Decoder with Nilay Patel

Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters.

Jun 13, 2023

Brendan Ballou, a federal prosecutor and author of "Plunder: Private Equity’s Plan to Pillage America," explores the pervasive influence of private equity in the American economy. He dives into how these firms employ aggressive cost-cutting strategies that can devastate markets and consumer welfare. Ballou reveals the harmful implications of financial maneuvers like sale leasebacks, highlighting issues in the nursing home sector. He discusses the complexities of holding these firms accountable and the push for reforms amid their growing dominance.

01:00:49

Episode guests

Brendan Ballou

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Quick takeaways

Private equity firms often lack operational experience and focus primarily on financial changes, which can lead to operational mistakes and a short-term mindset.

Private equity firms have diversified their activities beyond private equity and have become influential and integrated into various sectors of the financial industry.

Concerns regarding the short-term mindset, heavy reliance on debt, and limited responsibility of private equity firms have raised issues related to job security, employee well-being, and market competition.

Deep dives

Private Equity's Impact on Business Operations

Private equity firms, despite their financial expertise, often lack operational experience in running businesses. Their focus is primarily on financial changes, such as loading companies with debt, spinning off parts of the company, or combining multiple companies. This disconnect can lead to operational mistakes and a short-term mindset. The debt burden placed on acquired companies by private equity firms can also hinder their ability to invest in research and development, employees, and long-term growth. In addition, private equity firms often escape responsibility for the consequences of their actions, which can lead to risky strategies that negatively impact companies and workers.

Private Equity Firms and Changing Business Models

01:19

Carla's Acquisition of Nursing Home Chain and Profit Extraction

01:32

The Influence of Private Equity Firms in public perception

01:20

Private Equity and Activism on Industry-Specific Issues in Podcast Decoder

01:07

Intro

4min

Behind the Curtain of Private Equity

12min

Break: Ads for Quality Bedding and Design Tools

2min

The Hidden Costs of Private Equity

16min

Exploring Business Rivalries and Entrepreneurial Solutions

2min

The Accountability Challenge of Private Equity

19min

Justice Under Pressure: Legal Challenges and Market Regulation

8min

The idea behind private equity or PE is simple: a private equity firm gathers up a bunch of cash, raises some investor cash and takes on a lot of debt to buy various companies, often taking them off the public stock market. Then, they usually install new management and embark on aggressive cost cutting and turnaround programs – mostly because they have to pay down all that debt pretty fast. Then, the company can be sold or taken public again for a hefty profit. But don’t worry—if it doesn’t work out, the PE firms are extracting fees at every step of the process so they get paid no matter what happens.

In another world, these PE deals are just boring financing strategies or maybe the backbone of the occasional juicy corporate takeover story. In Decoder world, PE is everywhere. Since the modern PE industry kicked off in the 1980’s, it’s grown virtually unchecked, and as author Brendan Ballou explains, that’s had seriously negative consequences for all kinds of markets and consumers. Private equity affects everything from the modern nursing home industry, to the Solarwinds hack, one of the biggest hacks in U.S. history.

Brendan Ballou is the author of Plunder: Private Equity’s Plan to Pillage America. Brendan is also a federal prosecutor and he served as Special Counsel for Private Equity in the antitrust division at the Department of Justice, so he’s uniquely suited to writing a book like this. Although he will be the first to tell you, the book does not reflect the views of the DOJ.

This is a wonky episode, but it’s essential.

Links:

Plunder by Brendan Ballou

How Private Equity Buried Payless - The New York Times

Barnes & Noble is going back to its indie roots to compete with Amazon - Decoder, The Verge

How arson led to a culture reboot at Traeger, with CEO Jeremy Andrus - Decoder, The Verge

Opinion | Private Equity Is Gutting America — and Getting Away With It - The New York Times

Ticketmaster, Taylor Swift, and antitrust – explained - The Verge

What is chokepoint capitalism, with authors Cory Doctorow and Rebecca Giblin

Credits:

Decoder is a production of The Verge, and part of the Vox Media Podcast Network.

Today’s episode was produced by Jackie McDermott and Raghu Manavalan, and it was edited by Callie Wright.