In 2019, when I was working what I have grudgingly come to accept may be one of the best jobs I’ll ever have, my employer, Gizmodo Media Group, was acquired by a private equity firm called Great Hill Partners.
Private equity had not shown itself to be a great friend of journalism: Alden Global Capital, another firm, had just gutted the Pulitzer Prize–winning Denver Post. Still, my colleagues and I on the company’s investigative team were cautiously optimistic about the new management, personified by our new CEO, an executive named Jim Spanfeller, who had previously run Forbes’s digital arm. Following a rough few years, an infusion of cash seemed like it could be a good thing. Our soft skepticism, it turns out, was disastrously naïve.
Within days of the sale, both of my editors had been fired by people who did not appear to know they had direct reports, leaving my team to collect paychecks without any actual work to do—a particularly comical hit, given the firm’s alleged goal to eradicate waste. Out of a sense of duty, most of us assigned ourselves to other sites within the company. But the new management insisted we replace much of our reporting with slideshows to artificially inflate our audience. Invasive, auto-playing ads became such a problem that we fielded constant complaints from our readers. Our product and sales teams disappeared. People routinely left meetings frazzled and burdened by bizarre mandates with little data to back them up.
I stuck it out for a while; I truly adored my job reporting alongside people who alternately delighted and intimidated me, journalists I had admired for years. I finally made the decision to quit when management rewrote a sensitive story, entirely fabricating key details, and tried to pass the work off as my own. It wasn’t just that the company was being run poorly, or that Great Hill was trying to squeeze every last penny out of our labor. It was that the people in charge seemed actively hostile to our attempts to do good, ethical, even profitable work. No one is going to visit a website they can’t trust or even use. I’m not a businessman, but a libel lawsuit seems bad for the bottom line. And there was something almost hallucinatory about working under people with such a vague grasp of our corner of the industry, who were so deeply incurious about the work that went into the brands they were allegedly trying to save.
Meanwhile, across the office, the journalist Megan Greenwell was struggling with a much higher-profile version of this conundrum. As was extensively reported in the New York media press, Greenwell, then the editor in chief of the anarchic and beloved sports site Deadspin, publicly resigned four months after Great Hill purchased our company. “The tragedy of digital media isn’t that it’s run by ruthless, profiteering guys in ill-fitting suits,” she wrote in an eviscerating blog post announcing her departure. “It’s that the people posing as experts know less about how to make money than their employees, to whom they won’t listen.”
Greenwell’s entire staff followed her lead shortly after, mass quitting largely in protest of a mandate to abandon higher-traffic stories about politics and internet oddities (and irreverent classics like “my enemies in nature, ranked”) to focus entirely on sports. In the years since, the Deadspin story has become something of a parable about media and private equity and the ultimate value of those guys in the ill-fitting suits.
Following the resignation, a number of former Deadspin writers launched Defector, a worker-owned publication that claimed 40,000 paid subscribers as of last year. And, as Greenwell writes in Bad Company, her wide-ranging account of private equity’s impact on American life, over a period of less than five years, Great Hill executives ran Deadspin so far into the ground that it “draws slightly less traffic than a Pennsylvania dog breeder called greenfieldpuppies.com.” Last spring, the remaining writers were laid off and the brand sold to a Maltese company with plans to feature “gambling content” on the site. Almost all of the 12 websites that Great Hill originally purchased have been auctioned off in severely depleted states. This July, Spanfeller announced that G/O Media (as the collection of sites was rebranded) was “working towards a full wind down,” noting “we will exit having increased shareholder value.”
Years later, I still acutely remember the shock of watching a few guys armed with little more than inspirational quotes turn a functional if imperfect company into a series of spammy content farms. “Making it difficult to know what’s going on is exactly the point of so much about how private equity operates,” argues Greenwell in Bad Company. She follows four people in disparate industries—retail, health care, journalism, and housing—trying, as we did at Gizmodo Media, to understand why people claiming to revitalize our companies did exactly the opposite.
For people who genuinely desire functional, vibrant institutions, funds like Great Hill can represent not just a logistical but an emotional challenge. It’s not easy to watch something you depend on, and spent countless hours analyzing and agonizing over, systematically stripped for parts. Greenwell’s book seeks to answer the questions many people at the receiving end of a private equity takeover want to know: Who are these people, how did they get here, and what on Earth do they actually want?
