The private equity collapse everyone is quietly preparing for isn’t a story about interest rates, and it isn’t really a story about overpaying for companies at the auction. It’s a story about 13 million people whose jobs and hospitals and groceries now sit on top of a debt structure designed to extract value before the bill comes due — and the bill is coming due. That’s the news behind this Guardian report on the 13,500 unsold companies sitting in PE portfolios right now, from Saks and Eddie Bauer (both bankrupt) to Steward Health Care (collapsed, leaving thousands without jobs and several communities without a hospital) to your local dental chain and probably the hospice down the road.
Let me say what the PE industry’s defenders want you to concede up front so the rest lands. Interest rates are high. PitchBook counts the backlog — 13,500 unsold companies, 2,563 in consumer products and services and 1,536 in healthcare alone. Buyout multiples roughly doubled through the cheap-money decade, from about 11 times EBITDA to 18 times — and the higher the multiple, the more debt gets loaded onto the company to fund the higher purchase price. PE does occasionally recapitalize a struggling firm and let it run, the way its trade group wants you to remember. That’s the exception. The 13,500 unsold companies sitting in PE portfolios right now — Saks bankrupt, Eddie Bauer bankrupt, Steward Health Care collapsed, Kmart and JoAnn gone for good — that’s the rule.
Now let’s talk about what those talking points are worth.
The piece is honest about its own central fact: PE-backed companies carry debt of about 50% of their enterprise value. Fifty percent. That’s not a market outcome; that’s a financing choice, made every time, on purpose, by people who can do the math. The 50% isn’t a temporary symptom of the high-rate environment. It’s the structure. Edith Hotchkiss at Boston College, the scholar the industry’s defenders reach for first, also notes PE-backed firms are no more likely to default than other similarly leveraged firms — which is the most devastating sentence in the whole article, because it means the entire industry’s default problem is itself a leveraged-debt problem. You could lower rates tomorrow and the model would still load companies with debt that has to be paid before workers are paid, before maintenance is funded, before the next PPE order goes out. Rosemary Batt at Cornell warned the industry’s defenders don’t want you to hear: PE “can engage in financial engineering or just slash and burn on the operating side.” The University of Chicago’s Business Law Review cautioned that tightening macroeconomic conditions produce restructurings “costly and value-destroying.” Yes. Costly to whom? Not to the partners who already took their dividends.
That’s the part the standard story leaves out. PE didn’t get caught by the cycle. PE is the cycle, and the cycle has been humming along for forty years because nobody in Washington wanted to ask the boring question: who, exactly, is supposed to keep showing up when the company can’t afford both the interest payment and the boiler repair? The answer, historically, has been the workers, the patients, the customers, and the towns. The PE partner, having already pocketed the management fee and the dividend recap, is usually long gone by then.
The Guardian piece does its job well here — naming the math, citing the 13,500 stuck companies, noting that PE-backed firms made up 60% of big manufacturing bankruptcies last year and an outsized share of healthcare bankruptcies. It even gets in the line that should be on a poster somewhere: “By design, the industry takes place in the shadows.” It does, and it’s the only major pool of corporate capital in America that operates without the disclosure rules a public company would face. That alone is its own scandal.
Yes, there are 13 million Americans whose paychecks flow from PE-owned businesses — the Dave’s Hot Chicken line cooks, the Two Men and a Truck drivers, the School of Rock instructors, the Birkenstock craftspeople, the Pyrex line workers. Some of those businesses are real, and some of those jobs are good. The Roark Capital buildout of the restaurant franchise empire, the BC Partners rebuild of PetSmart, L Catterton’s Birkenstock purchase — none of those are stories of pure extraction. They are stories of capital that worked. They are also stories the industry uses to deflect attention from Steward, from the dental chain, from the hospice, from the rural hospital that loaded itself with debt to pay the previous owner a dividend and then couldn’t afford a replacement X-ray machine. The 13 million are real. The 13,500 stranded are also real. Pick the number you want to look at — both are correct.
This is the same pattern our own coverage has been tracking for years: the record profits, terrible service model that leaves American consumers with fewer options and worse outcomes every year, and the same erosion our coverage documented when legacy-brand stocks hit decade lows as shoppers walked away from names like Kraft Heinz and General Mills. PE just happens to be the most aggressive version of it.
But the article stops short of the obvious next sentence, which is: so what else could own these companies, and what would that look like?
Look at the wreckage. Eddie Bauer, an outdoor brand with a real customer base, run through successive PE owners and now bankrupt. Steward Health Care, a hospital system that once served communities across several states, gutted by PE loading and asset-stripping until it filed for bankruptcy and left patients without care. Saks, JoAnn, Kmart, the local dental chain, the hospice, the rural hospital — these aren’t dying because markets failed. They’re dying because somebody borrowed against them, took the proceeds, and isn’t here to fix the boiler.
There’s another way to own a thing. It’s not the government and it’s not the gulag. It’s a member-owned cooperative, like the workers at Cooperative Home Care Associates in the Bronx — by several accounts one of the largest worker-owned co-ops in the country — who have been running their own home care business for decades with living wages and benefits. It’s the Mondragon Corporation in the Basque Country, where by recent reports around 70,000 worker-owners run an €11 billion business and the top earner makes about six times the entry-level wage, not three hundred times. It’s the rural electric cooperatives that, through the National Rural Electric Cooperative Association, already wire roughly 42 million Americans to their power — your parents or grandparents may be members of one without ever calling it radical.
When Steward’s hospitals started closing, the question on the table was never “should we bail out the PE firm?” The question should have been “who in this community is going to own this hospital next, and on what terms?” Some places are starting to ask that question. Massachusetts is leading on PE healthcare regulation, with a state-level push to scrutinize deals and cap debt in healthcare transactions. Senator Warren has a federal bill that would impose criminal penalties on executives who loot healthcare companies in ways that get patients killed. Congress’s June housing bill already curbs PE’s single-family-home spree. The “Let Kids Play” Act would ban PE from the youth sports business, which has become a $40 billion extraction machine on families. That’s all real, and it’s all downstream of people finally asking the boring question.
Here’s what I’d add: ask it earlier, next time. The PE firms have owned the playbook since the 1980s — borrow, extract, sell, repeat — and the playbook is now visibly broken at scale. The 13,500 unsold companies are not an accident. They’re the result. The next owners will be whoever shows up at the bankruptcy auction with cash and a plan, and right now that “whoever” defaults to the same PE funds that broke the thing in the first place, because nobody else is in the room.
So get in the room. Worker co-ops, employee buyouts — the ESOP model, by some counts roughly 15 million participants and with bipartisan support in some quarters that almost no one talks about — public hospitals where the market won’t serve, community land trusts, state-owned banks like the Bank of North Dakota, founded in 1919 and still operating as a state-owned bank that has paid returns to the state for decades. The menu has more than two items. It has had more than two items the whole time.
The 13,500 stranded companies need owners who don’t load the next generation with debt to pay the current one a dividend. The menu is longer than two items. Here’s what’s already on it — and it’s been on it the whole time, waiting for somebody to ask.