In a hypothetical zero interest rate world I can keep paying you the $0 "interest" to not have to pay back the billion. Only when the interest rate goes up do we find out who actually had any intention to ever pay back the original.
Maybe the current bets will unwind, but I'm not sure that means there won't be a good time era of another round of bets. After all, interest rates were very high in the 80s, and that was a heyday for PE, right?
Like, definitely some PE firms will survive, but I'm willing to bet (not short though ;) ) that an awful lot of them will go belly-up/be unable to raise more funds in the next 5-10 years.
Most of the cash (50-90% - changed through time to time) comes from the banks - leverage, the investing commitments to the PE firm by e.g. pension funds and private invetors, take only a small portion of the equity. The leverage enables the high returns of PE funds, the high debt burden on the company incentivizes the PE firm additionally to make the bough company more efficient and profitable. But this has changed through the last few years. PE firms are starting investing more of their investors money, due to lack of banks providing big loans for big transactions.
> Why is private equity ending up with all these resources?
Because they have cash, mostly from pension funds and insurance companies.
> Who is selling to them and why?
The doctors running the practices, more generally they're rolling up companies in relatively dispersed industries where they believe they can make money.
In the best case, this is because replicating administration across many SMEs is much less efficient than centralising it. In the worst case, it's a way to buy them companies with the cash flows of the company themselves, and pay out fat dividends while gutting the actual business.
Why didn't this happen before?
Really low interest rates super-charged the amount of money that PE could borrow , and helped them raise money because insurance and persion funds needed to get above premium returns which were hard to find because of said really low interest rates.
Additionally, banks became much less likely to lend money since the 2008 crash (because of requirements around capital buffers) so PE was basically the only game in town.
Honestly though, I think the good times are over for PE, as most of the industry (and finance in general) has been cushioned by a low interest rate world, and as debt starts to cost real money we're gonna see a _lot_ of these bets unwind.
> When PE loads up a firm with supposedly unsustainable billions of debt, someone is on the other side of that transaction, lending the billions.
Banks. Again, these loans are assets, and assuming that the business continues as normal and interest rates don't rise, these were OK(ish) risks. More importantly they built a bunch of relationships with the PE people, so it wasn't about any one individual loan, but rather the constant amount of deal flow.