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Bankruptcies increased 16.8 percent in 2023. Now they are stacking up faster than bad Boeing aircraft (529 since Feb 2024). The prevailing narrative is the majority of business bankruptcies are the result of a bad economy, woke policies, or dumb decisions.
Two typical bankruptcies contradict this simplistic analysis: Red Lobster and US Logistics Solutions.
Fox News, Jim Cramer, et al. blame Red Lobster’s fall on free shrimp. The reality is the asset-rich Red Lobster was bankrupted by two companies, Golden Gate Capital and Thai Union.
In 2014 Golden Gate Capital purchased Red Lobster for $2.1 billion. GGC sold the primary Red Lobster asset, its property, to an affiliate company at a discount. Then leased that property back at an inflated rate. GGC profited from the asset sale and the inflated lease rates charged by their affiliate company.
In 2020 Thai Union purchased a 49 percent stake in the asset-depleted Red Lobster for an estimated $500 million. It then liquidated the last major asset, the vendor contracts. Thai Union fired the existing shrimp vendors, hired their own low-grade vendors at the same high price, then made Red Lobster’s endless shrimp promotion permanent.
Thai Union liquidated Red Lobster assets like Golden Gate and profited from inflated fees charged by their affiliated companies. Thai Union then made the now unsustainable Red Lobster financials public to file bankruptcy and write off the entire (estimated $500 million) purchase price.
In 2021 Ten Oaks private equity purchased US Logistics Solutions and subjected it to the same chop-n-pop bankruptcy scheme. In the first four months of 2024, 34 private equity companies filed for bankruptcy. That’s 16 percent of bankruptcies for that period and about equal to the combined two-year total for 2021 and 2022.
In 2023, there were a record breaking 103 private equity bankruptcies which was their largest share since 2010. Private equity bankruptcy rates are 10 times higher than that of standard companies. In 2023 these bankruptcies destroyed 600,000 jobs in the retail sector alone.
This is happening across the economy (health care, housing, manufacturing, etc.). It’s not from a bad economy, woke policies, or dumb decisions. These are calculated decisions, and under the current system they’re all legal.
Over 20 percent of Health Care Bankruptcies Last Year Were Linked to Private Equity
The author writes, “Over 20% of healthcare companies that filed for bankruptcy in 2023 were owned by private equity firms, according to a [report] from the Private Equity Stakeholder Project. Another wave of private equity-backed bankruptcies is likely this year, as almost all U.S. healthcare companies considered at high risk of default are backed by private equity, the nonprofit said. Private equity firms’ ‘aggressive debt-funded growth strategies’ are to blame for the bankruptcies, said Eileen O’Grady, healthcare director at the PESP.”
‘Capitalism on Steroids’: Private Equity and the Future of Specialty Coffee
The author writes, “The coffee industry has come a long way since the days of Folgers and Maxwell House. Specialty coffee is now big business, and the industry is awash with cash. Large companies have bought up many seminal third wave brands over the past decade, from Blue Bottle and La Colombe to Stumptown and Intelligentsia. Despite claims that they would keep their independence, the reality is that the lines are already beginning to blur.”
How Capitalism Became a Threat to Democracy
From Project Syndicate: “Since the 1980s, American capitalism has been transformed into a winner-takes-all economy in which one or a few technologically dominant firms monopolize each sector at the expense of consumers, workers, and overall growth. And with permanent market power comes the kind of political power that is antithetical to democracy.”
Private Equity Healthcare Bankruptcies Are on the Rise
From the Private Equity Stakeholder Project: “2023 was a record year for large healthcare bankruptcies, and healthcare companies owned by private equity firms accounted for some of the largest bankruptcies: KKR’s Envision Healthcare, American Securities’ Air Methods, and American Physician Partners, owned by Brown Brothers Harriman Capital Partners, all made major headlines.”
A New Study Reveals the States Where Private Equity Has the Most Influence on Housing, Health Care, Jobs and Pensions
The author writes, “Georgia and Arizona rank high for housing, New Mexico for health care, Massachusetts for jobs and Louisiana and Michigan for pension risk.”
Private Equity Is Out of Control and Looting America. This Prosecutor Says We Can Fix It.
The author writes, “In his new book, Plunder: Private Equity’s Plan To Pillage America, Brendan Ballou, a federal prosecutor who served as Special Counsel for Private Equity in the Justice Department’s Antitrust Division, outlines the dangers of a trillion-dollar industry that hardly anyone understands. He explains how Americans can fight their harmful practices.”
When Private-Equity Firms Bankrupt Their Own Companies
The author writes, “Private-equity firms buy businesses in the hopes of flipping them for a profit a few years later. The idea is simple enough. But companies bought by private-equity firms are 10 times as likely to go bankrupt as those that aren’t. The industry’s defenders claim that this is simply because private-equity firms often buy teetering companies; no wonder, then, that a disproportionate number fail. Besides, they say, no firm wants its business to go bankrupt. But what if that weren’t true? What if private-equity firms not only tolerated but profited from the bankruptcy of their companies?”
