- Private equity firms have helped usher in a new gilded age with executives earning astronomical sums.

But today's guest focuses on the other end of the spectrum, the people and the communities most hurt by the practices of those firms and the decisions they make.

She's Megan Greenwell, this week on "Story in the Public Square."

(bright music) (bright music continues) Hello, and welcome to the "Story in the Public Square," where storytelling meets public affairs.

I'm Jim Ludes from the Pell Center at Salve Regina University.

- And I'm G. Wayne Miller, also with Salve's Pell Center.

- And our guest this week is Megan Greenwell, a journalist whose new book is "Bad Company: Private Equity and the Death of the American Dream."

She's joining us today from Washington, DC.

Megan, thank you so much for being with us.

- Oh, thank you so much for having me.

- You know, I was telling you how impressed I was with this book.

The research that you put into it, the story that you tell is sobering, to put it mildly.

Do you wanna give us a quick overview of the book?

- Sure, so the book is a work of narrative nonfiction.

I'm a journalist, and I really got interested in how private equity works and why, but I knew I didn't wanna write sort of a broad, sweeping overview.

I didn't think anybody was really in the market for a primer on the private equity industry.

But the kind of journalism I love most is big narrative storytelling with human faces attached.

And so essentially, I found four people whose lives were upended after private equity acquired either their employer or their landlord.

I embedded with those people for a couple of years in each cases, and just told the story of how the private equity industry is affecting workers and communities through these four people, representing the retail, healthcare, media, and housing industries.

- So we are gonna get into some of those specific cases in just a second.

And I know you didn't wanna write a primer, but I learned so much about the way private equity operates and how leverage deals actually impact the businesses that they're acquiring.

So for the benefit of those who haven't had a chance to read this book yet, do you just wanna sketch, you know, the way debt is a factor in these things and, frankly, what they do with the real estate holdings that these companies come to the relationship with?

- Yeah, so private equity deals are called leveraged buyouts.

And the leverage in a leveraged buyout is bank loans.

So essentially, what private equity does is they pool together money from outside investors.

That can be public pension funds, university endowments, ultra-wealthy individuals, sovereign wealth funds, all of those.

And they use that money combined with bank loans to buy companies.

The bank loans make up 70 to 80% of any given private equity deal.

But the real trick is that when a private equity firm makes the decision to take out those bank loans, which can total into the billions of dollars, they're not responsible for paying that money back.

Only the portfolio company they're acquiring is legally responsible for the debt.

So the result is the private equity firm takes on essentially no risk to acquire these companies, which then means they don't suffer the consequences if those companies go under.

Only the companies, the workers, and the communities that rely on these institutions are the ones who pay the price.

- So if you're a profitable company, and you're bought by a private equity firm, you're likely going to be saddled with not just having to make a profit operating your business, but also now you've got this additional debt that you've gotta pay off.

But there's also the sale and leaseback dynamic on the real estate portion of it.

Could you explain that as well?

- Yes, so this is one of many tactics that private equity firms use to make money, some of which actually undermine their own portfolio companies.

So a sale leaseback agreement essentially means that the private equity firm in charge sells off the real estate that their portfolio company owns.

Obviously, the private equity firm pockets the profits from those real estate sales.

And then they work out a sweetheart deal with whoever they've sold the real estate to, such that the firm takes a cut when the portfolio company pays rent.

So you end up with a situation where the company is paying rent on the exact same land it used to own.

And the private equity company is profiting not just by selling the land but also by taking a cut of those rent payments.

So their fortunes are actually completely split.

The private equity firm is lining its own pockets by undermining its own portfolio company.

- Wow, so you profile newspapers, retail, healthcare, and housing, and done brilliantly, I might say.

Are any industries exempt from private equity beyond the four that you get into here?

- No.

- Oh.

(laughs) - And I could have chosen so many.

- I was expecting that, but wow.

Go ahead.

I'm sorry, go ahead.

- Yeah, I could have chosen so many other industries, and I considered so many other industries.

I picked these because they felt representative of what's going on, you know, with larger trends in the industry.

Interestingly, my book starts with retail, telling the story of Toys "R" Us, which at this point is maybe the most famous private equity-fueled liquidation in US history.

But these days, private equity is actually mostly out on retail, because retail doesn't feel like a fashionable industry anymore.

So it's not that they're exempt.

It's that private equity has sort of moved on.

And I go from retail into healthcare in the book.

And what was really interesting to me was private equity got interested in healthcare a little later, after the peak of their interest in retail.

And you can see them apply the exact same tactics that they perfected in retail then in healthcare.

So sale leaseback agreements, for example, were a huge part of the Toys "R" Us deal, many other retail deals.

Then they start acquiring hospitals and consolidating them into big chains of hospitals.

And they're using sale leaseback agreements there, too.

And what I really learned was that it doesn't matter whether it's a big-box store or a hospital or anything else.

These are just widgets, the entire purpose of which is to make money for the private equity firm.

- So we're familiar with the hospital part of the story here in Rhode Island, and nationally, I've read a whole lot about it as well.