Ostensibly, private equity firms flip underperforming private companies kind of like houses: The firms raise capital to buy “distressed assets” wholesale, take out (often massive) loans to cover a rehabilitation job, and pay their investors when the business either goes public or is sold. Greenwell locates the origin of these leveraged buyout arrangements in the “bootstrap deals” of the 1960s, when financial firms took on companies that were successful but too small to go public. Within a decade, opportunistic executives started targeting larger companies. By the ’80s, hostile takeovers of Fortune 500 companies became common, if not exactly the norm.
Today’s private equity landscape is vast: Once you’re attuned to the industry’s hold on nearly every aspect of American life, it feels impossible to escape. My local grocery, an iconic New York institution once owned by a family that pledged to hire union-represented locals and maintain the lowest prices in the city, was sold in 2020 to a national chain after a takeover from Sterling Investment Partners. On my beat, covering the health care industry, I was regularly confronted with the realities of staffing shortages and closures stemming in part from private equity firms’ attempts to bring budgets down to cover their debt. And I saw private equity’s obsession with becoming “agile” and “lean” reflected in the way the Department of Government Efficiency has deliriously hacked away at programs it has neither the capacity nor the will to understand.
As recounted in Greenwell’s book, stories like these aren’t simply anecdotal. Private equity’s influence on the economy, and our livelihoods, is significant. Twelve million Americans, she writes, work for companies that are owned by private equity. The industry operates 8 percent of private hospitals, four out of five of the largest for-profit day care chains, and currently controls $8.2 trillion in assets—a number that accounts for more than the GDP of any country besides China and the United States. And, where 2 percent of companies go bankrupt within 10 years of their founding, that number jumps to 20 percent when private equity is involved. Between 2009 and 2019, 1.3 million Americans working in retail lost their jobs as a direct result of the industry’s touch.
Bad Company offers a few reasons why private equity firms aren’t successfully turning their “distressed assets” around, the most relevant of which is that it pays investors just as well, if not better, to run a company into the ground. (Gordon Gekko’s “Greed is good” speech from the movie Wall Street makes two separate appearances in the book, both entirely appropriate.) Decades of aggressive lobbying and cozy relationships with politicians have favored these firms, which style themselves publicly as “brash swashbucklers, eager to be the hero,” swooping in at their own risk to rescue businesses in distress.
But in practice, Greenwell argues, private equity bears vanishingly little risk. And its mandate to not just profit but maximize shareholder value has the effect of abstracting critical industries to a point where, the author writes, “a company doesn’t even need to exist at all.” If reducing the quality of service, selling off real estate, and collecting fees are more profitable than running a successful business, argues Greenwell, “liquidation is not just the best option, but indeed the only one.”
Today, when a private equity firm borrows money to “save” a company, the debt is almost always carried not by the firms that purchased a company, but by the company itself. Standard takeover deals include what’s known as a 2-and-20 clause: Funds take a 2 percent management fee of all assets under their control, as well as 20 percent of all profits above a certain threshold. This is in addition, writes Greenwell, to a range of other common payouts, including monitoring and transaction fees.
As one team of researchers found over a decade ago, as much as two-thirds of a private equity firm’s profits typically come from these kinds of management fees. Many deploy sale-leaseback arrangements to make a quick buck, selling off property and requiring acquired companies to pay rent on real estate they once owned. And then there are classic cost-saving measures like mass layoffs. “Taken together,” Greenwell writes, “it is very, very difficult for private equity to lose money.” In this context, whether a company provides anything of value beyond dividends to investors is somewhat beside the point.
Private equity’s central conceit is that financiers, not skilled workers or industry experts, are best positioned to figure out what makes any given business work. In her reporting, Greenwell makes a detailed argument for the fundamental misguidedness of this stance. Many private equity managers don’t know very much at all about the businesses they run. They’re experts in markets, not trades. So it’s no wonder they hop from industry to industry deploying the same tactics, cutting jobs and saddling companies with debt and inking extractive real estate deals. Hospitals, newspapers, rental apartments, and toy stores have wildly different business models. But to a private equity firm, they’re all the same.
