 10xers. Even the ultra-lower middle market, sub-$1MM EBITDA companies where you definitionally will have to get your hands dirty to drive value have seen and benefited from this multiple expansion. I'll also note "ugly, boring" businesses have been a huge beneficiary of this trend too.
Interested in what others have seen in these ultra low middle market deals. Anecdotally I’ve heard of local HVAC businesses getting sold for over 8x. They might make around $3-5mm profit as well, so it’s definitely a great payout for the owners
I understand why the tax code is setup that way since they’d want to encourage the creation of businesses.. leads to more jobs, innovation, etc. Sucks for us on the W2 but such is life
This kind of stuff is interesting, the article correctly notes that it's been the way the world has operated. It's large social/economic revolutions that try to topple it (e.g., French Resolution, revolutions of 1848, Chinese Revolution of '49, etc.), but oftentimes it creates new power structures that revolve around economic interests, which are also obviously influenced by technological and legal advancements (e.g., the steam engine, creating LLCs and public companies, etc.). Very interesting economic history stuff.
This is interesting but hardly an indictment of, well, anything. The idea that there are families in poorer areas that have a relatively high concentration of wealth (even if that number is low on an absolute basis) is hardly new or revolutionary. And despite the attempt to tie scions of those families to the ultra rich like the Kochs (who couldn't lose their money if they tried), a "failson" can deal a death blow to a family whose wealth isn't piled high enough or insulated well enough to protect against bad decisions.
I'm not really sure what the point of the article was. To point out that on a small scale, American life is just as dominated by wealthy local elites as any two bit banana republic? As I said, the comparison is interesting, but the litany of them makes it obvious that this is a fact of human nature, and the key is to channel it into forms that benefit the community; if the same structures appear again and again, across cultures and government structures and everything else, then why do we care that it still occurs?
Far more interesting would be an exploration of the idea that the brain drain of smart people working in big urban areas actually perpetuates the control of a small local elite, as all of those with the intelligence or work ethic to challenge the local power structures choose a less risky W2 path in major cities.
And as far as the tax code goes, it should benefit people who own businesses over those who work in W-2 jobs.
The sky is blue and the wealthy inherit their wealth. How is this remotely interesting?
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