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Private equity will buy up companies to the tune of $1 trillion this year

Matt Levin Dec 17, 2021
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Private equity firms, largely invested in by endowments and pension funds, often buy companies saddled with debt, revamp them and sell them for a profit. Marymary89 via Getty Images

Private equity will buy up companies to the tune of $1 trillion this year

Matt Levin Dec 17, 2021
Heard on:
Private equity firms, largely invested in by endowments and pension funds, often buy companies saddled with debt, revamp them and sell them for a profit. Marymary89 via Getty Images
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We all know the companies the pandemic has helped: Amazon, Zoom, whichever company makes sourdough yeast.

​Here’s another one: private equity. Those are the firms of Wall Street suits that buy big companies (often ones with lots of debt), radically revamp them and then try to sell them off at a big profit.

​Private equity firms are on pace to invest a record $1 trillion in U.S. companies this year, according to one industry trade group. And that investment could impact everything from your healthcare to the groceries you buy.

So maybe you can’t name a specific private equity firm. But odds are you may know some of the companies they own pretty intimately. 

“Many people may be familiar with a company called Spanx,” said Drew Maloney, who heads the private equity trade association the American Investment Council. The grocery chain Albertson’s and the dating app Bumble are also owned by private equity firms. 

And where do those firms get the money to buy these companies? “The investors are largely pension funds across America, endowments, college endowments, private endowments,” Maloney said.  

The biggest private equity players combine that investor money with lots of debt, which the company they buy is expected to pay back.  

That’s partly why private equity is thriving right now, said Burcu Esmer at the University of Pennsylvania’s Wharton School. “It is mostly because the interest rates have been low.”

Debt is cheap and meanwhile, because of the pandemic, “there are many potential candidates to be bought,” Esmer said. “And when you think about companies, if it’s family owned businesses, these are the baby boomers and they are retiring.”

This all sounds very familiar to Eileen Appelbaum, co-director of the Center for Economic and Policy Research and a longtime industry critic. 

The years before the Great Recession were also a private equity heyday. Firms gobbled up major retailers like Toys “R” Us and loaded them up with debt. 

“They all made money out of owning Toys ‘R’ Us. It’s just the workers, the communities, the lenders — those are the people who lost,” Appelbaum said.

Toys “R” Us ended up going bankrupt. But, Appelbaum said, the private equity firms that bought it still charged their investors hefty fees. 

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