In Focus: Private Equity Increasingly Killing American Business
As a national economic downturn impacts communities across the nation, a number of prominent businesses have gone out of business in recent years. Though lower sales and inflation-addled higher prices are certainly contributing to the issue, one of the biggest threats to American businesses is private equity.
Earlier this year, following several national bankruptcy announcements of mall and shopping center standards like Forever 21 and Joann Craft Stores, the Private Equity Stakeholder Project found that 70% of large bankruptcies in the first quarter of 2025, where a company was valued at more than $1 billion, were companies owned by private equity firms.
That statistic comes after private equity-owned companies represented 11% of all bankruptcies in 2024 and 54% of large bankruptcies despite owning just 6.5% of the entire U.S. economy.
How does this happen? The PESP said it’s the very model that private equity embodies upon acquiring a company: new leaders focus on short-term gains and extracting value out of the purchased property, in doing so sacrificing long-term viability for that property.
A report by Americans For Tax Fairness in early 2025 lays out the strategy further, and relates it to several major bankruptcies in American history. As critics like U.S. Senator Elizabeth Warren called private equity firms “vampires,” the report found that, in a review of nearly 500 public companies purchased by private equity firms, those who were purchased were 10 times more likely to go out of business than ones unaffected.
The Toys ‘R’ Us bankruptcy of the late 2010s is one example of the practice’s disregard for long-term viability of a company. Tens of thousands of workers were unceremoniously laid off while the leaders of the private equity firms owning the company received millions of dollars in payouts.
Another example was Instant Brands, which makes Instant Pot and Pyrex products. After acquisition by a private equity firm, the company was forced to take out a $450 million loan to refinance debt from that acquisition – only for its new private equity owner to pay out more than half of that sum to shareholders, meaning none of the new debt benefitted the business itself. It’s not a surprise that Instant Brands filed for bankruptcy two years after that loan.
In 2024, CNBC noted, 10 of the 21 restaurant and bar chains that filed for bankruptcy were owned by private equity, including national brands Red Lobster and TGI Fridays. In addition to layoffs and debt recertifications, private equity also utilizes sale-leasebacks, where a company sells its real estate, then rents or leases that space to the new property owner. That was directly cited as a primary reason for Red Lobster’s bankruptcy announcement.
At the end of the day, these bankruptcies may represent a canary in the coalmine for the future – Americans for Tax Fairness noted that private equity is increasingly moving into sectors where its strategy of sacrificing long-term viability for short-term profit can lead to societal harm, including health care, housing and prisons.
By Joe O’Leary