Cory DoctorowJun 2, 2023

Fans of the #Sopranos will remember the #BustOut as a mob tactic in which a business is taken over, loaded up with debt, and driven into the ground, wrecking the lives of the business's workers, customers and suppliers. When the mafia does this, we call it a bust out; when Wall Street does it, we call it #PrivateEquity.

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If you'd like an essay-formatted version to read/share, here's a link to pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2023/06/02/plunderers/#farbenizers

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Show threadCory DoctorowJun 2, 2023

It used to be that we rarely heard about private equity, but then, as national chains and iconic companies started to vanish, this mysterious financial arrangement popped up with increasing frequency. When a finance bro's presentation on why #OliveGarden needed to be re-orged when viral, there was a lot off snickering about the decline of a tacky business whose value prop was unlimited carbs.

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Show threadCory Doctorow

But the bro was working for #StarboardValue, a hedge fund that specialized in buhying out and killing off companies, pocketing billions while destroying profitable businesses.

https://www.salon.com/2014/09/17/the_real_olive_garden_scandal_why_greedy_hedge_funders_suddenly_care_so_much_about_breadsticks/

Starboard Value's game was straightforward: buy a business, load it with debt, sell off its physical plant - the buildings it did business out of - pay itself, and then have the business lease back the buildings, bleeding out money until it collapsed.

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The real Olive Garden scandal: Why greedy hedge funders suddenly care so much about breadsticks

Salon.com
Jun 2, 2023 at 3:51pmWeb
Show threadCory DoctorowJun 2, 2023

They pulled it with #RedLobster,and the point of the viral Olive Garden dis track was to soften up the company for its own bust out.

The bust out tactic wasn't limited to mocking middlebrow family restaurants. For years, the crooks who ran these ops did a brisk trade in blaming the internet. Why did #Sears tank? Everyone knows that the 19th century business was an antique, incapable of mounting a challenge in the age of e-commerce.
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Show threadCory DoctorowJun 2, 2023

That was a great smokescreen for an old-fashioned bust out that saw corporate looters make off with hundreds of millions, leaving behind empty storefronts and emptier pension accounts for the workers who built the wealth the looters stole:

https://prospect.org/economy/vulture-capitalism-killed-sears/

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It Was Vulture Capitalism that Killed Sears

Don’t blame Amazon or the internet. The culprit was a predatory hedge fund. 

The American Prospect
Show threadCory DoctorowJun 2, 2023

Same goes for #ToysRUs: it wasn't Amazon that killed the iconic toy retailer - it was the PE bosses who extracted $200m from the chain, then walked away, hands in pockets and whistling, while the businesses collapsed and the workers got zero severance:

https://www.washingtonpost.com/news/business/wp/2018/06/01/how-can-they-walk-away-with-millions-and-leave-workers-with-zero-toys-r-us-workers-say-they-deserve-severance/

It's a good racket - for the racketeers.

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‘How can they walk away with millions and leave workers with zero?’: Toys R Us workers say they deserve severance

The company awarded executives $8 million in bonuses a week before filing for bankruptcy.

The Washington Post
Show threadCory DoctorowJun 2, 2023

Private equity has grown from a finance sideshow to Wall Street's apex predator, and it's devouring the real economy through a string of audactious bust outs, each more consequential and depraved than the last.

As PE shows that it can turn profitable businesses gigantic windfalls, sticking the rest of us with the job of sorting out the smoking craters they leave behind, more and more investors are piling in.

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Show threadCory DoctorowJun 2, 2023

Today, the PE sector loves a #rollup, which is when they buy several related businesses and merge them into one firm. The nominal business-case for a rollup is that the new, bigger firm is more "efficient." In reality, a rollup's strength is in eliminating competition. When all the pet groomers, or funeral homes, or urgent care clinics for ten miles share the same owner, they can raise prices, lower wages, and fuck over suppliers.

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Show threadCory DoctorowJun 2, 2023

They can also *borrow*. A quirk of the credit markets is that a standalone small business is valued at about 3-5x its annual revenues. But if that business is part of a large firm, it is valued at 10-20x annual turnover. That means that when a private equity company rolls up a comedy club, ad agency or water bottler (all businesses presently experiencing PE rollup), with $1m in annual revenues, it shows up on the PE company's balance sheet as an asset worth $10-20m.

