How Private Equity Destroys the Companies You Depend On

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I'm Megan Greenwell. I'm a freelance journalist and the author of Bad Company, Private Equity and the Death of the American Dream. So the first line of your book is, until it cost me my dream job, I had never given private equity much thought. Using that personal story, can you give us a little bit of a primer on how private equity works? I remember following this story so closely. This is when we were all on Twitter all the time, too. So, yes. Go ahead.

Yeah, so I worked at Deadspin. I was the editor in chief there. And that had really been my dream job for years until I got it. I just really loved the site's ethos, the way it covered sports, but also other things. I came in sort of knowing that we were likely to be sold soon after I got there. And I knew private equity was in the mix, but honestly, I didn't really know what that meant.

And what I found out fairly quickly after we got bought by a private equity firm based in Boston called Great Hill Partners is that like the fundamental thing about private equity is their incentives are not necessarily the same. as the incentives of the company they've acquired. Not at all. Not at all. Like they don't give a shit. Like they're just like, this is raw material for us to extract.

money from, essentially. But I didn't know that when they came in. And so I was like, well, Deadspin's doing well. We all want it to do more well. We all have ideas about how it can do more well. So... great, this should be easy, right? And they talked a big game about like, you know, we want to beef up the business side so that we can monetize you better. And we were like, yes, absolutely. That's what we want too. And then we realize that like...

they weren't making money by making Deadspin profitable. They were making money by extracting resources from Deadspin and its sister sites. And so it... quickly became clear that this wasn't going to end well because they were telling us to do things that made no sense in terms of a money-making strategy, right? Like one of the things that I... I felt super defensive at the time about pushing back on was this idea that like we had some sort of journalistic purity and we wouldn't let.

people touch what we were doing. And like, yeah, I didn't want a bunch of bozos telling us what to do editorially. But also what they were telling us to do editorially was stuff that was going to make less money. Yeah. So it wasn't like, oh, my God, you couldn't possibly touch our precious children. It was like, no, no, we're trying to run a business here.

telling us things that will tank the business and sure enough it tanked the business well and this is the thing and we'll get into this in detail as we go through this conversation but that like broke my brain when i first

started to understand what private equity did was i think a lot of us understand like business people as charged with like making businesses make money right like that's always the goal And even like publicly owned companies, if a company has like shareholders and is publicly traded, like they are trying to make more money so that than the shareholder, like and make the price of the stock go up and blah, blah, blah. Like it's more complex than that. But somehow still like this concept of like.

make more money for the company, make the company more successful. And then private equity sees companies as a very different thing. Can you explain that a little bit? Yeah, so like the ideal version of private equity is you buy a company, you own it for a short time, and then you take it public again. That happens in a very tiny number of cases, relatively.

Many, many, many companies, way more companies than are under other types of ownership, go bankrupt or go out of business entirely than in private equity situations. And so... the idea that Private equity firms are sort of like specialists, right? They're coming in to save struggling businesses. It's just not true. What they're specialists in is finance. And they are very good at making money for themselves.

But that's very different than making money for the company that they own. So one of the biggest strategies they use in companies that are real estate intensive, so like retail, often local newspapers.

hospitals too you sell off the real estate that they may have owned for decades right so they're not paying a mortgage they own that real estate outright and in the cases of like retail they own a ton of real estate all across the country You sell off that real estate, the private equity firm pockets the proceeds, and then you're charging your own portfolio company rent for the very same pieces of land they used to own.

absolute divorce of incentives, where what is good for the private equity firm is literally the opposite of what is good for the portfolio company. And so it's this maddening system where I actually argue that it's anti free market capitalism, right? Because it's like There is no alignment of incentives where you're trying to make money for the thing that you own. And that really causes like a breakdown of our understanding of how a capitalist society is supposed to work. Right.

Even if I don't believe in like the like fetishization of the small business owner or whatever. Right. But like even if you did, these companies are actually they demolish.

the small business owner like if you have if you come to own like five veterinary practices in the pacific northwest like that is a prime target they're like okay venture we're gonna get that guy right yeah um so it's counter even like the the narrative of like we love small businesses in this company we love the

entrepreneurial spirit like all of those things right right what it actually is is like we love small businesses because we can roll them up and consolidate them and make them into giant businesses that may very well die but like that's not really our

problem right so some people might look at the episode title for this and be like uh i thought this was about pop culture but uh culture studies tagline very broadly is like think more about the culture that surrounds you and i think that private equity has absolutely affected the culture around us in so many different ways. So how do you think about that, especially as someone who is a journalist who is affected by what private equity has done to our journalistic landscape?

