How Private Equity Consumed America 

I work for an engineering company that was bought out by a private equity firm a couple of years ago. Since their purchase, we have had several rounds of layoffs, budget cuts, and members on the board suggesting we commit fraud by charging clients for work we haven't done to meet our numbers. Going from a company that was focused on engineering excellence to a stripped-down, shell of a company where shareholder profits is the primary driver has been very disheartening.

Private equity is basically just house-flipping, but for corporations.

Remember, lads. Sam Denby and his channels are doing great. Wendover and Nebula are doing well. Sam Denby is not suicidal or sickly.

The biggest problem with leveraged buyouts is that the private equity firm doesn't lose anything if they wreck the company. They get their fees and commissions after gutting the company and bear no responsibility. On top of it, they can write off any loss or pay 15% on the gains. The solution is to make laws that don't allow this, but good luck with that.

Private equity firms: the villains in pretty much EVERY company man video

Private equity sounds like a mechanism that extracts the most amount of value from a business, and transfers that wealth to the few general partners. Everyone loses - the business, the employees, the local consumers, the tax payers.... except for the general partners.

I grew up watching my dad work. He brought me from tending wells all the way to the C level meetings. He did well, lead massive deals in shale, but refused private equity. He saw early private equity destroys companies early in his career, easy money but gave up control. Private equity looked to hit home runs, not do the fundamentals correct. They wanted explosive growth with unsustainable models. He always stressed doing the right thing, don't try to hit home runs, pick small consistent wins. Play by the rules (legality), know your strengths and stick to them. Private equity is growth at all costs.

I worked at Michaels during their buyout from Apollo. To say the culture changed would be an understatement. When I first worked there we had 8 registers in the store, plenty of staff, and district managers were rarely on our ass about minutiae because they'd get taken care of before they needed to be a problem. Afterwards, we had two cash registers, only one cashier at a time, and 4 self checkouts. There was a credit card system all of a sudden that seemed deeply unpopular with customers, hardly any staff in the stores, cut hours left and right, and every manager up and down the chain seemed to be pissy at absolutely everything every single day. It became a miserable place to work, I was extremely suicidal by the end of my time there and leaving was the best thing I've ever done. Private equity is a mistake. It's a crime.

It's impact on healthcare has been terrible. Many smaller rural hospitals have closed down to predatory maneuvers by large finance companies.

Actually I think its unethical because usually how they "save" companies is cutting the lowest, most vulnerable employees without warning while giving the people who actually failed the company golden parachutes

My charity for affordable housing in Vancouver was taken over by a new CEO who owns a private equity firm. He lays off staff, increases his own salary and the management team, decreases salary of 80 percent of existing staff, takes money (donations) that are supposed to go for a good cause into his own pockets and so on. Stop donating to charities unless you are sure the money actually goes to the places they are supposed to go, not CEO and private equity firms!!!

My wife is currently going through the joys of working for a company currently owned by a private equity. Looks like we're approaching the resale/go public stage.

Private equity just has just taken over the clinical lab at the hospital where I work. Someone must have made a bunch of money because it's led to increased turn around time for results, decreased communication, lost specimens and even a C. Diff outbreak on the inpatient ward🤦‍♀️

As a recently laid-off Yahoo employee, thank you for bringing this up Sam and team.

Ryan Grimm did a nice (if not more brutal) breakdown of how private equity operates, and the fact it has not ended with bankers being hunted on the streets and endless RICO prosecutions still astounds me.

The only reason I heard of Marsh: In 1974, the very first laser-scanning UPC barcode system for a grocery store was a Marsh in Troy, Ohio.

The company I work for got bought out by Blackstone, there's been renovations done over a couple of years, now huge rounds of layoffs. Rumours saying they want to cut the staff by 50% to reduce operating costs. Prices keep increasing, hours cut back, layoffs, all this to turn a profit while they run it into the ground.

Has anybody heard of Apollo Global Management being sued for taking out life insurance policies on patients in care establishments they bought?

Excellent video! Reminds me of a family story… My old man worked as an HVAC Controls (BAS) technician for a corporation. His company that employed him was called “ESC Automation”. It got bought out by a private equity firm in the mid 2000s. As soon as the takeover was complete, half of his colleagues were laid off and the remaining employees got their wages slashed in half. So more people ended up quitting and before you knew, my old man was doing all the work and overtime work for cents on the dollar just to keep regular customers happy. After a few years of milking the corporation dry, the private equity firm sold everything to an investor who allowed things to be turned around in the company for the better. My old man was lucky and did not lose everything, but man, most folks out there are given a rotten deal with corporations these days.

