The bet is they make money now, but could be trimmed and squeezed to make even more.

Like Sears and Hertz?

There are different strategies. You can buy up dying companies and try to turn them around with management changes (and debt), you can sell off companies for scrap, you can buy up money printing machines and run them hotter.

Just to show that these bets are not without risk, the Sears bet failed bigtime. Lampert lost a ton of money.

People love to vilify PE for destroying companies, but a lot of these companies were dying anyway, and PE was trying a last-ditch, high-risk reorg to save them.

It's still possible to make money in this situation. Buy a company, then have it buy itself back using debt. The PE firm gets most of its initial capital investment back then secures a revenue stream in the form of management fees. The company can still go bankrupt, but as long as it sticks around long enough to pay back enough to the parent company that it turned a profit, things worked out. The bond holders can fight over the scraps post-bankruptcy.

Ah, but stock market investors also like cash making business machines.

If private equity is able to outbid the stock market, they must have spotted a way they can extract more value. Sometimes that's by raiding the pension fund and cranking up prices. Other times it's a distressed business and better management can turn it around.

Neither is exactly good news for customers.

The market care more about growth