I think it's a real problem that nobody understands how pervasive and how dominant private equity is now. So if we want to talk about culture... Even in the narrowest terms, right? Like Private Equity owned Taylor Swift's first several albums. Yeah. Private Equity owns A24 now, which is like, has always been like the cool indie movie makers, right? And then if you broaden it slightly from that,

If you start looking for what private equity controls in your own life, you will find things that really horrify you. It is dictating how you live your life in ways that you don't know, and you don't know by design. because private equity wants to keep it from you, right? Right. It doesn't like put it, it doesn't paper over the sign and say like, Bain Capital now owns your vet. Like, yeah, exactly. I mean, I've had several friends who for whom it took months to realize.

that their landlord was actually a private equity firm, right? Because you're writing your rent check to a company, not to the private equity firm. And it's only once you go digging that you see the layers and layers and layers of shit. shell companies and you're like, wait a second, Blackstone or Carlisle or whoever it is.

is actually cashing my rent checks. Like that's bananas. I say in the intro to the book that I had a friend in Brooklyn where I live who like within a couple of months realized that private equity owned her apartment building, owned her children's. nursery school and her primary care physician had just narrowly fended off an attempt from a private equity firm to buy that so it is like

everywhere. It's buying public utilities now, like your electric company might very well be controlled by private equity firm. It's really a huge part of your life, whether or not you know it. And because you emphasize this in the book like there's a reason it's called private equity they don't have to report a lot of stuff like they're there's very little transparency about

how decisions are made, how profits are spread around, like all this sort of thing. Like it's a black box in a lot of ways. Yeah, they've gotten away with avoiding... regulation that requires them to disclose a lot of information that other types of companies have to Who's in charge in a lot of cases, much less what is their business strategy, right? Did they make money or lose money last year?

All of these kind of basic things that we take for granted that we can know about other types of companies. In a lot of cases, you just can't find out.

I was looking into various hospitals which hospitals are a big part of my book and There are hospitals that I could not figure out which private equity firm owned them and i'm like a professional reporter like i'm pretty good at this i know how to work public records but when the layers of shell companies go so deep it can be really really tough um

And, you know, a lot of stuff doesn't get announced with a press release. Yeah. And yeah, it's just like this brutal landscape. I mean, it makes it very difficult to report on, which I didn't know going in. But it also just... If you're a person who lives in the world and you want to know who controls your life...

It's hard. Right. And the cost of your life. We're going to get a lot more into that, too, as we keep going. But I want to start with our questions. First question is from Libby. How is private equity supposed to work?

It seems like we always hear when it goes bad, but is there a time it has actually helped a business? Okay, so I like this because I think it's very easy for us to just be like... This shadowy cloud descended upon American businesses. But like there's a reason why it was legal. There's a reason why a lot of pension funds and like different like retirement funds like invest in it. And it's not just because it makes money. Right. Like there is something about.

private equity that we was understood as like, something that works. Can you explain this? Yeah, so I won't get too deep into the nitty gritty history. But What we now think of as private equity started in the 1960s with what they then called bootstrap deals, which were essentially buying small family-owned businesses.

who had potential to expand but didn't have the capital to do it. And then it was like, okay, now you have this huge infusion of capital. You can go achieve whatever your dreams are. That system like more or less worked. And today, private equity likes to say through their chief lobbying group that the majority of private equity investments are actually in small businesses, are more like those.

1960s bootstrap deals than they are toys r us or a major hospital chain or whatever it is that is true and by all accounts it seems like they are more successful in those deals but just because it is the majority of deals does not mean it is the majority of money and the majority of people affected so obviously the biggest acquisitions

come with the most money. So like, to me, it's a little bit of a tangential point to say most of our deals are in small businesses because if you have a bunch of tiny deals in small businesses and then some catastrophically bad deals in huge businesses like I'm not really sure it's much of a defense well and the other thing that it makes me think of and we'll talk about this a lot more in our future questions is like An example that I've heard a lot is...

A couple of people came together and started a small business or a family practice or a veterinary practice or a dentist practice. And they have been practicing for however long and they're ready to get out of the business. And it used to be you'd pass this business down.

someone in your family, find another partner, whatever. You'd sell the practice to another practicing dentist or vet. But now, if you have private equity, which is willing to pay a lot, so whoever worked... so hard for this business is able to sell off the practice to private equity at a very like at a great price yes and then they don't have to think about it anymore

Right. So if you are just looking for your retirement, which especially I think there are people who like some of these fields are not as lucrative as we think they are.

right like there there needs to be more of a retirement plan like this is the way that they're going to retire for the rest of their lives they sell it off so it's a small business that private equity has helped But then that business is now run under the imperatives of private equity, which is extracting as much profit as possible, which maybe like Joe Schmo, veterinarian, was not practicing under those same principles.

Right. Totally. It's I'm in a bunch of doctors groups on Facebook that are like talking about the influence of private equity in medicine. And it's always so fascinating to me because if you are a retiring doctor in private practice, you will get.

so many private equity offers it's like mind-boggling and you know i'm not going to blame any individual person for taking the best offer to you know pad out their retirement savings like obviously um and i think a lot of people get into those situations hearing Private equity firms say, oh, yeah, don't worry, nothing's going to change. Your patients are going to be in good hands. Yes. And I can promise that that is not the case. They are not interested in buying.

a small doctor's practice or veterinary practice or dental practice or whatever it is to keep it independent and keep it operating with the relatively small margins that you marginally successful private practitioner maintained. They are going to roll it up. and again like people get to make their own choices i'm not i'm not convinced that an individual doctor has some moral obligation

to make sure his practice stays running in exactly the same way he ran it. But if you are a patient of that practice, you should know that things are about to change and change really quickly.

