I detest private equity for destroying companies. There’s a new book about this.
The Private Equity Wager: Heads We Win, Tails You Lose
Twelve million Americans work for companies owned by private equity firms. In a new book, the journalist Megan Greenwell traces the arrangement’s considerable human costs.
By Jennifer Szalai, The New York Times, July 2, 2025
BAD COMPANY: Private Equity and the Death of the American Dream, by Megan Greenwell
…
Twelve million Americans work for companies owned by private equity, which amounts to about 8 percent of the labor force…
Greenwell reports that, compared with their peers, companies acquired by private equity firms are 10 times as likely to go bankrupt. …
…private equity firms charge management fees and benefit from tax breaks that sever risk from reward. If a company makes money, its private equity owners make money. If a company loses money, its private equity owners can still make money.
Private equity firms borrow money from outside investors, including pension funds, to buy companies and run them. … it is a debt-payment machine. Its profits are used to repay the money borrowed by the private equity firms to buy it in the first place… [end quote]
Senator Elizabeth Warren proposed a bill to stop private equity looting. It didn’t go anywhere.
Yep. But one thing I’ve been wondering, does private equity destroy good companies, or do they mainly hasten the destruction of bad companies? I really don’t know enough about it, but anecdotally, it seems like they usually take over weak companies, load them up with debt, pull out cash, and then let them wither and die. And, of course, the debt holders eat much of the loss. I also wonder why so many generally clever institutions loan them the money in the first place?
I wonder the same. But I think the story that private equity brings is that they can strengthen a weak business using efficiencies that the managers of the business don’t see (although the original managers know the business since they built it).
By now, after decades of private equity destruction, lenders should recognize this bait and switch.
Wendy
I have mentioned here, before, the case of Art Van Furniture, a successful and profitable chain of furniture stores in Michigan. The founder was in his 80s and wanted to retire. No-one in his family wanted to run the company. Apparently they only wanted money. So the company was sold to PE. The PE group ran the company into bankruptcy in three years.
In the Art Van liquidation, some of the stores were bought by another PE group, which followed the same playbook as the first group. Ran up a lot of debts, sucked the cash out, stiffed vendors, then went Chapter 7.
When I first heard of private equity, in the 80s, they bought lumber companies and, instead of harvesting fields and replanting yearly to husband the crop, they clear cut everything, took the money to the bank and dumped the company. That was when “Greed is good” became a popular phrase.
While it’s completely plausible that PE firms have a spectrum of motives from positive, business sustainment and growth to pillage, rape and recycle, the motives for PE firms are centrally fixated on short term profits, generally.
That goal, in and of itself, shifts the likely strategy to pillage, rape and recycle.
I have operations and manufacturing experience. I get PE leadership calls all the time. The pitch usually goes something like this:
Senior operations leader needed. Turnaround and exit in 2-4 years with bonus contingent on margin improvement and exit sales price.
I’ve gone to 3rd base with these teams more than a handful of times. The questions at that level are:
Have you reorganized the maintenance and engineering department to improve margins. describe.
Have you streamlined production to optimize marginal costs per unit (ATP - etc.)
What can you do in (insert scenario for local plant or plant group) to provide short term profitability outside of base production (T&E spend, MRO, etc.)?
I’ve never had a question in these settings discussing long term mission, growth, etc.
In contrast, I’ve been sat for VP/COO/CEO in waiting discussions with the founder who discusses none of the above questions and probes about sustainment, culture, development, efficiency and effectiveness or new segment/sector growth adjacent to current operations.
It’s night and day.
As discussed previously, the PE scenario for profit/margin growth in medical is quite similar. My wife’s gastro team got bought. The 20 year lead doc in that shop can’t even look up alternate treatment options or tests not in network without flagging the PE team that he’s off th3 reservation. (he got a call from “management” while looking up a proprietary broad spectrum dietary test WHILE looking it up during our last visit)
Poor guy hates that he sold out, but he continues to be the best provider for us in his specialty.
