Why does PE/GE like B2B better than B2C
I know some of the points regarding this but wanna get very high level and hear from some on the street.
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Business’s recurring revenue is more ingrained/sticky. Customers can be better influenced by competition (i.e commercials, etc)
This. When you buy a product or sign up for a service, you buy it one-off and switch to a different producer next time, or you can cancel your subscription at every month. Businesses tend to enter into multi-year contracts with their service providers. Stability on the top line is attractive when you’re trying to load a business up with as much debt as you can.
Cyclical end markets
Lower churn, more lock in. Think about what it takes for you to switch from Netflix to Disney+ or one gaming console/ laptop / social media platform to another, and think of the equivalent effort for a whole org to switch from Microsoft Office to Google Docs or from Oracle to SAP. Literally it can drag on for years. The CEO could be fired (or retire) before the implementation discussions end! This affects how much pricing power these companies have and the amount of profit they can milk out of their customers year after year.
Also higher revenue opportunity. I don't know what to say but consumers are cheap LOL sometimes they won't want to pay at all (e.g., will pirate) and other times they'll try to get around other ways you monetize (e.g., adblock). Companies have money and are willing to spend it on things that help them make more money. It can be a mutually beneficial relationship. Think of Shopify - it helps merchants make more $$ which the merchants then spend on more Shopify add-ons, and it's a virtuous cycle.
Late bump but about a quarter through reading this book, "Winning Moves: 105 Proven Ways to Create Value in Private Equity-Backed Companies." It does a great job explaining why B2B businesses are attractive for investors in the PE / GE space.
Value creation roles at portfolio company is what I'm targeting post consulting so reading this has been helpful. Book does give some qualitative angles on the investing side of PE but is more focused on the operating side.
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