One thing I've heard a lot of tension in in these groups is younger doctors, dentists, veterinarians, practitioners who... there's no opportunity for them to build the same sort of thing right their student debt is significantly more than let's say two three generate like 20 30 years ago and there isn't the same practice of like okay you're going to be brought in as a partner in our private practice and then slowly accumulate like the stability

of being part of a practice. Instead, it's like, oh, I'm part of this practice and the senior partners just sold it off to private equity. And here I am left with the consequences, which make me a worse doctor. Yeah, no, I mean, I think the entire... medical system changed underneath multiple generations of doctors right the guy i profile in the book is in his mid 80s

And it changed in between the time he started aspiring to be a doctor and the time he went into practice. And this was, you know, in the late 70s. much less now when you're right, like student loans are brutal, residency slots are so competitive, there's

We have this weird tension where there's a massive shortage of doctors, but also the number is kept artificially low by the residency slots. And so if what you... went into medicine to do is like, be a community doctor in the old school framework. that's pretty tough to pull off now. Even if you move, the doctor in my book moved to a rural community in Wyoming being from Texas.

Because he specifically wanted to work in rural medicine, and he still ended up working for one of the largest private equity firms on earth. Like, it is so difficult to avoid. And that is not... The creation of private equity, right? Like it's not like they said oh, look, we can undermine our medical system in all of these ways. We have a deeply broken medical system and private equity realized they could take advantage of that for their own gain. But I think it's really...

You know, I spend a lot of time in the first hospital chapter of the book kind of tracing this history. Because I don't think you can really understand how private equity came in without understanding the ways in which this system got all borked to begin with. Right. And I think one of the promises, too, is like...

economies of scale that like okay if we own a bunch of practices then it will make things like accounting easier or buying equipment easier so you can see how there is a reason that some places would need private equity like oh yeah right yeah it sounds great in theory right so in the two hospitals in wyoming that i write about the private equity firm came in and said, look, we're just going to like centralized billing, centralized IT, all of those.

services where you don't necessarily need them to be based on site and that will free up so much money for you to do patient care. And what happened was they did centralize all those things, but they also stripped the patient services from the hospital. So we went from IT and billing were off-site to all of a sudden, oh. You can't deliver a baby at your local hospital anymore. Yep. Like you have to drive 35 miles away.

Possibly in a Wyoming winter. Because baby like delivering a baby is not like cost effective. Right. Oh, yeah. No care is a massive money loser. And it's like, those are the terms.

firms on which private equity firms think yes you're like a person who's trying to have a baby that's the furthest thing from your mind right you just want to like safely deliver a baby one of the Craziest statistics in the entire book to me was that after the private equity firm took over, the number of medevac flights out of that county in Wyoming increased 900% because they couldn't do...

almost anything at the local hospital anymore so all of a sudden you know anything that was acute but should be treatable locally they had to get you out yeah to a bigger city and so it's just like Talk about like inefficiencies. Yes, exactly. And who pays for the cost of the medevac? And I mean, some insurance does cover it, but not all. No, definitely not all. And like if you're on, you know, a disproportionate number of...

And if you get life flighted out in that situation, like probably that bill is going back to the taxpayers in some form. So it's like really like. like who's paying for private equities profits it's like yeah the taxpayer yeah no truly it like makes no financial sense for anybody other than that one firm yeah

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We're going to do it. It's a question that was the result of me accidentally saying in one of our calls for questions, I put venture capital instead of private equity and I quickly fixed it. But I do think that sometimes these terms get a little mixed up in people's heads. So let's read the question and then we can talk a little bit more about it. This is from Becca. How are venture capital and private equity different? They seem bad in similar ways.

Did private equity kill Joanne Fabrics and childcare? How can we stop the omnivorous private equity machine? So I feel like you and I are uniquely equipped to talk about this, having you worked at a journalistic outlet that was killed by private equity. And I worked at one BuzzFeed that has been excavated of its heart and soul by the demands.

venture capital yeah so I do think that they are very different in many key ways but also the end result is often the same what do you think yeah I mean i'm always glad when people ask this question because it is maddening to me when people are like look private equity killed this thing and i'm like so no that's venture capital not to defend venture capital but they do work pretty differently so yeah

Basics are that in the case of venture capital, VC firms invest in, you know, usually early stage companies and then they expect huge returns, right? The common link between venture capital and private equity is you have to grow, grow, grow, grow, grow. But in the case of private equity, companies are being bought outright. And so that means that rather than...