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Show threadCory DoctorowJun 2, 2023

That's $10-20m worth of collateral the PE fund can stake for loans that let it buy and roll up more small businesses.

2.9 million Boomer-owned businesses, employing 32m people, are expected to sell in the next couple years as their owners retire. Most of these businesses will sell to PE firms, who can afford to pay more for them as a prelude to a bust out than anyone intending to operate them as a productive business could ever pay:

https://pluralistic.net/2022/12/16/schumpeterian-terrorism/#deliberately-broken

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Show threadCory DoctorowJun 2, 2023

PE's most ghastly impact is felt in the health care sector. Whole towns' worth of emergency rooms, family practices, labs and other health firms have been scooped up by PE, which has spent more than $1t since 2012 on health acquisitions:

https://pluralistic.net/2022/11/17/the-doctor-will-fleece-you-now/#pe-in-full-effect

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Show threadCory DoctorowJun 2, 2023

Once a health care company is owned by PE, it is significantly more likely to commit medicare fraud. It also cuts wages and staffing for doctors and nurses. PE-owned facilities do more unnecessary and often dangerous procedures. Appointments get shorter. The companies get embroiled in kickback scandals. PE-backed dentists hack away at children's mouths, filling them full of root-canals.

https://pluralistic.net/2022/11/17/the-doctor-will-fleece-you-now/#pe-in-full-effect

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Pluralistic: 17 Nov 2022 Private equity health-care monopolies are on a profitable killing spree – Pluralistic: Daily links from Cory Doctorow

Show threadCory DoctorowJun 2, 2023

The Healthcare Private Equity Association boasts that its members are poised to spend more than $3t to create "the future of healthcare."

https://hcpea.org/#!event-list

As bad as PE is for healthcare, it's worse for long-term care. PE-owned nursing homes are charnel houses, and there's a particularly nasty PE scam where elderly patients are tricked into signing up for palliative care, which is never delivered (and isn't needed, because the patients aren't dying!).

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Home - HCPEA

HCPEA
Show threadCory DoctorowJun 2, 2023

These fake "hospices" get huge payouts from medicare - and the patient is made permanently ineligible for future medicare, because they are recorded being in their final decline:

https://pluralistic.net/2023/04/26/death-panels/#what-the-heck-is-going-on-with-CMS

Every part of the health care sector is being busted out by PE. Another ugly PE trick, the "club deal," is devouring the medical supply business.

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Pluralistic: Private equity finally delivered Sarah Palin’s death panels (26 Apr 2023) – Pluralistic: Daily links from Cory Doctorow

Show threadCory DoctorowJun 2, 2023

Club deals were huge in the 2000s, destroying rent-controlled housing, energy companies, Mervyn's department stores, Harrah's, and Old Country Joe. Now it's doing the same to medical supplies:

https://pluralistic.net/2021/05/14/billionaire-class-solidarity/#club-deals

Private equity is behind the mass rollup of single-family homes across America.

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Pluralistic: 14 May 2021 – Pluralistic: Daily links from Cory Doctorow

Show threadCory DoctorowJun 2, 2023

Wall Street landlords are the worst landlords in America, who load up your rent with junk fees, leave your home in a state of dangerous disrepair, and evict you at the drop of a hat:

https://pluralistic.net/2021/08/16/die-miete-ist-zu-hoch/#assets-v-human-rights

As these houses decay through neglect, private equity makes a bundle from tenants and even more borrowing against the houses. In a few short years, much of America's desperately undersupplied housing stock will be beyond repair. It's a bust out.

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Pluralistic: 16 Aug 2021 – Pluralistic: Daily links from Cory Doctorow

Show threadCory DoctorowJun 2, 2023

You know all those exploding trains filled with dangerous chemicals that poison entire towns? Private equity bust outs:

https://pluralistic.net/2022/02/04/up-your-nose/#rail-barons

Where did PE come from? How can these people look themselves in the mirror? Why do we let them get away with it? How do we stop them?

