Private Equity Killed Grandma
Private equity.
Once a term that carried an air of sophistication and intrigue,
it has now transformed into a phrase often spoken with disdain.
For instance, a friend recently expressed frustration, saying, “Private equity just bought Jersey Mike’s. They’re going to ruin it…”
The private equity (PE) approach is straightforward: gather funds from investors, secure substantial loans, acquire companies, boost efficiency, and then sell for profit.
At least, that’s the intended outcome.
My attention was first captured by private equity in 2005, when three firms acquired Toys ‘R’ Us. They saddled the company with $5 billion in debt, took massive payouts, and ultimately destroyed the business.
Since that time, PE firms have raised and borrowed trillions.
They continue to quietly acquire businesses in HVAC, dental care, and worryingly, hospitals and nursing homes.
Their ownership of hospitals is particularly alarming. A 2023 review published in JAMA, a well-respected medical journal, found troubling outcomes.
“Private equity acquisition was associated with a 25.4% increase in hospital-acquired conditions, which was driven by falls and central line–associated bloodstream infections.”
Hospitals under PE control deliver poorer patient care. Patients face more infections, longer ER waits, and increased falls.
This stems from the relentless cost-cutting typical of private equity owners. For example, research shows PE-owned hospitals reduced emergency department staff wages by 18%.
Emergency room deaths rose by an average of 13% as a result.
Wages are slashed, staffing levels shrink, and costly experienced nurses and personnel are often dismissed to save money.
In the end, critical medical decisions are driven by financial investors. Moreover, PE-run hospitals tend to adopt aggressive billing and debt collection practices. A notable case involved TeamHealth, a large physician staffing firm, which sued many low-income patients a few years ago and faced significant backlash.
Several friends and relatives have endured awful experiences at hospitals and clinics owned by PE.
My wife works with a non-profit focused on long-term care (nursing homes), and has witnessed private equity’s harmful impact firsthand. I hope to share some of her stories after getting her permission.
In brief, PE is making an already troubled U.S. healthcare system even worse.
The Private-Equitification of America
PE’s reach extends beyond healthcare. It is acquiring businesses like lawn care, plumbing, HVAC, dentistry, electrical services, restaurants, and retail.
At these PE-controlled companies, prices rise while service quality declines.
Even community sports facilities feel these effects. Black Bear Sports Group, led by PE CEO Murry Gunty, has bought 42 hockey rinks nationwide with private equity backing.
At these rinks, parents can no longer film their children’s games. To watch online, they must pay $14.99 per game or subscribe for $26 to $50 monthly.
Any unauthorized recording could jeopardize the team’s standing in the league.
The involvement of private equity executives in running sports venues worsens the financial strain on youth athletic participation.
The Financial Angle
Private equity has grown into a massive industry, managing around $13 trillion globally.
Typical PE transactions depend heavily on borrowed money, following the leveraged buyout blueprint.
The goal is to boost efficiency and cut costs enough to cover the debt and still profit when the business is sold.
However, with a recession likely on the horizon, many such deals risk failure. PE-owned firms may go bankrupt, leaving employees and investors vulnerable.
If you invest in an S&P 500 index fund, you indirectly own stakes in PE ventures through major firms like Blackstone and Apollo.
Pension and institutional investors are also heavily involved in private equity, as are banks.
Additionally, private credit—which is closely related to private equity—is another complicated issue, one we will explore further. Banks’ exposure to private credit was recently highlighted by Chris Whalen in his DR article.
Over the last 15 years, private equity and credit have grown excessively complex and opaque.
Now, we may be approaching a reckoning in the private equity and private credit sectors.
More updates soon.
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