I'm a CEO and I'm responsible for providing returns to my investors. If I'm a CEO, I'm not in charge of the key business decisions. The private equity firm that employs me. is in charge of the decisions. And so the other problem is that in venture capital, You make investments and you're fully cognizant that you may lose that investment, right? You're pressuring your CEO to make all sorts of decisions.

to ensure that you don't lose your investment. But in the case of private equity, most of that money is not from... investors themselves the vast majority of that money is loans and the loans come from all sorts of you know banks investment banks whatever but that those loans are assigned not to the private equity firm who made the decision to take them out, but to the portfolio company. So if I want to buy the Culture Study podcast and I am a private equity firm...

I'm like, great. I'm going to pay $1 million for this. I'm going to borrow $800,000 to buy it. And... If it goes under, not my problem because only the employees of the Culture Study podcast are responsible for paying it back. Right. This is the thing that like...

absolutely blew my mind when i first came to understand it and i think the first time i understood it was when i read the case study of toys rs a while ago that like oh you buy it and then you saddle it with debt and then of course it goes bankrupt yeah

Like, duh, you sell off all of its stuff, all the good stuff for parts. And then it has all of this debt as well. Yeah, Toys R Us was really the one that got me hooked on this too. Because what happened was Toys R Us was acquired from... like six billion dollars and i don't remember the exact number but roughly five billion dollars of that was debt that was only toys r us was responsible for it so then they sold off toys r us's real estate And...

And when Toys R Us went under, the private equity firms were sort of like, shrug, I don't know, Amazon. And it is true that it was harder for Toys R Us to operate in the age of Amazon. But it is also true that they never really tried. There were no... innovations or even basic store improvements happening even when like

everybody could see that all of these basic steps needed to be taken. And the reason that the steps weren't taken was because there was literally no money because they were buried under debt. Several years into... Their private equity ownership, Toys R Us had shaved off like one million dollars off of their five point whatever billion dollars of debt. Like the interest payments alone were just crippled.

Yeah, you can't dig yourself out of that hole. There's just no way. No, it's like, I mean, it's like student debt, right? It's like, yeah, of course you never get out of it. Like the interest payments alone eat up half your monthly salary. Right. I think like if we if we want to explain to listeners some of how like.

The larger buckets that these like venture capital funded stuff versus private equity acquired stuff, even that idea like funded versus acquired, like private equity acquires existing businesses. And then puts profit imperatives on them that turn them into a certain type of business that is very like is profit minded. Like the idea that like providing pregnancy services is not a good money making strategy. Right. Like that's.

At the heart of it. And then venture capital, it's a new company. And oftentimes, and this happened with BuzzFeed, right? Like you pump a lot of money into it with the hope that like, okay, we're going to grow really, really, really, really big. And then we're going to make a ton of money. Yes. But at some point, that runway runs out. Yes. No, totally. And then what do you do? Right. I mean, the venture capital thing is like...

These are the new, hot, exciting things, right? And I never worked at BuzzFeed, but I sure remember the moment where, like, BuzzFeed was going to transform the media industry and, like, BuzzFeed was swallowing up, like... every journalist on earth right um and i didn't work there but i sure did talk to them about jobs multiple times because for a hot minute there it was like that's where all the jobs were and private equity on the other hand is like the opposite

where they're like taking over these distressed assets and claiming to save them. So it's like newspapers, like local newspapers. Yeah, I mean, local newspapers are a huge one. That's another big focus on my book.

um and it's like right it local newspapers were the very opposite of buzzfeed right like buzzfeed came through with this hot new strategy and local newspapers still hadn't adapted to the rise of the internet like in basic terms so when private equity came in there it was like i mean on one hand like oh no this is going to be really really bad on the other hand it was sort of like well who else would like these publications have made

such catastrophically bad business decisions that they all but ushered private equity in the door well and here's where we get to like the common middle which is that if you look at buzzfeed.com today and like the website of a local newspaper that's owned by a chain that is owned by private equity they look somewhat similar and that there is like a lot of ai generated stuff there's a ton of ads clogging everywhere there's like no attention to the reader experience or like an attempt to

create loyalty or do journalism, right? In order to only generate profit, because with BuzzFeed as well, now they have to figure out what are our profit centers. It's the lowest common denominator. Yes, totally. No, that's such a good point. I had never thought of that, but you're right. They like sort of end in the same place when they go really wrong. Like there's this phenomenon of ghost newspapers, which are local newspapers that can.

continue to operate, but literally employ zero staff. But they can make money because there are some advertisers still coming in. And there are some folks, you know, granted. exclusively older folks at this point, but there's still some folks who are so loyal to the concept of a local newspaper that they'll never stop subscribing even when it's literally not giving them anything.

and it's just it's kind of it is like I like the phrase ghost newspapers because it is kind of creepy it's like BuzzFeed was this massive, thriving organization that was providing... Content on basically anything you could dream of. And a local newspaper was like once completely invaluable to its home community as a source of local news. And then in both cases, like they're literally all gone. Right. And like Deadspin now is directing people to like online slot machines. Yeah. Maltese gambling.