And it's really, it's a burden, I guess, is maybe a mild way of putting it.

So let's talk about some of the cases you write about.

One of them is near and dear to me, and that's newspapers.

I come from a newspaper background.

I'm still a journalist.

What made newspapers attractive to private equity?

- This was a really interesting question to me because I came up in the newspaper industry around the same time that private equity was getting really involved there.

And the conventional wisdom was local newspapers are doomed.

So then the question is, why would private equity have any interest if they're just going down the toilet?

And as I started to poke into SEC filings and court filings and academic studies and all of that, what I realized was, in the early 2010s, a lot of local newspapers were still making 15 or even 20% profit margins.

So these corporate overlords wanted to push the message that local newspapers were doomed, but really, they were just upset that they were making 15 or 20% profit margins instead of 25 or 30% profit margins.

So there was still a lot of money to be squeezed out of that fruit.

And that's exactly what happened was that the private equity firms came in, stripped them for parts, laid off all of the journalists, and increased the amount of profit they were taking that way.

But that only worked because the local business, the local news business model was still pretty functional at that time.

And the reason it's not now has a lot to do with private equity, you know, coming in and strip-mining.

- So today, we're left with many news deserts.

Many newspapers that are still being published have been gutted.

Many of them don't even have physical newsrooms or physical places to go.

What impact has that had on community news and the long-time service that community newspapers gave to communities?

- So there are a lot of communities that are now news deserts, that don't have a newspaper at all.

And there are a lot of other ones that have what a media scholar termed ghost newspapers, which means that the newspaper still exists, and you can still have a paid subscription to it, but there is not a single local reporter reporting news.

It is all syndicated from other places.

And so, you know, and then even in some of the biggest cities in the country, in Austin, Texas, for example, the newspaper there owned by Gannett went from several hundred employees to a couple of dozen.

So they really are, you know, I don't think strip-mining is too strong a word.

And the results are, people can't learn basic information about the place where they live.

And journalists, I think, like to think of our role in sort of romantic terms, you know, just thinking it's so important for people to have this information.

We're the fourth estate, all of that.

And I think all of that is true.

But when you start digging into the data, you learn that there are really specific tangible effects of losing news coverage.

So the rate of business and political corruption goes up in a statistically measurable way when a newspaper is lost.

The tax rate even goes up because the bond ratings go down because there's less scrutiny on government.

And so you as a taxpayer may very well end up paying more in taxes just because private equity has bought your local newspaper.

But of course, private equity is an industry that is secretive by design.

So you don't understand that's why your tax bill has gone up.

And I think it is on journalists to be a little more specific about their messaging around why people actually need local news.

- And this has also affected democracy at every level, at the local, the regional, the state, and the federal level.

Can you talk a little bit about that?

I mean, this is really one of the horrible, horrible consequences.

- Yeah, absolutely, so in addition to the statistics on government corruption increasing, there are statistics that show that people feel less connected to their community when a newspaper goes out of business or gets cut back drastically.

Political polarization increases dramatically.

Even fewer people run for office.

So you'll see more unposed candidates running for office.

And that results in, you know, fewer people questioning them, because there aren't anybody to vote for.

Then voting rates go down.

So the ripple effects of losing a local news outlet in your community are really, really deep.

And the tentacles really stretch in all directions.

- Yeah, so Megan, it's not just newspapers.

You also talk and write very evocatively about what's happening in the healthcare industry as well, where private equity firms are taking over hospital systems, taking over service providers.

Would you walk us through a little bit of what you saw in your reporting, and in particular, some of the people that you came into contact with in the course of doing that reporting?

- Of course.

So I focused on rural hospitals.

Because if a rural hospital loses all its services, there may be nowhere for 20, 30, 40 miles to get those services.

And I ended up featuring a hospital in rural Wyoming, a town called Riverton, and primarily profiling a doctor who's now 85 or 86, named Roger Gose, who grew up in suburban Texas but moved to rural Wyoming because he really wanted to be a rural community doctor.

And he devoted his entire working life to this community.

And then at the end of his career, the hospital was purchased by Apollo Global Management, the giant private equity firm.

And he just started seeing this hospital to which he had devoted his life absolutely devastated.

So the hospital lost its ability to deliver babies, for example.

They entirely cut the obstetrics ward.

And the nearest place to deliver a baby after that was not only 28 miles away, it was through a windswept canyon.

I have driven that road, called Wyoming Highway 789, and it is pretty treacherous in the best of circumstances, let alone in a Wyoming winter.

Roger's next door neighbor was due to deliver a baby, was just unlucky enough that she was trying to have a baby in the winter.

And she ended up driving to a further hospital, 40 or 50 miles away, to deliver her baby.

Had the slightest thing gone wrong, she would've been on a medevac helicopter, and she would've been billed for that.

And so the residents of Riverton, Wyoming, led by Roger and some other just incredibly inspiring people, a banker, a local business owner, a high school football star who had come back after years away, they all banded together and said, "Look, we're not going to take this.

We're going to stand up for our community."

And without giving away the end of that story, because I think it's dramatic and interesting, you know, they achieved some pretty remarkable results there.

