Plunder: Private Equity's Plan to Pillage America

Plunder: Private Equity's Plan to Pillage America by Brendan Ballou

Private equity firms has been able to exploit legal loopholes in order to transfer wealth from society to themselves. Their playbook includes mechanisms that insulate themselves from responsibility and allow them to profit even if the companies they acquire eventually fail. Leveraged buyouts will use debt that the company takes on itself in order for private equity to buy the company. The company then pays the firm a fee for the privilege of being managed as well as regular dividends. This necessitates significant belt tightening and leaves companies heavily vulnerable. Financial engineering, such as selling the real estate and leasing it back further harms the company prospects, while also helping to enrich private equity.

This book focuses on the negative wealth extraction and financial engineering performed by private equity. Operational improvements and long-term focus are barely covered. The book talks about failures like Toys R US, without even mentioning successes like Dell. Many of the areas that private equity has infiltrated have additional structural headwinds. Private Equity firms swoop in and separate the assets into good and bad. They make money off the good, then discard the bad. Alas, "discarding" often involves hoisting it on to the government. This type of financial engineering ends up harming society as a whole. Making the businesses lean leaves little buffer for downturns and also hurts customer service. They can also take advantage of industries where there is a big disconnect between who pays. In prisons, governments like the chance to get kickbacks from criminals. In hospitals, there are many parties involved, limited transparency and few options. There are great chances to financial engineer and frew responsibilities for doing so. Public healthcare may be the only true fix for the private equity mess there.