I do Ground Penetrating Radar and Private Utility locating. Its a new industry and its expanding in its use case every year. It takes a LONG time to train someone up to do the work we do, which has been a major struggle for the small company I work for. You NEED competent operators because we are essentially locating utilities and if we fuck up they will break the utilities when they dig. In my city there is really only us and a massive nationwide GPR company that was bought out by private equity in 2017. Prior to that they had a few guys we all knew by name and they were well known and experienced. Since then they have struggled to retain employees and we constantly run into jobs where they fucked up and we acquire a new client. They also changed their GPR manufacturer and word is the new ones are NOT very good lol. Thankfully my boss declined a buyout because thats what they did in a ton of markets.

The thing you need to mention about the Yahoo deal is the fact that the micro soft offer included 30 billion worth of alibaba stock. The Verizon buy out didn't include the stock thats why their price seemed so much lower

It's not a mystery why the "benign structure" yields destructive results lmao. Private equity firms extract value from businesses whilst contributing nothing not already contained within it.

A very well known brand of power tools was bought by an Asian private equity firm in the mid 2000s. Quality instantly plummeted even as prices soared, riding on the name recognition they had build over decades.

When I think of Private Equity, I think of Sears, in which the most profitable parts were sold off for a short-term increase in profit and a long-term death for Sears. The others parts were sold to Eddie Lampert, CEO of Sears, under the umbrella of shell companies. Basically, he scammed Sears to make money in every way he could at their expense... and it would appear, got away with it, too.

There's another reason that private equity bought companies end up going bankrupt a lot: PE firms make money by taking big risks with companies that have a lot of debt. They can use the borrowed money to take big risks, and if they work out, they get to keep the returns, but if they don't, they declare bankruptcy and the creditors are the ones who get screwed. These are usually companies that were super safe before PE and could easily get low interest rate loans.

my family went to marsh a lot, especially since they had a free daycare while you shopped, so thanks for the mini episode on marsh and explaining how it went under

The carried interest loophole is one of the most comically unfair tax rules in the US. It needs to go away ASAP!

I work as a veterinarian in the USA. Mars owns a large cap of the industry in the veterinary field. They own VCA, Blue Pearl and Banfield. Those are veterinary clinics and hospitals. They also bought Antech. That is a veterinary reference laboratory (biopsy, cytology, bloodwork, radiology services). Now they bought Heska, an in-house laboratory machine distributor which allow us to do in house bloodwork in 1 hr. Every year there is a 3-4% price increase to services and products. All because PE owns a vertical portion of the industry. While they run the hospitals leaner and leaner.

Something that is kinda referenced but has been a major problem lately is how they are acquiring the companies. They heavily leverage the acquired company with debt which can normally be fine, but with interest rates being so high right now it is hurting a lot of these privately owned companies. Some companies might not be able to keep up with the cash burn from interest and cause them to go bankrupt. This model of leveraging up is another reason why PE firms are crushing the US economy/society.

The best indicator of a brand dying is when a Hedge fund wants to buy it.

private equity bought my company. Fucked everyone's day up for about a year, saddled us with debt and then sold us off to someone else. 1/10 no one enjoys this

So glad you talked about Marsh. Being from rural Indiana, Marsh was the obviously best grocery store to shop at while growing up.

This is happening in hospital systems nationwide. My hospital was bought out by a larger regional hospital network a few years ago which was then bought out by an even larger regional hospital network last year, and the employees have seen the negative effects trickle down. Ultimately, it's bad for patient care.

It's not just in the USA. I'm working for a German company that just recently was bought by an US PE company.

This is what Richard Gere in Pretty Woman did for a living. Also Martin Sheen and Charlie Sheen in the movie Wall Street. edit: Michael Douglas was the private equity guy . Thanks all for the corrections.

PE firms are just the worst. My wife worked operations with a small practice that sold a controlling stake to a PE firm. The instant that they saw a (potentially temporary, completely out of anyone's control) setback in monthly earnings (basically an insurance reimbursement projection), they wanted my wife to lay off loads of staff. The fact that this was happening in December, the weeks leading into Christmas, was of little concern to the PE firm. They wanted their heads on a spike, and fuck anyone who got in the way of that. My wife was able to get things to happen after the holidays, but she just couldn't take it any longer. Left the company shortly thereafter and is (comparatively) blissfully working for a non-PE operated company now.