Yeah. It's like funny, but it's so sad. It's so sad. No, it's so sad. I mean, the Deadspin thing is so sad because like... There was a couple of year period in between everybody from the staff that I was part of quitting and it being sold to a Maltese gambling company where they were like, no, no, we can totally bring it back. And it's like, no, you can't. Like nobody read it. Like this was a site with like 20 million unique visitors a month off of a staff of 20 people. Like that's crazy.

Deadspin was punching so far above its weight and the idea that like you could lose the entire staff and like just hire like five new people who... just like right words just like right words right not funny i mean not interesting not bombastic like not any of the things that people understood as like what made deadspin work right i mean that was the thing it was like

Some people were calling the new Deadspin staff scabs and they understandably took unkindly to that because like they took jobs that were posted. Um, but the bigger thing was like, it was just. terrible on one i think i tweeted at one point that like honestly being sold to the maltese gambling company seemed less depressing than like doing the weekend at Bernie's thing with the corpse. Like, at least now we're all on the same page that it doesn't exist anymore. But the number of years it took...

People to get there was a little depressing. Well, private equity doesn't see art. It doesn't see experimentation. It doesn't see creativity. Like all of those things are not. they don't understand them as profit centers, even when they are the thing that actually animates a company, right? Or that like makes a vet practice invaluable.

like yes i think that was really one of the core issues with the deadspin acquisition was that they had no understanding of what made deadspin deadspin and so their theory was well, okay, we're looking at ESPN. ESPN is orders of magnitude bigger than Deadspin. So we want to be ESPN. And it's like, wait a second, hold on. Like there are so many things wrong with that theory. And literally like I would say to them like, well, you know,

You know, like part of the reason ESPN is so much bigger is because they employed literally thousands of people. And part of the reason they're so much bigger is they have rights to broadcast.

professional sports games are you trying to get deadspin to the point that it is broadcasting professional sporting events because that's like a wild ambition and on one hand i sort of salute it on the other hand like that's bonkers that's truly nuts um and so like they just hadn't like thought of it they could only see we like big yeah yeah yeah And so like, yeah, it was just, oh man, it was maddening because it felt so stupid.

Yeah, that's the thing. You're like, I'm a journalist, not a business person. And I can see that this is very dumb. Right, exactly. Like telling us to cut the stuff that drives the most traffic. What did they want to cut? I'm trying to remember. Oh, they wanted to cut every all non-sports content. Right. And you're like, no, this is what it's like. Well, right. It was only 10% of our total story output. And it.

Each like on average, each non sports article generated twice as much traffic as the sports article. So it's like, OK, I guess like maybe you can make an argument about like consistency of identity or whatever. But literally, how are you going to make up the KPIs, right? Like, just basic stuff. Okay, so this next question will help. us get into the the stupidity of it all um and about just the why would you take a successful business this comes from claire

I loved Beauty Counter's products. I was so sad when the company seemingly out of the blue announced it would be shutting its doors. Beauty Counter was sold to Carlisle, who changed the business model and subsequently ran the company into the ground. Why would a private equity firm radically change the business model of a successful company? It seems like hubris in the extreme. Alright, so how do you think of an example like this one?

okay so there's several things here and the beauty counter story was like a legendary disaster multiple carlisle executives called it the worst deal of their entire career um so it really was a nightmare. One was that private equity is always sort of towing the line between distressed assets, but like maybe they'll fail immediately right um and so in the can you define what you mean by distressed assets yes so distressed assets you know

is not a technical term, but basically it's a business that is struggling for some reason. And private equity... loves distressed assets. They say because they can come in and turn them around, you know, we're the turnaround specialists, we're the superheroes who can save the business.

And realistically, it's because they can sell off many of the assets like the real estate, cut a bunch of costs, lay a bunch of people off, and sort of... cut costs without growing the business but but increase profit margins just by cutting costs alone So for years, retail was very fertile ground for private equity. They loved retail. Toys R Us was one of only many huge, huge American chains.

that private equity took over, and one of many huge American chains that was driven into the ground by private equity. More recently, private equity has discovered that, in their opinion, Retail is essentially too far gone. And so they've gone, they've pulled back from retail entirely. So Beauty Counter was actually Carlisle's last deal. in the retail space. And as soon as that one started going badly, they got out of retail entirely. So...

Very, very, very few private equity firms will touch retail at all anymore. And they started turning more toward housing, hospitals. businesses that are seen to be sort of recession proof industries yeah um the other thing but but beauty counter there must have been something like even though this listener

thinks that the business model was super successful. Like they probably weren't turning as much profit. Like there was some sort of fundamental weakness that made them vulnerable to like, I think of it as like a wounded deer, like private equity smells blood. right yeah so the beauty counter story part of what's weird about that one is it was a clash of two very classic

American forms of capitalism. One was private equity and the other was MLMs. Beauty Counter was a people react poorly to the phrase mlms but that's what it was it was a tiered system where you have people working for you selling products and your commission depends on the people below you selling product MLMs don't tend to be very sustainable businesses. Yes. So...

