Notorious as the “robber barons of the 80s,” private equity firms have reemerged with a vengeance in pursuit of financial transactions that exist out of sight of regulatory scrutiny. These firms have targeted hundreds of industries, from manufacturing to supermarkets, to nursing homes and drug rehab centers, to veterinary services and more. In 2000, private equity firms held about 4 percent of U.S. corporate equity. By 2021, it was almost 20 percent.
Early in its trajectory, the private equity sector was lighthanded with acquiring small businesses and “founder-owned firms,” because they didn’t see a unique brand or product from which to profit. However, they are now moving to roll up Main Street businesses with gusto. Small, founder-owned firms now comprise the highest share of private equity acquisitions in years.
Roll-ups occur when a financial firm or corporation buys up multiple smaller companies and consolidates them into a larger one. Private equity firms are rolling up optometrists, accounting firms, daycare centers, eldercare services, car washes, and bowling alleys. Private equity is newly pursuing the trades, including plumbing/HVAC companies, roofing businesses, and lumber yards. Tim Clarke, a PitchBook’s private equity analyst, told Bloomberg, “You just keep rolling, rolling, rolling and before you know it you’ve got 10-20% of the market.”
ILSR submitted a comment letter in response to the Federal Trade Commission and the Department of Justice’s joint request for information to identify serial acquisitions and roll-up strategies throughout the economy that have led to consolidation. The letter zeroes in on roll-ups the “death care” industry — funeral homes, crematoriums, cemeteries, casket manufacturers and more — to illustrate the harms and risks that serial acquisitions of small businesses pose.
From ILSR's Comment Letter to the DOJ and FTCPrivate equity’s intensified focus on Main Street is alarming given the industry’s track record… These rollups should be a particular focus of the agencies’ inquiry.
Private equity’s intensified focus on Main Street is alarming given the industry’s track record. The main strategies of private equity firms are to load up the companies they are buying with debt (leveraged buyouts — LBOs), cut labor and other costs, liquidate physical assets like real estate, charge the business fees for various services, and raise prices. They then offload the company after 3 to 5 years to maximize investor payout.
The harms to consumers and local communities are multifold. Private equity has contributed to our housing shortage and increased health risks. It has gutted industries and killed real investment and innovation. Private equity acquisitions have led to bankruptcies, job losses, reduced competition, and diminished access to goods and services.
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