Over the course of Bad Company, Greenwell follows four people whose lives have been altered by a private equity takeover. The history and policy analysis act as a scaffolding for these stories; it’s in these intimate portraits that the book truly shines. Though never stated outright, the experiences of Greenwell’s subjects act as a powerful foil to a certain kind of managerial thinking that is implicit at the heart of private equity’s pitch: that profits could only possibly matter to the people in charge of the ledgers, that employees need to be micromanaged, that businesses suffer because of a lack of commitment from the people who clock in and out every day. In other words, Greenwell managed to find a collection of characters utterly devoted to what they do.
Liz, an Alaskan mother trying to lift her family out of chronic instability, worked for the retail giant Toys “R” Us, which declared bankruptcy and axed 33,000 employees without severance when private equity–imposed debt made it impossible to keep shelves stocked. Liz loved working at Toys “R” Us so much that she got a tattoo of the company’s signature giraffe. As recounted by Greenwell, after a particularly satisfying customer service experience, a pair of new parents gave their baby her name. A physician named Roger abandoned a cushy job decades ago to practice medicine in rural Wyoming. Now in his eighties and retired, he reflects on his battle to maintain essential medical services, like maternity care, following a series of acquisitions. “You want to leave a place better than you found it,” he tells Greenwell through tears. Natalia, a Texas journalist born in Mexico, ping-ponged between private equity–owned papers, making less than $60,000 a year in Austin and maintaining significant debt to write stories that would resonate with younger, Spanish-speaking audiences. Greenwell also spent time with Loren, a parent whose private equity–backed low-income housing complex flooded, ejecting residents from their homes with no recourse. She is still handing her number out to residents of the building, helping them file complaints from afar.
These are not people who need dividends to commit. Throughout Bad Company they find creative ways to circumnavigate the constrictions placed on them by faceless billion-dollar firms. They work longer hours and organize their neighbors. They unionize and campaign. They leverage their tangible connections to their communities to combat people they’ve never met in gleaming Manhattan office towers they’ll never see. In comparison, the copy-paste labor private equity firms perform looks awfully lazy.
Intermittently, Bad Company touches on the stories the men in the suits tell one another, and the public, about their critical societal role. “The enduring myth of the lone business genius creating a Fortune 500 company, or saving one from destruction, has benefited private equity immeasurably,” Greenwell writes. She notes that giants of the finance industry like Mitt Romney are rewarded with Senate seats, and that the central branch of the New York Public Library, the MIT computing school, and Yale’s performing arts center all bear the name of Stephen Schwarzman, co-founder of Blackstone. The idea that these men are facilitating the process of free-market natural section has contributed to a lack of meaningful regulation—though the donations the private equity industry throws to politicians of both parties certainly don’t hurt.
Most memorably, Greenwell describes a Machiavelli quote that once hung in the private conference room of a senior partner at Kohlberg Kravis Roberts, the hundred-billion-dollar firm responsible for Toys “R” Us’s leveraged buyout as well as hundreds, if not thousands, of others: “There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its outcome, than to take the lead in introducing a new order of things,” it read.
But Greenwell, through her thorough accounting of four companies’ acquisitions and rapid declines, illustrates just how musty that order of things has become, or maybe has always been. Another story the private equity industry likes to tell is that its work is crucial and inevitable, because the companies it acquires suffer from a “failure to thrive” from which there is no turning back. According to this logic, the companies in which Greenwell’s subjects lived and worked were pronounced dead long before funds stepped in to profit from their distress. Toys “R” Us could never survive the shift to e-commerce. Rural hospitals had to consolidate and cut services or face extinction. Declining ad revenue killed journalism. There was simply no other path.
But, as Greenwell points out, there are successful retail operations and small hospitals and profitable publications operating in this country today. Many apartment buildings manage to house residents without flooding their apartments or turning off the heat. Extracting every ounce of shareholder value from these companies was far from inevitable—and it’s certainly much harder for an organization to adapt to changing conditions when it’s shedding workers and crippled under a mountain of debt.
Of course, it’s impossible to know how any individual company would have fared without private equity’s involvement. Greenwell detours to earlier instances of managerial ineptitude that proved fateful before new ownership stepped in. It could have been in Toys “R” Us’s foolish early deals with Amazon, or the conventional wisdom that underperforming medical centers should slash services, or newspapers’ sluggishness to embrace new models in the digital age. Those were all decisions made by highly paid executives, too. In this sense, Bad Company is a call to bring more creativity and expertise to our country’s critical institutions—to extract them from the hands of people for whom a business isn’t a dynamic entity full of actual people but instead a collection of assets and debts.