It seems basically true that Beauty Counter was doing well at the time at which Carlisle bought it. But I think Carlisle... probably correctly saw that there was sort of a ticking clock on that and what happened was and you know i have not reported on beauty counter directly but i have read a lot about it and What happened was beauty counters fate sort of turned immediately after the acquisition, even before anything had changed. Right. So like they lost a lot of consultants.

Because people who had started doing it during the pandemic then decided they wanted to do other things. So... They were sort of at the top of their game when Carlyle bought them, which is unusual for a private equity acquisition. Yeah, that's so interesting. Were they like, was Carlyle like, hmm, let's see what we can do with an MLM, essentially? Yeah.

I mean, I don't know of a lot of other examples of private equity buying an MLM. And so when I saw the news of that acquisition, I was like, huh. That's a fascinating one. But I think it does make sense because private equity tends to be playing a very short term game. And MLMs don't tend to last all that long. at least in a way that's like at the top of their game so basically beauty counters fortunes began to turn even more south before kyle could even extract

as much as it wanted from it. Right, exactly. So the reason the Carlisle executives... call it a disastrous deal is because basically the moment the ink was dry for various reasons outside of their control things just started turning southward now

It is also true that Carlisle made a bunch of decisions that I think illustrated a... poor understanding of the business, right? So Beauty Counter, like a lot of MLMs, their business model revolved very, very strongly around the personality of the founder. And that is a... terrible match for private equity right because everything's going to get corporatized yeah she remained the ceo for a bit after the carlisle acquisition and then they went in and got went out and got somebody else

And she became like chief brand officer. And then when he didn't work out, they brought her back. But it was like... It was so clear at that point that she was sort of a cog in the machine. And that turned a lot of people off because a lot of people wanted to be part of her orbit. And that's why they had joined as sellers. And there were a lot of... stories from folks who were like, you know, higher in the pyramid who had said they'd had direct access to her when she was running the business.

by herself you were never going to get direct access to the partners at carlisle so i think I think Carlisle didn't really understand the fundamentals of what an MLM is and what makes it successful. I don't think they had enough curiosity to ask. And I think this business was probably not long for this world in the long term anyway.

No, that's such a fascinating case study. It seems like something you could study at business school. Totally, yeah. Like how those principles don't really work together. Today's episode is brought to you by Mel. In this country, we produce so much food waste. And food waste, like I never thought about it exactly this way. Like I always thought in my mind, like... oh it's going to the landfill and it will just decay but the thing is is it's inside of plastic bags

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Okay, we're going to play the next two questions back to back. They're both about the vulnerability of care industries and what the future holds for these targets of private equity right now. First up is grace. Help, what is private equity doing to the dentist and how do we stop it? And then part two is from Ellie. It's so disheartening and depressing to see the damage to important care industries like veterinary care and nursing homes done by private equity.

What kind of legislation could exist that would be able to curtail or stop this type of business model? So I think first, let's just like underline, we've talked about this a bit, but like... What are the effects of private equity acquisitions on the care industries? Like what are we seeing in practice? And then we can talk about something that I really love about your book, which is solutions. So let's talk first about what's happening. So in care industries.

patient satisfaction and quality of care. tends to get worse when private equity comes in. So there have been studies in hospitals that show the rate of preventable medical errors goes significantly up when private equity comes in. there's been a lot of good reporting about autism therapy practices and how you know these are often parents who find themselves sort of desperate for solutions to help their child and They find a place that they're happy with

And then private equity comes in and their care gets a lot worse. People are also, you know, seeing much higher prices. That's definitely true in dentistry and in... veterinary care. It's absolutely correct that the price of vet care goes so far up when private equity comes in. There's this very like trendy chain of vets in New York where I live.

um that is private equity owned and i don't think most people know that it's private equity owned but people know of it as the expensive vet and i'm like yes you know why it's the expensive vet it's because they're owned by a private equity firm and we should talk about why it's expensive too because i think i mean part of it is that they're pushing services that cost extra money onto you like

I think of at the dentist, whenever you have someone like really pushing teeth whitening. Oh, yeah. It's like, oh, yeah, because that is a profit center for this dentist practice. Or. They can make more money from the vet practice if they pay the vet techs less. Right. Which means if someone's getting paid less and they have to work more hours, like the burnout levels are higher. And so you get worse care. This is why there's like incredible, really devastating.

rates of depression and suicide amongst vet workers, none of this is disconnected. When you turn something into an exploitative profit center, there are ramifications not just on the people who are receiving these services, but the people who are offering them.

Yeah, exactly. I mean, staff gets cut. In a lot of cases, like supplies get cut. There have been a lot of horror stories from nursing homes, hospitals, etc. about... Not having enough basic supplies to do, you know, the procedures they need to do for patients, which can obviously be an incredibly bad thing. And then it's also just like you start.

charging more money for the same stuff, right? And I think veterinary care is a particularly interesting example to me, especially when it happens in places like New York City, where I live. You and I are both like adults with dogs who are obsessed with their dogs and who don't have children. Right. And so like when it comes to.