On top of all that, there is the private equity push in to residential property, with companies like Blackstone buying up billions in property and raising rents. Of course they'll say it's more complicated than that, but as this video describes, private equity fees benefit the partners while consumers and workers suffer the knock-on effects of the money grabs.

Private Equity is what you get when you optimize capitalism so much that it stops creating value in aggregate and starts simply moving value to people up the chain. In effect, it's a consequence of higher than ever income inequality, where normal people can't uphold their ways of life in the face of corporations.

The saddest part about this situation is that the SEC won’t even make private equity firms report earnings. They literally lose money and don’t have to tell their investors or the public. It’s disgusting and the worst part is that most pension/retirement funds have about 20% of their money invested with PE firms - Almost every American working for a large company is funding this mess without knowing it.

They also work hand in hand with funds shorting the stocks as well. For example Sears. For what Eddie Lampert did to pensioners he deserves the pit of hell.

is it really worth investing in stocks in 2024, I’ve been on the sidelines watching the market for awhile and it seems to be pretty stagnant to me not that it matters because I’m in it for the long run, but how can one generate actual profit in this current market?

I would've liked to see an analysis of how much the public and other industries are subsidizing private equity. Stuff like pensions falling on the state government and banks eating the cost of default, above the implicit cost baked into the interest rate.

I work for a company who provides services for private equity funds Instantly clicked it as soon as I saw notification

I’m part of a PE group that will be buying Wendover productions. We will fire Sam and crank out AI produced content.

as an analyst in training I already didnt want to work in finance or private equity - having a positive impact on people is more important than having a positive impact on numbers

Oh, nice to know. Arriva Denmark will either be squeezed for no good reason, or die, leading to the state railway taking over

The general partners will say they are making record profits, but also while just ruining the whole point of the business

Another extremely frustrating/depressing aspect is that these firms and their affiliates are also leaders in spreading pro 'trickle down'-style propaganda throughout media and political messages...in many cases causing the victims of these equity firms to blame immigrants, minorities, corporate taxes, and progressive ideologies for their loss of jobs, stagnating wages, and reduced consumer protections.

I know a friend who worked for a very nice company and worked closely with the boss who was proud and passionate about his company and whom my friend described as one of the best bosses they worked for. One day, someone gave the boss the idea to let a private equity company buy out his company and make his company become bigger and better. The boss went for it and within a few years, things went to shit. Many members of staff were replaced by hard sharky business types, work culture became unfriendly, product quality went down, the boss got replaced by someone the PE company approved of. While the boss tried not to show it, my friend knew he was devastated by what became of his company.

Indiana mentioned! Once again, for the usual, depressing reasons.

The hospital failure announced today is a example of this happening!

Funny how private equity makes money getting rid of "unnecessary" staff, while installing themselves as the new unnecessary staff.

Things I didn't expect to see today, Marsh being featured in a Wendover Video.

Hey Sam, There’s a lot of very good points in this video, but I think you missed a key aspect of the impact of private equity. One key characteristic of private equity is that the asset management company benefits from very large economies of scale as it grows. It takes roughly the same amount of people to manage a portfolio of 10 investments, whether each of those is $10m or $100m. That means that as PE managers grow, they make more margin, which can then be distributed to the owners (the partners) as dividends. It’s much easier for PE managers to make more money by raising more funds while employing roughly the same number of people, than to make investments that perform really well. In addition, as you mentioned in the video, the management fee of 2% is a much more stable income than the carried interest (the performance fee on 20% above the hurdle). This is why you see PE managers raising always more money: they are de-risking the cash flow for the owners (the partners). The “issue” for the partners of the PE firm is that this is such a cash machine, that no one within the firm has enough cash to buy their stake in the PE firm when time comes for them to retire. So what happens? They IPO the company. This is what happened with Bridgepoint in 2020, and what CVC is in the process of doing. If you look at the investor presentations of Bridgepoint, you’ll see that 1) they make way more money off of the management fee than the performance fee 2) the focus is on raising funds - not the performance. They only need to have a good enough a performance that investors keep giving them new money. Finally, what’s the consequence of all this? Well you’ve got more and more PE firms with more and more money to invest, who are competing for the same finite universe of companies which don’t require too much work - they make money off of deploying the capital, not off of making high returns. So they just keep buying and selling the same companies to the same other PE funds. IPOs and sales to corporates are relatively rare - meaning that the valuation is probably distorted. When’s it going to fall?

