Private Equity at Work: When Wall Street Manages Main Street

Private equity firms have long been at the center of public debates on the impact of the financial sector on Main Street. Are these firms white knights that ride in to save failing businesses or are they predatory intermediaries that bankrupt otherwise healthy companies and destroy jobs? The first c [...]
Visa längre beskrivning

Private equity firms have long been at the center of public debates on the impact of the financial sector on Main Street. Are these firms white knights that ride in to save failing businesses or are they predatory intermediaries that bankrupt otherwise healthy companies and destroy jobs? The first comprehensive examination of private equity firms, Private Equity at Work provides a detailed yet accessible guide to this controversial business model. Economists Eileen Appelbaum and Rosemary Batt carefully evaluate a full range of evidence including original case studies, reviews of legal documents and media coverage, and a synthesis of existing academic scholarship to demonstrate the effects of private equity on American businesses. Their investigation shows that while private equity firms can have some positive effects on the operations and growth of small and mid-sized companies, the interventions of these firms more often than not lead to significant negative consequences for many American businesses and workers. While prior research on private equity has focused almost exclusively on the financial performance of private equity-owned companies, Private Equity at Work provides a new and invaluable roadmap to the largely hidden internal operations of these firms, showing how their business strategies disproportionately benefit investors. In the 1980s, leveraged buyouts by private equity firms saw high returns and were widely considered the solution to corporate wastefulness and mismanagement. And since 2000, nearly 11,500 unique companies representing at least 8 million employees have been purchased by private equity firms. More recently, however, private equity firms have come under fire from labor unions and community advocates who argue that the proliferation of leveraged buyouts destroys jobs, causes wages to stagnate, and saddles otherwise healthy companies with debt. Appelbaum and Batt show that private equity firms financial strategies are designed to extract maximum value from the companies they buy and sell, often to the detriment of those companies. These risky decisions include selling property assets, terminating contracts with unions, and outsourcing operations in order to cut costs. Because the law defines private equity firms as investors rather than employers, private equity owners are not held accountable for their actions in ways that public corporations are. Thus, any debts or costs of bankruptcy incurred fall on businesses and their workers, not the private equity firms that govern them. For employees this often means loss of jobs, health and pension benefits, and retirement income. Appelbaum and Batt conclude with a set of policy recommendations intended to curb the negative effects of private equity while preserving its constructive role in the economy. These include policies to improve transparency and accountability, as well as changes that would reduce the excessive use of financial engineering strategies by firms."