The premise is that PE firms invest in companies, load them up with debt, and maximize profit. And it's especially nefarious in industries where people have "no choice but to pay"

> The result is a backlog that reads like a financial opportunity in earnings calls and a crisis in every fire station in the country. As of 2025, REV Group’s backlog stands at $4.5 billion. Wait times for a custom fire truck run to four years. Prices have doubled in a decade: a pumper truck now costs around $1 million; a ladder truck runs over $2 million. Profit margins in the industry have tripled — from the historic 4-to-5 percent range to over 13 percent.

The article goes on to talk about how a backlog is actually genius. Here's a quote from a senator:

> “This didn’t just happen to you accidentally. This is a business decision, isn’t it? You keep these backlogs like this. […] Another word for this would be a heist. This sounds to me like private equity came in; bought up all of these small companies; combined them; shut down their production; rolled up a huge backlog; massive profits; stiffed these guys; and now you’re making out like bandits.”

So you make money by ... not delivering? I'm missing something.

> The fire truck industry is the most publicly documented case, but the underlying playbook — acquire, consolidate, reduce supply, extract margin — appears across essential sectors with alarming consistency.

Sure, anyone can reduce supply and increase prices if they're a large enough supplier. But companies don't produce up to the point where marginal price is equal to marginal cost out of the goodness of their heart. It's the profit maximizing level. This is economics 101. The article doesn't even try to explain beyond hand waving. No one cares about profit margin, they care about maximizing profit, and you don't do that by creating backlogs. So something is off here and the author is either too incompetent to ask basic questions or just wants to write another PE bad article

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ses1984 10 hours ago | parent | next [-]

Let’s compare two hypothetical companies. They are equal in every way except one has a $4.5b backlog and one has a $0 backlog. Which company would you rather own?

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brainwad 10 hours ago | parent | next [-]

The way to get to a backlog is by not having made sales you could have made in prior years. So they shouldn't be equal in every way - the one with $0 backlog should have more cash, and that is probably preferable unless your business has diseconomies of scale.

	▲	10 hours ago \| parent [-]
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bko 10 hours ago | parent | prev [-]

Not sure. On one hand, a huge backlog means they're not meeting their demand. Operations may not be in order. Everything else is the same so sales and everything else is equal so I guess money is just deferred? Also huge backlog encourages competition and if you can't deliver, you're going to lose.

But such a big backlog suggests that they're underpricing. So it may be as simple as increasing price and ramping up your production, even though it would likely mean higher marginal costs.

Overall no one wants a backlog. It's not good business

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ses1984 10 hours ago | parent | next [-]

Have you ever heard the phrase ceteris paribus? It means all other things being equal. It's a phrase economists use to discuss things in the ideal, sort of like, "imagine a spherical cow in a vacuum" but for economics.

The point of the exercise is not to suppose what other things could have been different to allow these two hypothetical companies to end up in the described state. The point is to actually freeze everything else, do not allow it to vary, and look at the backlog in isolation. Obviously such a situation would never actually arise. Even if things were trending in that direction, the two companies would very quickly diverge from ceteris paribus.

Obviously having a backlog is better than no backlog because unless you make a new sale tomorrow, you have a problem. You will have idle capital and labor resources. Which company do you think has easier access to credit?

Private equity is very much interested in the margins. That is one of the key differences between private and public companies. Public companies are under pressure to grow at all costs. PE would probably be satisfied to make half the profit and double the margin, especially if it also happens to position the company for a more favorable sale. Would you rather buy a business that's at 5 or 10% margin?

The depth of the backlog also happens to be a pretty decent proxy for how much competition there is the market. A deep backlog means there isn't another firm around to fill that demand. That makes your company look better.

Let's go a little left/up the funnel. Imagine two startups, all things equal, their sales funnel goes wide > qualified > sale. They consistently convert 5% of qualified leads into sales. Do you want to be the company that has zero qualified leads, or $4.5b of qualified leads?

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strgcmc 8 hours ago | parent | next [-]

Ceteris paribus can be stretched to the point of absurdity though. A startup with $4.5b of qualified leads, vs one with zero? Come on now...

For the sake of argument, we're imagining both startups have equal levels of investing/funding secured, equally talented founders and employee, equal access to equal networks (i.e. I'm imagining something like defense or aerospace, to make it a little easier to imagine a startup getting $4.5b in qualified leads), equal technology or IP, equal EVERYTHING as per your hypothetical... and yet somehow one startup has $4.5b in qualified leads and the other does not.

