When you shop online or attend theme parks, you might think that the people at the top or in control are CEOs or even the government. But behind all the famous brands lies private equity, the invisible owner of them all.
In recent decades, private equity (PE) companies—firms that raise capital to buy and sell private companies for profit—have expanded their influence on the global economy.
Even though people rarely hear about them, their decisions have massive implications on jobs, healthcare and services that people use every day.
“Until recently, I did not know that many of the brands I use every day are actually owned by a mysterious entity. For example, Burger King and Toys R Us were all owned by Bain Capital,” said junior Dov Brown.
What makes private equity firms so powerful is not just what they own, but how they make their money.
PE firms select a company, and typically buy it using a significant amount of borrowed money from investors, called leverage buyout. By using intentional debt, PE firms don’t have to finance the acquisitions with their own money.
This method increases investment returns if the company is sold at a higher price and reduces borrowing costs by avoiding taxes.
In this way, PE firms can make large profits without needing a lot of money to start with. However, PE makes the purchased company responsible for paying off the debt.
Additionally, to increase profits on the company that they bought, PE firms make changes to the company using a process called optimization.
This can include cutting operational costs, laying off employees and selling off underperforming sectors.
Junior Noah Berkowitz said, “I think it’s concerning that companies can be bought and workers’ jobs can be cut so quickly to increase profits. It shows how the future is hardly being thought about, everything is based on the fastest possible returns.”
These changes aim to improve the company’s performance, and make it more attractive to potential buyers.
PE firms also generate returns through financial engineering: restructuring a company’s finances rather than lying solely on operational growth.
This can include refinancing debt, issuing dividends to investors and adjusting financial strategies to increase the company’s short-term value.
PE firms also use the role-up strategy: buying multiple small companies in the same industry.
Although this may seem like a shift towards monopolization, these firms often evade antitrust law regulations because individual acquisitions are too small to raise concern, even though collectively, they can reduce competition and increase control over prices.
Combining these strategies, PE firms expand their authority over various companies across industries to create the facade of independent companies, even though they are secretly run by one entity.
These strategies are also more effective because of the PE firms’ private nature, which allows for less disclosure and regulatory pressure, making private equity more flexible.
Therefore, they can aggressively cut costs without facing backlash from the public.
“I think that private equity has many unfair advantages compared to the average individual and should be more closely regulated by the Securities and Exchange Commission (SEC),” said junior Noah Stoch.
Ultimately, with limited public scrutiny, PE firms have amassed vast control over thousands of companies, quietly shaping industries with relatively little oversight.
