From many actual first-hand observations, I can say that private equity firms are ruining companies all over America.
They are funds that collect investment money from individuals and other investment firms, with the goal of buying whole companies, trying to maximize their value, and reselling them in 3-6 years.
They think short term. This is a really big problem. They don’t build companies for the long term, only to maximize their value now. Employees are treated like expendable assets. They don’t care long-term about what happens to employees or customers. They only say they do so they can flip it and get out. Their tools are to raise prices, cut costs, and use financial engineering to make a profit. The use of these tools is not evil in itself, but when combined with short-term thinking it results in win-lose-lose for the parties affected.
This gives the rest of us businesspeople and entrepreneurs a bad name. I don’t like that. I don’t do business where some groups – customers or employees or any other parties involved with my company lose.
I’m sorry to be negative, but I have to call it like it is. When private equity comes around, beware. It seems they only care about themselves and they will sacrifice you to win.
The good news is that since their employees will hate working for them, they are easy to beat if you are competing against them and run a good business.
I agree with you 100% about the goals of Private equity. The heirs of baby boomer business owners are easy targets for takeovers.
Henry Ford wrote about this 100+ years ago (today and tomorrow). Owners balance tension between giving their customers great value and giving their people great pay and conditions. The “monied interest” cares about neither.
Private equity purchased my dentist a few years back. I had the same dentist for many decades. It was a small local dentists office, like every town has. Things changed after they were purchased. Everything is a profit center and an upsell. It went from 3 to 1 dentist. There is one dentist now. You wait forever after your cleaning as the 1 dentist makes his rounds. Even the dentist gives a sales pitch for teeth whitening. It is delivered with thinly vailed contempt for having to do it. It’s sad.
instead of flipping houses they flip companies. “Company Flippers” And we all know to be really careful with houses that were flipped don’t we. Why? Because they cut corners for the almighty dollar.
I agree with 100%. I have seen private equity just destroy very well-run companies. You can’t make all the decisions solely based on the bottom line.
So on point,
They often have little regard for the founders and owners of the companies either.
BEWARE- The have only one agenda
this is totally on point! the owner(seller) wins, they get paid. all other parties lose – employees and customers, it does not turn out well for them. my industry (IT Services/MSP) is infested with PE. I have watched many deals get done, I have yet to see one that worked out well for customers or employees.
I agree 100% with you. My wife Jackie worked for 2 of type of companies. She started with a great company, who than was sold out to a private equity company, who worked her to death. She works in HR and had to fire a lot of employees and than was fired at the end. However, on a positive note, it lead her to her dream job as the Director of HR at Brescome & Barton Spirits and Wines.
Larry,
You are spot on regarding the private equity management style, and your position regarding their short-term management style.
I worked for a tech firm in Dallas that had PE investors. I eventually lost my job after 13 years of loyalty, in 2009, so the company could become more lean and package itself up for sale. It was sold in 2010. The timing was pretty awful to be shown the door and thrown into a bad job market (in 2009). I survived but it was not easy. I hate private equity company companies and I’m not a fan of business owners that look at PE as an option, too. In hindsight, PE was maybe not the right path for the company I worked for. It has since been sold two more times. I worked for i2 Technologies, then it became JDA Software, then Blue Yonder, then Panasonic. All because investors needed to be paid. What a joke.
“Blackstone” private equity just bought Jersey Mikes. All of the items you discussed are going to happen to Jersey Mikes. They will ruin Jersey Mikes, a company that has been around since the 1950’s. Wall Street is the worst.
Well said Larry. Many great companies have been ruined by private equity – Bed Bath and Beyond, Toys R Us, Radio Shack, Kmart. Loaded with crushing debt and then poorly managed.
I was a CEO for P/E and after feeling horrible about the mission and how we discounted the value of employees and customers, I moved to Reno NV and bought a small manufacturing company with 30 employees. Today we employ over 100 employees and are expanding in Reno and developing partnerships across the USA. It is such a joy to see employees learn and grow and can trust that the company and the customers value that effort. I think this is a great time to reap the rewards of the market needing committed companies in their respective markets. This alone with drive this horrible business model into the past.
This post paints private equity (PE) firms with a broad brush, and I don’t think it’s accurate or fair. Not all PE firms operate the way you’ve described. My company was acquired by a PE-backed contractor aggregator, and I’ve stayed on to run the operations of our local business unit for the past 7 years. That hasn’t been my experience at all.
In fact, being part of a larger organization has brought many benefits: better insurance rates, improved employee benefits, access to working capital, and valuable knowledge-sharing across businesses. These are things we likely wouldn’t have had as an independent business.
Many PE firms understand that employees aren’t stupid—they won’t tolerate being mistreated. The better ones empower operators like me to find a balance between short-term and long-term goals, ensuring investor returns don’t come at the expense of employee compensation or company culture.
The real issue isn’t specific to PE. It’s about the mindset of ownership in general. Sole proprietors, publicly traded companies, and even family-owned businesses can be just as out of balance when it comes to prioritizing profit over employees. There are bad actors in every ownership structure, so let’s not single out PE as if they’re the only ones guilty of this.
Thankful for you brother!
Having Two Private Equity competitors in our back yard, I have realized its actually good news for us. As long as we get to the table, we beat them. Private Equity does not prioritize Customer Service and that’s how you build a great long-term brand!
Several years ago we decided to bite after attending a P/E conference hosted by Generational Equity Group. They promised the world in their sales presentation but when we got right down to it our business really wasn’t worth that much at the time. They did extensive financial evaluations and then told us a number that we could likely sell at. It was not attractive. We decided to abandon that idea and just concentrate on building our business. I’m sure there are places where P/E makes sense for some people but it would be better for all involved to find someone in a similar or complimentary business to purchase you. Someone who is running a successful business and looking to expand. Someone with a good reputation in the market and who cares about their customers and employees. What I have seen of P/E buyouts is very similar to Larry and I have also seen some of those people go back into business after their non-compete agreement expires. At that point though they have lost 5+ years when they could have been growing their business and they have to rebuild their reputation from the ground up. Just be extremely sure of what you are doing if you are going that route!
100 % right about private equity. I sold my plumbing company to an hvac company. I fell for his pitch about growing the business. He bought 2 other small companies similar in size, with the same pitch without any of knowing about the other companies. Then sold the new company to private equity, which has now ruined the reputation of the individual company’s we all spent our lives to build