Do our dogs need a medical procedure? Like we will spend as much money as we have. Like I will empty out my bank account to take care of my dog. And private equity loves that, right? Because. If a three thousand dollar procedure yesterday is a five thousand dollar procedure today. I will be very upset about the fact that it is $5,000, and I will also find a way to pay $5,000 because that's what my dog is to me. On the other side of the coin, in things like autism therapy, nursing homes, etc.,

It's sort of a different kind of desperation where there aren't enough of those kinds of practices for the number of people who need them. And so you do end up with people who are just desperate for solutions and will pay. whatever they can and more, you know, there are horrible stories of people driving themselves into massive debt, bankruptcy, financial ruin. trying to pay for one of these specialized types of treatments. And so that...

all adds up to make it very, very, very attractive to private equity. And it's...

sort of a brutal reality that right now there is no good way of stopping that. In terms of solutions, there are several things. I am like... not an activist on this and really didn't want to go into prescriptive mode in the book oh and did your editor make you because that has happened to me no i mean i think I think I stayed away from actual prescriptive writing in the book. But I did spotlight people who are trying to do something about it. And so the...

Solution most people think of first is regulation. Elizabeth Warren has proposed a bill called the Stop Wall Street Looting Act. several times now um for the first time in 2018 i believe um and that will never pass unless there is a dramatic change in who is in congress because This is not a Democrat Republican problem. Nobody on either side of the aisle right now has any incentive to do anything to seriously regulate private equity. And I mean, the Warren bill is is radical. I mean.

it would essentially regulate private equity out of existence, which I think a lot of people are sort of like, that's too far for me. So... That's the most radical solution is you could regulate it out of existence if you changed who was in Congress. There are a lot of smaller bills, often on the state level, that often grow out of crises. So there have been two recent bills.

to just bring a little more scrutiny to private equity deals in healthcare, one in Pennsylvania and one in Massachusetts. And both of those grew out of... just catastrophic failures of hospital chains that left a lot of patients out in the cold yeah i mean massachusetts is very very very blue and Pennsylvania is a little more borderline, but is still more democratic than a lot of states. And so things can work there that can't work in a lot of other states. And even so.

In those two cases, they only came after a catastrophe, right? So they didn't stop the catastrophe from happening. But I think there is an increase in the number of people. thinking about this in a serious way and thinking about what solutions might look like. And some of those steps, like what has happened in Pennsylvania, like what has happened in Massachusetts.

are meaningful and could show other people potential partial solutions but then i think a lot of the work is just in reinventing industries and that is exactly the long slow hard work private equity firms aren't willing to do. And frankly, a lot of other people aren't willing to do either. So we talk about local media. And it's like,

Local newspapers got themselves into their own mess, right? They opened the door for private equity and then private equity came in and sort of profited off the remains. And the only way to... deal with that you know no no law is going to help you with that or very few laws are going to help you with that and if they are it's only going to be in combination with

all of these other steps right so because like the law could regulate the ability for the equity firm to acquire this newspaper but it couldn't restart a newspaper exactly right right And so the character who is the focus of the media section of the book

has become part of this wave of local startup nonprofit newsrooms. And that's something that's just like genuinely interesting to me, not because it's a silver bullet, but because in a lot of... communities it is bringing some sort of local news back when they haven't had them in years or maybe over a decade, right? And so that's like genuinely kind of exciting, but that is tough work.

And usually requires like a couple of like benefactors. Oh, yeah. Which, you know, like this is not unprecedented in our nation's history. right like the idea of a hybrid model of like wealthy benefactor then like You build a subscription and trust model that like makes it so it's not entirely dependent upon like wealthy benefactor. Totally. And it's also not uncomplicated, right? Like, yeah.

We have seen at the Washington Post the potential problems with having a billionaire who you believe to be a benevolent billionaire in charge. So it's... It is definitely not a silver bullet. And there are all sorts of other interesting experiments happening in the media industry. And I think realistically, it's just going to have to be...

a combination of a bunch of different things if people want to be serious about pulling industries like that back from the brink. It's harder to reinvent an industry like healthcare or housing because...

they're so tied in with regulation, right? It's like, it's just harder to reinvent how hospital care works. But even there, I mean, the last chapter of the hospital section of my book, I won't... fully spoil what happens because I think it's like the most dramatic reveal in the entire book but some just like local Wyoming residents

set their minds on doing something absolutely audacious and they pulled it off and they're very clear-eyed about the idea that like their audacious solution cannot be everybody's audacious solution but they're very much like Right. But you have to think about audacious solutions and only you can think about what audacious solutions work in your community. The way to combat private equity. is to move in the absolute opposite direction where instead of

big decisions being made by a faceless group of executives hundreds or thousands of miles away. They have to be made at the community level and then acted on from there. I even think of the example of what was born of what happened with Deadspin with Defector, right? Like instead of private equity, you have a writer-owned cooperative.