Today in *TheAmericanProspect*, Maureen Tkacik reviews two new books that try to answer all four of these questions, but really only manage to answer the first three:

https://prospect.org/culture/books/2023-06-02-days-of-plunder-morgenson-rosner-ballou-review/

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Pluralistic: 04 Feb 2022 – Pluralistic: Daily links from Cory Doctorow

Show threadCory DoctorowJun 2, 2023

The first of these books is *These Are the Plunderers: How Private Equity Runs—and Wrecks—America* by Gretchen Morgenson and Joshua Rosner:

https://www.simonandschuster.com/books/These-Are-the-Plunderers/Gretchen-Morgenson/9781982191283

The second is *Plunder: Private Equity’s Plan to Pillage America*, by Brendan Ballou:

https://www.hachettebookgroup.com/titles/brendan-ballou/plunder/9781541702103/

Both books describe the bust out from the inside. For example, #PetSmart - looted for $30 billion by #RaymondSvider and his PE fund #BCPartners - is a slaughterhouse for animals.

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These Are the Plunderers

WALL STREET JOURNAL BESTSELLER Pulitzer Prize–winning and New York Times bestselling financial journalist Gretchen Morgenson and financial policy a...

Show threadCory DoctorowJun 2, 2023

The company systematically neglects animals - failing to pay workers to come in and feed them, say, or refusing to provide backup power to run during power outages, letting animals freeze or roast to death. Though PetSmart has its own vet clinics, the company doesn't want to pay its vets to nurse the animals it damages, so it denies them care. But the company is also too cheap to euthanize those animals, so it lets them starve to death.

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Show threadCory DoctorowJun 2, 2023

PetSmart is also too cheap to cremate the animals, so its traumatized staff are ordered to smuggle the dead, rotting animals into random dumpsters.

All this happened while PetSmart's sales increased by 60%, matched by growth in the company's gross margins. All that money went to the bust out.

https://www.forbes.com/sites/antoinegara/2021/09/27/the-30-billion-kitty-meet-the-investor-who-made-a-fortune-on-pet-food/

Tkacik says these books show that we're finally getting wise to PE.

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Show threadCory DoctorowJun 2, 2023

Back in the Clinton years, the PE critique painted the perps as sharp operators who reduced quality and jacked up prices. Today, books like these paint these "investors" as the monsters they are - crooks whose bust ups are crimes, not clever finance hacks.

Take the #CarlyleGroup, which pioneered nursing home rollups. As Carlyle slashed wages, its workers suffered - but its elderly patients suffered more.

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Show threadCory DoctorowJun 2, 2023

Thousands of Carlyle "customers" died of "dehydration, gangrenous bedsores, and preventable falls" in the pre-covid years.

https://www.washingtonpost.com/business/economy/opioid-overdoses-bedsores-and-broken-bones-what-happened-when-a-private-equity-firm-sought-profits-in-caring-for-societys-most-vulnerable/2018/11/25/09089a4a-ed14-11e8-baac-2a674e91502b_story.html

#KKR, another PE monster, bought a second-hand chain of homes for mentally disabled adults from another PE company, then squeezed it for the last drops of blood left in the corpse.

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Show threadCory DoctorowJun 2, 2023

KKR cut wages to $8/hour and increased shifts to *36 hours*, then threatened to have workers who went home early *arrested* and charged with "patient abandonment." Many of these homes were often left with *no staff at all*, with patients left to starve and stew in their own waste.

PE loves to pick on people who can't fight back: kids, sick people, disabled people, old people. No surprise, then, that PE *loves* prisons - the ultimate captive audience.

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Show threadCory DoctorowJun 2, 2023

KKR cut wages to $8/hour and increased shifts to *36 hours*, then threatened to have workers who went home early *arrested* and charged with "patient abandonment." Many of these homes were often left with *no staff at all*, with patients left to starve and stew in their own waste.

PE loves to pick on people who can't fight back: kids, sick people, disabled people, old people. No surprise, then, that PE *loves* prisons - the ultimate captive audience.

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Show threadAndreas KJun 4, 2023
@pluralistic
No insult, how can it be legal to operate a corporation with negative capital on the balance sheet? At least here in Austria, the management has rather tight deadlines for reporting this state to the insolvency court, or risk criminal prosecution. (Yes there are ways to keep such companies going if it's a temporary fluke, but this involves external experts signing a positive prognosis. AND/OR the owners taking the liability for debt.)