In her novel book, Bad Company: Private Equity and the Death of the American DreamJournalist and wired graduate Megan Greenwell Chronicle of the destructive effects of one of the most powerful, but poorly understood forces in contemporary American capitalism. Flush with cash, largely unregulated and constantly focusing on profit, Private Equity silently transformed the American economy, taking over gigantic fragments of industries, from healthcare to retail – often leaving a financial ruin often.
Greenwell writes, twelve million people in the USA work for companies belonging to private equity, i.e. about 8 percent of the total employed population. Her book focuses on the stories of four of these people, including on the American supervisor toys “r”, who loses the best work she has ever had, and a doctor Wyoming who is watching his village hospital, which circumscribed the necessary services. Their collective experience is a condemning description of how innovations are replaced by financial engineering and the ways in which change is paid by everyone except those at the top.
In review Bad company For Bloomberg, the longtime director of Private Equity accused Greenwell of inevitably searching for melancholy stories “Sad endings. “But the selected Greenwell characters not only sit and watch how private equity destroys its communities.
Greenwell talked to Wired at the end of last month about what private equity is, and not, how he transformed various industries and what employees do to regain their power.
This interview has been edited for clarity and length.
Wired: What is private equity? How is the business model different from, say, Venture Capital?
Megan Greenwell: People are constantly confusing private equity and venture capital, but it is completely reasonable that normal people do not understand the difference. Basically, the easiest way to explain the difference is that Venture Capital companies invest money, usually in startups. They basically take part in the company and expect some kind of phrases from the time of time. Basically, they play a much longer game than private equity.
But the way in which private equity works, especially in the case of lever purchases on which I focus on the book, is that they are buying companies. In Venture Capital you put your money, entrust it to the general director and you probably have a place on board. But in the lever redemption model, Private Equity is really the owner and controlling the decision -maker of the portfolio company.
How do private equity companies define success? What companies or companies are attractive to them?
In Venture Capital VC assess whether to conclude a contract only on the basis of whether they believe that the company will succeed. They are looking for unicorns. Will this company be another Uber? Private Equity wants to earn on companies in a way that does not really require money from the company. This is the biggest thing.
It’s less gambling.
It is challenging to lose private equity money. They receive a 2 % management fee, even if they run a company to Earth. They are also able to make all these tricks, such as the sale of the company’s property, and then charge the company’s rent on the same land it once has. When private equity companies take out loans for the purchase of companies, the debt from these loans is attributed not to Private Equity, but to a portfolio company.