I truthfully would rather buy into the one with zero leads, because presumably, under ceteris paribus conditions, that startup must be priced at a discount to the other one, since it has no leads... and yet, EVERYTHING ELSE is equal (equally strong team, equally good tech, equal networks, etc.), and so it seems to me, that I would be able to buy a larger equity stake for a discounted price, and have EQUAL odds of winning future business since this startup is EQUAL in all other respects expect for the odd qualified leads backlog.

Would you rather buy shares in NVIDIA, or buy shares in another company that is equal to NVIDIA in every way (same talent, same tech, same everything), but just happens to have no backlog of confirmed orders? I think I'd like to buy this shadow-clone of NVIDIA, because I would buy into the thesis that there is more room for growth, vs buying the incumbent... after all, ceteris paribus, right?

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bko 8 hours ago | parent | prev [-]

The all things being equal makes no sense in this regard.

It's like me saying "all things being equal except you're a duck"

You can't be a duck and have all things equal. Same way a company can't be equal to another company and have a $4bn backlog. This isn't an independent variable like the color of your logo.

> PE would probably be satisfied to make half the profit and double the margin, especially if it also happens to position the company for a more favorable sale. Would you rather buy a business that's at 5 or 10% margin?

So PE doesn't maximize profit but instead maximizes profit margin? This makes no sense. Why?

	▲	ses1984 6 hours ago \| parent [-]
		Because they don’t want to have to work that hard for their money. They get more value for their effort by focusing on something else instead of trying to maximize profit for a single business. The demand curve for a business could be such that you sell 100 widgets and get $100 profit, sell 200 widgets get $101 profit. Why bother trying to sell more than 100 widgets? Maybe you can sell 50 widgets and make $90, that sounds like a pretty good deal. Instead of making 50 more widgets you could do something else and make more than $10 profit in the same time.

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inetknght 10 hours ago | parent | prev [-]

Okay, now same question except one small change.

There's only one company: the one with the backlog. The other company either went bankrupt or was bought out and consolidated into the first company.

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dapperdrake 10 hours ago | parent | prev | next [-]

Learn how businesses are priced.

The buyer (who PE sells to) is "thinking about" collecting on the backlog.

Obviously, the backlog is "fake".

EDIT: The backlog is fake or worthless in the sense, that dollars worth of reputation (a.k.a. Brand) were given away to get pennies worth of backlog. Customer satisfaction is real, even in a business valuation sense.

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wffurr 10 hours ago | parent | prev | next [-]

There's no competition left to drive the marginal profit back down to a reasonable level.

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scionaura 8 hours ago | parent | prev [-]

So much condescension in your comment. So little to back it up.

> So you make money by ... not delivering? I'm missing something.

Precisely. Let's review imperfect competition. Although it's you who so unpleasantly insists on framing the discussion in econ 101 terms, it's your comment that is sunk by a misunderstanding of elementary economics.

What you're missing is evidently the things one learns when they go past chapter 1 of an intro textbook!

> It's the profit maximizing level.

Not all markets match the assumptions of the simple "perfect competition" ideal you learn about first. The efficient equilibrium you describe requires an assumption that there are no barriers to entering the marketplace as a producer. An extreme example breaking this assumption is the "monopoly market", where there is only one seller of the good because barriers prevent other sellers from viably entering the marketplace. That's why the consolidation in OP is relevant to the discussion...

In the extreme case the market equilibrium is reached when a monopoly jacks up the price and produces less than it would in a competitive market. Deliberate scarcity! The (single) producer makes more money in this kind of market. The consumer is worse off. But the every extra dollar the monopolist makes in profits takes more than a dollar away from the consumers. Deviating from the perfectly competitive equilibrium results in a market inefficiency called "deadweight loss".

The article also nodded to the price-inelastic demand for the equipment enabling emergency services. Inelastic demand makes this phenomenon more extreme. It's pretty intuitive that fire departments' demand for firetrucks would be price-inelastic.

So anyway. Your comment implied that you don't want to be mad about the consolidation and price gouging for e.g. firetrucks if you're in the "woohoo go free markets" tribe. Couldn't be more wrong. You should be just as mad if you're in that tribe. The extraction of monopoly rents from emergency services is not just dangerous, and not just unfair, but also a textbook case of market inefficiency.

	▲	bko 8 hours ago \| parent [-]
		> In the extreme case the market equilibrium is reached when a monopoly jacks up the price and produces less than it would in a competitive market Wrong. The amount produced is still the point at which marginal cost is equal to marginal revenue under a perfect competition. However the amount charged is higher. Below is the monopoly model, chapter 7-2 :-) > The monopoly firm maximizes profit by producing an output Qm at point G, where the marginal revenue and marginal cost curves intersect. It sells this output at price Pm. Basic economics doesn't not apply when you go past chapter 1. https://uw.pressbooks.pub/microman/chapter/7-2-the-monopoly-...