Private equity. Nobody can sell.
34,000 companies have an owner that cannot sell them. When the owner never leaves, a business stops being something you grow and becomes something you collect from.
THE GIST ON PRIVATE EQUITY: "No Way Out"
Which companies can nobody sell?
There are 34,000 companies that nobody can sell. Shops, clinics, factories, and probably where you work. They all have the same owner, private equity, and its ownership has doubled in the last decade, because it isn't a loss unless you sell.
What was private equity meant to do?
Private equity buys companies, a lot of the time with borrowed money. We've done Gists on a lot of them: Pret, Asda, David Lloyd. It buys them, cuts the cost, and sells them on a couple of years later for a profit. That's the plan, anyway.
They were never meant to run those businesses. They were holding them until the next buyer turned up.
Why aren't they selling?
Most of the businesses currently in private equity ownership were bought when borrowing money was nearly free and everyone paid over the odds. Now rates have gone up and no one is willing to pay the 2021 price, so they don't sell.
The day you sell is the day you find out what it's actually worth, and so do the people who gave you the money. The big money only arrives when they sell, and there's no profit until somebody buys.
What is the workaround?
They set up a new fund called a continuation vehicle, and that fund buys the company off the old one. Same set-up, the old investors get some cash, the clock resets and the fees carry on. Last year, that was a fifth of every company they sold. Nothing really changes hands, and they don't need it to.
An owner that never sells is basically just a landlord. A business stops being something you grow and becomes something you collect from, which is already happening in houses. Nobody sells, no one gets in, and the rest of us pay to live in them. Now it's happening to the places we work. You rent where you sleep and you rent where you earn.
Is it fair for private equity to own so much?
Your take. One tap, then see how everyone else voted.
Quick answers
How many companies are stuck with private equity owners?
34,000 companies that nobody can sell, and private equity ownership has doubled in the last decade.
What is a continuation vehicle?
A new fund that buys a company off the old fund. The old investors get some cash, the clock resets and the fees carry on.
How common is it?
Last year, continuation vehicles accounted for a fifth of every company sold.
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