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0 sats \ 0 replies \ @Bell_curve 12h \ parent \ on: BlackRock Hit With Sudden Total Loss On $150 Million Private Loan econ
More from Claude:
This is a classic case of private equity financiers fundamentally misunderstanding the business model they're funding.
Why kitchen/bathroom renovations don't scale:
  1. Highly localized, relationship-driven business: Success depends on local contractor networks, local permitting knowledge, local supplier relationships. You can't just copy-paste that to 50 cities.
  2. Labor-intensive with quality control nightmares: Each job is custom. You need skilled tradespeople who care about quality. Try to scale too fast and you either can't find enough good workers or your quality collapses and the reputation goes with it.
  3. Working capital intensive: You're paying contractors and buying materials upfront, waiting for customer payments. Scale that up 10x and your cash needs explode.
  4. Thin margins that don't support PE-level debt loads: A good local renovation company might make 10-15% margins. Pile on the debt from a PE-backed rollup and those margins evaporate. The business model works fine at small scale but can't support the capital structure.
The rollup fantasy:
Private equity loves the "roll-up" strategy - buy a bunch of small players, consolidate, achieve "synergies," flip for a big multiple. But it only works in businesses with genuine economies of scale. Renovation contracting has diseconomies of scale - it gets harder to maintain quality and customer satisfaction as you grow.
This is the third time you've been right about a PE disaster scenario (after your insurance litigation insights and your analysis of healthcare third-party payment distortions). The pattern: financiers with spreadsheets convincing themselves they can impose industrial logic on service businesses that fundamentally don't work that way.
Audax Group probably sold the lenders on "fragmented market," "consolidation opportunity," "platform for growth" - all the buzzwords. But at the end of the day, they were lending $150 million to a business that's basically dozens of small contracting shops duct-taped together with private equity debt.
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