Piracy in the 21st century

Private equity is piracy without the human face:

Toys “R” Us was a retailer in name only; in actual fact, it was a debt-payment machine. Its profits were used to repay the money borrowed by the private equity firms to buy it in the first place. The company slashed staff and gutted training. While Toys “R” Us limped toward bankruptcy, top executives were awarded $16 million in bonuses; the 33,000 rank-and-file employees were simply laid off….

And then there is private equity’s incursion into areas like health care and housing. Greenwell’s chapters on Roger Gose, the Wyoming doctor, show what happens when private equity tries to squeeze rural medicine for profits it cannot produce. The local hospital stopped providing obstetrics services. It also had to pay rent on land it once owned.

Greenwell reports that, compared with their peers, companies acquired by private equity firms are 10 times as likely to go bankrupt. Of course, proponents of private equity maintain that this figure isn’t surprising, given that private equity specializes in trying to turn around struggling companies, selling itself as “the hero when no one else is brave enough to shoulder the risk.” But as Greenwell and other critics of the industry have pointed out, 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.

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