That retirement home mortality statistic should be the end of the discussion. Period. What are we even doing acting like that's debatable?

"When the person making the decision is the same person unlocking the door each morning...." Is such an underrated feature of any business. Great video.

Essentially, PE buys something, sucks the wealth out of it, and tries to sell it to some sucker when theres almost nothing left of it.

PE Megafunds like Blackrock, KKR, Apollo, etc are also known for their generally awful working culture (apollo in particular). Even with standard industry hours exceeding 80+ a week on average, there are many accounts of young people dying from overwork just because they're able to make 500k a year after 4 years of harvard and 2 years at goldman sachs.

The bus routes in my home city are contracted out to various different operating companies. One of those companies is owned by a private equity firm and even though the whole network is plagued with staffing problems and cancellations, the routes run by that company are noticeably worse than the ones run by other companies

This is EXACTLY what happened to Shopko out of Wisconsin. They owned the land under all their stores. Private equity bought them, gutted them and left them to go bankrupt.

This is happening in the UK right now with US PE buying out vets. Prices have shot up across the board as well; what are you going to do? let your beloved pet die? I'm also worrried what the Embracer group have done to Asmodee by shifting all their debt onto them then cutting them lose after a saudi buyer backed out.

Leveraged buyouts should be illegal, bar none. Unlikely to happen anytime soon, but these PE firms have made it even harder for normal Americans to see investment returns. Aside from basically being a flipping scam, the few legitimate PE investment scenarios are done without the opportunity for the public to invest, leading to fewer options over time for ordinary funds and investors.

Sale lease-back is an interesting concept. The college I just finished my accounting program at is actually involved in one! One of their campuses sold a bunch of its land to a grocery chain to build a new store, but then realized they gave up too much parking lot space and leased it back. Thankfully early in the project so parking space could be planned accordingly.

It's consumed the UK as well There is a well known supermarket chain in UK called Morrisons. It was started several decades ago and was still owned by the guy who started it. It was a great store and tried to be a bit more traditional and low cost. It owned all of its real estate etc When the owner died it was snapped up by private equity and now it's sold off it's real estate and leased the land back. It's prices are going up I never go to their stores now

Thank you, Sam, for triggering me…I had JUST gotten over losing my local Marsh and now I’m back to square one 😭😂 Lord I preferred those stores over Kroger!

We should start a NON-PE movement. Can't avoid it fully, but can reduce giving our business to PE backed firms. Live in NON-PE apartments, take our pets to NON-PE backed vets ..etc.

I like how they kept the sponsor ad in the end and did not disturb the flow of content seekers. Good job, Thank you for this learning.

Thanks, a much needed video of yours!

Employee owned companies are the way. Make a law outlawing sale of company to anyone but the employees.

Problems mentionned : Private equities buy businesses and the General Partner makes money off of the revenues, 2% of all revenues and, after a certain threshold, 7% of the revenue above threshold. This means private equities will look for short term gains that would go over the threshold to make the GP incredibly richer than otherwise. They're also taxed almost twice as little as general income by the IRS. So in practice : Sun company buys Marsh, sells all their real estate to get money off of the sales directly into the Private Equity, all the while collecting 2%. Then they filed for bankruptcy to be done with it once it wasn't profitable any longer and all the employees lost their jobs, all the consumers lost their healthy and affordable grocery store. Looking for efficiency, they'll also destroy healthcare, increase prices etc

My local radio show/podcast, The Von Haessler Doctrine, just featured part of this on his show for Weds, May 8. I was like, "hey!! I know that RU-vidr!" Apparently, this video resonates with a lot of people. Great video, Sam!

Awesome stuff, incredible production value, astounding stuff. Thanks AGAIN for helping us all get educated on the inner workings of our society for free. What you do is a massive positive influence to the world and we appreciate it a lot.

Private equity is a financial cancer.

Currently happening to panera bread

11:05 I'm from Muncie Indiana and got way to hyped when you started talking about Marsh. They used to be the only store we would go to.

All my homies hate private equity

Rip marsh! I grew up next to one. Was always our grocery store growing up. Suburban Indiana late 90’s / early 2000’s

I'm not against Private Equity in concept, but it seems backwards to me that there are ways for them to run a business into the ground and still walk away with a profit.

Well said. As part of a team that makes businesses grow and look after their staff and customers I'm sick of these number manipulators who can't manage anything.

