BAD COMPANY: Private Equity and the Death of the American Dream, by Megan Greenwell
In 2019, Megan Greenwell had only a “vague sense” of how powerful private equity had become. Sure, she had heard the stories about Toys “R” Us, the beloved retailer that went bankrupt after private equity firms bought out the company and saddled it with crushing amounts of debt. “I knew private equity was a problem,” she writes in her new book, “Bad Company.” “I just thought it wasn’t my problem.”
At the time, Greenwell was the editor of Deadspin, an online sports magazine whose mix of investigative reporting and cheeky commentary had attracted a devoted readership. But the magazine and its sister sites were also losing $20 million a year. Enter a private equity firm named Great Hill Partners to the rescue — or not. Greenwell recalls how Deadspin’s new owners seemed determined to come up with bad ideas that would run the website’s brand into the ground. After three months of being micromanaged, she resigned in disgust: “The firm’s goal was never to make our website better or grow its readership. Great Hill Partners, and private equity at large, exists solely to make money for shareholders, no matter what that means for the companies it owns.”
It’s a business model that Greenwell writes about to potent effect in “Bad Company,” which emphasizes the human costs of private equity. She says she started writing her book “not out of spite, but out of pure curiosity.” Why did Great Hill Partners flourish financially after reducing Deadspin to a husk of its former self? (Last year the site was sold to a Maltese gambling outfit that uses it to “drive traffic to online casinos.”) Shouldn’t a private equity firm make money when the company it buys makes money, and consequently lose money when it doesn’t? How could a firm continue to bring in revenue while its acquisitions flounder? What is it like to work for a company whose owners don’t necessarily have its best interests at heart?
Twelve million Americans work for companies owned by private equity, which amounts to about 8 percent of the labor force. In “Bad Company,” Greenwell tells the stories of four people whose lives have been upended by the industry. Liz Marin worked for six years at Toys “R” Us; Roger Gose was a doctor in rural Wyoming; Natalia Contreras was a journalist for a local paper in Texas; Loren DePina lived in a private equity-owned apartment complex in Alexandria, Va. Their stories share a similar arc: tentative hopefulness followed by a rude awakening.
“Bad Company” is definitely a critical take on the industry, told through the point of view of its victims. But Greenwell offers stories that are textured, not one-note tales of woe. When Liz Marin started working for Toys “R” Us in 2012, private equity had owned the company for seven years. Marin liked the fact that the company gave her the ability to advance and to transfer easily to other stores. Having worked in retail before, she was impressed by what she experienced at her new job. Toys “R” Us stores seemed busy and well run. She even got a tiny tattoo of Geoffrey the Giraffe, the company mascot, on her left shoulder.
But then her job started getting worse. Although Marin didn’t know it, Toys “R” Us was a retailer in name only; in actual fact, it was a debt-payment machine. Its profits were used to repay the money borrowed by the private equity firms to buy it in the first place. The company slashed staff and gutted training. While Toys “R” Us limped toward bankruptcy, top executives were awarded $16 million in bonuses; the 33,000 rank-and-file employees were simply laid off.
In retail, workers are left holding the bag. The same goes for journalism — private equity has bought up newspaper chains, laying off staff. But all businesses are part of a larger community: A shuttered store not only inconveniences consumers but also deprives a municipality of tax revenue. And then there is private equity’s incursion into areas like health care and housing. Greenwell’s chapters on Roger Gose, the Wyoming doctor, show what happens when private equity tries to squeeze rural medicine for profits it cannot produce. The local hospital stopped providing obstetrics services. It also had to pay rent on land it once owned.
Greenwell reports that, compared with their peers, companies acquired by private equity firms are 10 times as likely to go bankrupt. Of course, proponents of private equity maintain that this figure isn’t surprising, given that private equity specializes in trying to turn around struggling companies, selling itself as “the hero when no one else is brave enough to shoulder the risk.” But as Greenwell and other critics of the industry have pointed out, private equity firms charge management fees and benefit from tax breaks that sever risk from reward. If a company makes money, its private equity owners make money. If a company loses money, its private equity owners can still make money.
Private equity firms collect money from outside investors, including pension funds, to buy companies and run them. Consequently, they like to proclaim that their moneymaking is often done on behalf of public workers like firefighters and teachers. “The private equity industry argues that working people would be far worse off without it,” Greenwell writes, “because the returns it generates allow them to retire.”
Aside from questioning whether this is true, she reports that pension boards, which include “participant representatives,” can be sympathetic to the plight of people like Marin, whose last few weeks at Toys “R” Us entailed dealing with a flood of angry calls and scrubbing toilets because the store was so short staffed. A couple of the people in “Bad Company” decide to take their case directly to the pension funds, urging them to reconsider their investments. “You will go down in history as a hero for standing with 33,000 employees trying to change laws for the next generation,” Marin told an Oregon pension board, “or you will go down as the enablers who refused to stand up to Wall Street greed.”
That word, “greed,” with its moral valence, cuts to the core of Greenwell’s indictment of an industry that has cannily tilted the playing field in its favor. “Bad Company” details how clichéd abstractions like “consolidation” and “efficiency” have given cover to real betrayals. The people in this book wanted only to raise their families and contribute to their communities. Instead they were unwittingly drawn into an opaque system of financial extraction and debt peonage, for which no amount of hard work was ever enough.
BAD COMPANY: Private Equity and the Death of the American Dream | By Megan Greenwell | Dey Street | 294 pp. | $29.99
Jennifer Szalai is the nonfiction book critic for The Times.
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