We’re starting to see private equity firms make short-term investments in companies across the business landscape. At best, they’re looking to make a quick buck; but at worst, they’re looting the companies they “invest” in and leaving others holding the bag. One recent example is the Red Lobster bankruptcy, which closed locations nationwide and laid off 36,000 workers. A private equity firm called Golden Gate Capital essentially financed a takeover by selling the real estate (formerly owned by Red Lobster) of 500 Red Lobster restaurants for $1.5 billion, and the purchasing company then charged premium lease prices from the restaurants. By 2023, the rents totaled $200 million a year – amounting to 10% of total revenues.

You might have read that the “endless shrimp” promotion was the cause of the bankruptcy, and it certainly didn’t help. But a closer look reveals that even this was part of the looting. Thai Union Group bought the largest share stake in Red Lobster and then convinced the private equity-installed CEO to make the endless shrimp a permanent menu item. This allowed Thai Union to dump its excess shrimp onto Red Lobster – basically investing in the company to create a market for its excess inventory.

An academic report has investigated companies bought out and indebted by private equity and found that they go bankrupt 10 times more often than companies not purchased by these firms. You can bet that each of those bankruptcies enriched the “investing” private equity firm.

The private equity encroachment may be affecting our health. Private equity firms have become increasingly interested in for-profit hospitals, and the results of their efficiency measures (short-cutting procedures and reducing staff) are not encouraging. A Harvard Medical School researcher investigated data from 2009 to 2019 on 51 private equity-acquired hospitals versus 259 hospitals that private equity firms did not own. The private equity-acquired hospitals experienced a spike in infections, a 27% increase in patient falls, and a 38% rise in infections from IVs inserted to deliver drugs, fluids, and other substances.  

At least 460 hospitals are now owned by private equity firms – accounting for 30% of all for-profit hospitals in the United States. Many of these are places you would most likely go out of your way to avoid when it comes to receiving any significant medical procedures. Lifepoint Health, now owned by Apollo Global Management, has been cited for cutting staff and essential healthcare services, and selling real estate for a quick buck. It ranks near the bottom of its peers in various measures of outcomes and health.

In addition, private equity firms have purchased roughly 6,000 physician practices. Another study found that private equity-owned nursing homes were associated with 20,000 additional deaths over 12 years...

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you.