Excellent review. Thank you

Marsh may not still be around, but its echos are. Old Marsh buildings are now department stores and you can still find marsh shopping karts at small time businesses. Im guessing they bought the marsh karts for cheap.

I haven't even watched this video yet, but I know it's facts and Im glad Wendover is covering it

A woman took her three-year-old son to the dentist for a checkup, and the dentist, without even taking x-rays, said he needed seven root canals. Unfortunately, she trusted the expert. Of course it was an office in a dental chain backed by private equity, so it had to meet its revenue targets. There have been reports from former employees in different offices in this dental chain that talk about drilling healthy teeth, unneeded procedures, morning huddles of how they (the office) were going to meet their revenue targets for that day. Treating to insurance. Just one example of the horrific consequences resulting from the perverse incentives of private equity. But if you have a job with retirement plans or pensions, it's hard to know where any of that goes, and some of it for sure going to private equity. So it's like we eat ourselves. I think Benjamin Lay had a lot figured out.

Thank you so much to the team.

Person: caring about giving to a cause purpose. Pencil pusher: you can itemize every minute of your day for HIGHER PROFITS Person: what am I doing?

This video is really well done! Thank you!

I worked at a wonderful private school that got bought up by private equity. At first it all seemed fine. Pandemic came and they slashed all part-time teachers leaving them without healthcare, and shoveled the extra hours onto everyone else for no extra pay. Stripped our bespoke software out for their "standard" which made back office tasks take twice as long in the name of data management. Within 2 years over 70% of the staff I knew had left, myself included. The executives paid themselves millions in bonuses while they sold off other parts of the education portfolio while they let teachers rot.

Love you Wendover! Appreciate what you do!

About 10 years ago, a growing local restaurant chain was bought by private equity. Oddly enough they haven't raised prices nearly as much as McDonalds. They aren't focused on raising prices for profit, but expansion, as they went from probably 3 states to i think 8 states from before to after the purchase.

PE is now out there buying up trailer parks: buy out older owners who are ready to sell, do minimal improvements, jack up the lot rents and tell those who can't afford the increase that they are "free" to move (they own the home, but not the land it sits on).

I work for a large airline purchased a few years back by one of the largest private equity firms in the country, and between that and Covid we're significantly worse off than we were five years ago. To give an example: our widebody program is fairly new (building on a fleet of over 100 narrowbody jets), and as we regressed after Covid they suddenly cancelled the remainder of the order, including abandoning several brand new, finished, perfectly deliverable aircraft. Now, our widebody fleet is wildly successful and a number of new routes are performing well above expectations... to the point where we can't expand any more, as the few aircraft we do have are already being stretched far too thin. Not to mention the corporate culture we were renowned for has been absolutely gutted, and guest experience has taken a massive hit too.

The supermarket chain story is very sad. Another option that I’m sure would have given better results to the community could be collectivize the business: Sell it in equal parts to employees and consumer whom want to participate and then turn it into a Co-Op. Less tax burden, more democratic and closer to the real people and because is with many many people doing a relatively smaller investment, the owners get paid. It wouldn’t be the massive amount from PE but it will be enough and fair

Toys R Us was also a victim of this....

This why we love, trust, and respect Wendover Productions. Thank you.

My company was bought fairly recently by a company, who was bought by a company, whose parent company restructured and renamed itself to hide the fact that they're an oil and gas company purchasing environmental resource companies in a likely conflict of interest sort of way, which itself was bought by a private equity firm called Blue Owl. The whole thing makes me quite convinced the company I work for will not last another 5 to 10 years before the PE decides it needs moar moar moar and breaks us completely down into bits.

public equity has been too powerful for too long, i'm glad they finally have competition

Wendover Finance I'm here for it

The current factory i work at in the netherlands was owned by apollo. (its now westlake epoxy, used to be called hexion) Basicly how the work is that they only look at short term, like maintance that would make its money back in 5-10 they skip, they reduce inspection, and they try to save money whatever it cost.

I worked for a company that got purchased. They outsourced all payments to India so everyone got paid late. If a mistake got made it took 12 hours to fix it due to time differences and generated more complaints. They randomly charged clients a fee which they had zero right to do which some pinhead in a boardroom decided would be easy money. That generated more complaints and alienated clients plus if they escalated it we'd have to refund them anyway as it wasn't in their terms of business. Omnishambles

People think snake oil salesman and scammers are a thing of the past. They arent, they just went into finance and wrote the laws to protect themselves.