In her new Book, Bad companies: Private equity and the death of the American dreamjournalist and cable alumnus Megan Greenwell documented the devastating influence of one of the most powerful but well-known forces of modern American capitalism. Private equity firms quietly reshape the U.S. economy, taking over most industries from health care to retail, private equity firms quietly reshape cash and focus on profits ruthlessly, and focus on profits ruthlessly, and focus on profits ruthlessly.
Now, 12 million people in the United States work for private equity, Greenwell owned companies, accounting for about 8% of the total employed population. Her book highlights the stories of four of them, including a toy “R” American supervisor who lost her best job ever and a Wyoming doctor who watched his rural hospital cut basic services. Their collective experience is annoying statements about how innovations are replaced by financial engineering and how transfers are paid by all but seniors.
In the comments Bad companies For long-time private equity executive Bloomberg, accusing Greenwell of inevitably seeking sad stories. But Greenwell chose not only to sit down and watch private equity destroy their communities. This book is not only how the erosion of the American Dream erodes, but also a creative strategy people use to fight back.
Greenwell talked to Wired late last month about what private equity is, what not, how it has changed different industries, and what steps workers are doing to regain their power.
This interview has been edited to be clear and length.
Wired: What is private equity? How is the business model different from venture capital?
Megan Greenwell: People have been confusing private equity and venture capital, but it is completely reasonable for ordinary people not to understand the difference. Basically, the easiest way to explain the difference is that venture capital firms usually invest money in startups. They are essentially in the company’s equity and expect some kind of return over time. They also usually have longer games than private equity.
However, the way private equity works, especially in the way leveraged acquisitions, is what I focus on in the book, that is, they are buying companies directly. In venture capital, you put money into it, delegate it to the CEO, and you may have a board seat. But in the leveraged acquisition model, private equity firms are indeed the owner and controller of portfolio companies.
How does a private equity firm define success? Which companies or businesses are attractive to them?
In venture capital, venture capitalists are evaluating whether a deal is concluded based solely on whether they believe the company is successful. They are looking for unicorns. Will this company be the next Uber? Private equity is seeking to make money from a company in a way that doesn’t require the company to make money themselves. That’s like the biggest thing.
So, this is not a gamble.
Private equity firms have a hard time losing money on transactions. Even if they run the company to the ground, they charge a 2% administration fee. They were also able to remove all these tips, such as selling the company’s real estate and then charging company rent on land they had owned in the past. When a private equity firm takes out loans to purchase a company, the debts from those loans are distributed not to the private equity firm, but to the portfolio firm.