It's so beautiful. Yeah, no, exactly. I mean, my pals and former colleagues who founded Defector, like that was a totally crazy idea. Worker owned media basically did not exist at that moment.

And they did it, right? And now some other folks have done it too. And I am very clear-eyed about the limitations of something like worker-owned media as a... solution for everything i think it would be very very difficult to make that work in local media outside of new york city where it's working quite well with hellgate um one of my favorite sites on the internet but

There are a lot of communities that cannot support that, that desperately need coverage, right? Need coverage much more desperately than New York City does. But... It's something right. It is like people trying something and showing that it can be done and coming up with a solution that maybe even if it doesn't work for everybody, it works for somebody.

And that's really valuable. Yeah. I just keep thinking about the fact that there are some industries that should not be understood as profit centers. Yeah. Like childcare.

it cannot be made into a profit center like we are trying to but just the way like it's not a thing that um can operate at like massive efficient scale because you're dealing with small children who need like ratio of supervision to kids is just such that like right um so what happens when something can't be a profit center we have to support it as a public and so what's the like there's this tension i think between like

no, we don't necessarily want to live in a country that every single thing is publicly funded. Or maybe we do, but maybe like an ideal scenario. But how do we ascertain? How do we have the wisdom to understand what things, how to fund things that cannot be profit centers? How do we fund those things? I mean, if you have the answer to that. I know that's our great imagination. When are you running for Senate? Yeah, I think it's so tricky because the.

A lot of the sectors where private equity sees the greatest profits are the ones that are hard to be sustainable on their own. So, I mean, hospitals, for example, like. The problem with solving health care in this country Is it so fundamentally messed up that you sort of have to burn the entire system down and start again from scratch? And how do you do that when there are like 300 million people like already relying?

on it right I do think it's really important to be clear about the problems that private equity did not create but that they are perfectly happy to profit off of and so Yeah, childcare is another one. It's like, we don't live in a country that believes that... you should be able to access child care no matter your income strata. That sounds, I think, to a lot of us like a crazy fact, but it is just the fact of the matter. We do not live in that country. And so...

I mean, I guess theoretically in that case, more easily than in hospitals, Congress could say, okay, nursery school, preschool, whatever is free now. That essentially happened in New York City. where 3k for three-year-olds became free because the mayor just like declared it to be free yeah

It's hard for me to imagine that happening on the federal level, right? So then it's like, well, if you're lucky enough to live in one of the places that does... you know adopt that ethos then great for you but for the rest of you like sorry i just love your idea your point from earlier that like the way we combat it the way we rebuild from it is by coming up with vibrant, creative ideas. And they're different. Every single place, every solution is different.

But like they demand, you know, people doing that work. And this is the thing that like I think depresses me is that oftentimes people are so burnt out from dealing with private equity owned spaces yes that doing that creative work that creative generative community-based work is feels impossible so we find ourselves in this quagmire of like

Well, if I didn't have to deal with all of this shit, then maybe I could figure out a solution. But like here I am paying, like trying to work enough so I can pay my vet bill. Yeah. I mean, we haven't talked as much about housing in this conversation, but that's one of. the other one of the four industries I write about in my book and the protagonist of the housing section who was a tenant at a very large apartment building in northern Virginia that was taken over by a private equity firm.

she really went head to head with the private equity firm both while she lived there and afterward which is really amazing to me because it's like You know, she doesn't make a ton of money. She has two kids. She's like trying to work and support a family and take care of her kids and all of these things. And like she doesn't need more problems. Right. And she's just like a.

firecracker. She is one of the most impressive humans I've ever met. When she believes in something, she will just fight and fight and fight for it. But she has been repeatedly frustrated by her inability to get that many other people fighting with her. Yeah. Even though she realizes, like... In a lot of cases, these are people who are more vulnerable than she is, right? Like the apartment complex she lived in was a huge number of very recent immigrants, mostly from Africa. And it's like...

Their housing situation may very well feel tenuous enough that... confronting their landlord is the last thing they're going to do right people just like have other problems um what's

The reason I focused on the four people who I focus on in the book is because they are the exceptional ones who just said... We don't care. We're, you know, we are passionate enough about fighting this to do it come hell or high water. Not everybody can be like that. But isn't it? great that there are a few people who are like that I think that's a great place for us to end

I would really, really strongly recommend the book. It is so accessible. And as you said, there are these stories that really make the effects... the machinations, like it makes it real in a way that is very compelling and also hopeful ultimately. So anyone who's listening, just go out and get a copy. Megan, where can people find you on the internet if they want to? hear more from you i'm greenwell on blue sky um i'm me greenwell on instagram those are sort of my main points of uh

communicating with the world. And also you can order the book wherever you find books. Amazing. Thank you so much. Thank you. Thanks for listening to the Culture Study Podcast. Today, paid subscribers got a bonus Ask An Anything segment about big marriage feelings in a long-term partnership. If you want to support the show and always get that bonus content, head to culturestudypod.substack.com.

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