- You know, I'm curious, there's so much wrong with healthcare in the United States right now, and we have concerns about quality of care.

We also have real concerns about the cost of care.

Are those two factors impacted by the presence and prevalence of private equity firms in the healthcare industry?

- Definitely, so there are studies that show conclusively that the price of healthcare rises when private equity buys your hospital, your doctor's practice, whatever it is.

So it's indisputable that we are paying more when private equity buys our hospitals.

And if you're a viewer, and you're interested in knowing whether your local hospital is owned by private equity, there's a group called the Private Equity Stakeholder Project that has a really great hospital tracker where you can look up any hospital in the country.

I really recommend that resource.

And then in terms of the quality of care, yes, there are papers that show that the quality of care does diminish after a private equity acquisition.

There was a landmark study at the end of 2023 by a team of researchers from Harvard and the University of Chicago that showed that the rate of preventable medical complications, so these are things that really should never happen in a hospital in a developed world, because they result from poor training, poor staffing, you know, something like that, the rate increases in a statistically significant way after a private equity acquisition.

Because what happens is they cut every cost they can.

So the number of employees at a hospital goes down.

The prices go up.

Training goes down.

And so now we're paying more for worse care.

- It's impossible to read this book without thinking about the way popular culture has portrayed private equity firms.

And so I'm thinking about Michael Douglas as Gordon Gekko in "Wall Street."

I'm thinking about Richard Gere as Edward Lewis in "Pretty Woman."

What does popular culture get right, and what do they get wrong about private equity?

That's a big, broad question we could drive a bus through, right?

- I think what they get right is that for every private equity person I've talked to, and I've talked to many, although most of them off the record, that sort of, like, thrill of the conquest is really where it's at for them.

They, of course, want to get rich, but they love... It's almost, they're skydivers or some other kind of adrenaline junkie, right?

They want to make the big deal.

And so, you know, I think about those scenes in "Wall Street" where Charlie Sheen and Michael Douglas are like, so riled up about the idea of completing this deal or so riled up by the idea of laying off all these people because that's gonna make more money for them.

That feels very familiar to me.

I think what they get wrong is, you know, they just don't focus on the rest of us.

All of those movies are about the private equity executives.

And even in "Wall Street," where you do see Charlie Sheen's character arguing with his dad about like, you know, "Is this going to devastate my company?"

kind of thing, Charlie Sheen's character's ultimately sympathetic in that movie, right?

He's under the spell of the big bad Michael Douglas, but he's really not much less ruthless.

And so you never really see, even in that movie, more than a glimpse at sort of, well, how about everybody else?

- So it was a big revelation to me, and I'm sure other people who have read the book or will read the book, and we highly recommend that they do, that housing is something that private equity is deeply involved in.

I had no clue.

Can you break that down for us?

- Housing these days is one of the biggest areas of investment for private equity for a couple of reasons.

After the 2008 financial crash, real estate became really cheap, and interest rates were really low.

And so it was a great time, if you had a ton of money at your disposal, to just swallow up as much real estate as possible.

And you can get... Private equity firms can get low-interest loans from Fannie Mae and Freddie Mac.

Those are loans that are intended for normal home buyers, right, often first-time home buyers.

The idea is making home ownership more accessible.

But there's nothing specifically in the charter of those organizations that prevents a big financial firm from getting in on those loans, and they have in huge numbers.

So at this point, private equity owns huge swaths of the mobile home industry.

Mobile homes are the last bastion of unsubsidized affordable housing in this country.

They own many, many, many large apartment complexes in, you know, cities across the country.

I wrote about one in Alexandria, Virginia, just outside of DC, 2,300 units, a lot of them occupied by recent African immigrants and refugees, so people without a lot of structural power.

And they were just seeing their services get cut, their rent go up, just terrible treatment.

The buildings were falling apart.

And they didn't really have anything to do about it.

And then also, private equity is big in single-family homes now.

So in certain areas of the country, they'll swallow up, you know, hundreds, if not thousands of single-family homes and then rent them back to people who have been priced out of buying their own home.

And so, at this point, private equity can really get you from all sides when it comes to housing.

- You know, so it's impossible to read this and not have a sense of injustice and sort of wonder like, how is this all possible?

But one of the things that becomes clear in the final third of the book is that there are ways to fight back, and that a lot of it relies on people becoming civically engaged and banding together to take a variety of different actions.

Practically speaking, what does that mean, and why isn't this more of a issue that politicians have grabbed onto to try to do something about?

- Politicians really have very little incentive to try to do something about this, because at the federal level, 88% of members of the House and Senate receive donations from the private equity industry.

So Elizabeth Warren of Massachusetts has proposed what she calls the Stop Wall Street Looting bill, over and over and over again, and it never comes anywhere close to getting out of committee, because all of her colleagues are taking private equity money.

That is really disheartening.

And I think there are reasons for hope.

You know, I'm not an activist.

I did not want to end this book with a list of policy prescriptions.

But I did want to write about some of the interesting things people are doing to fight back against this system.

And those range from lobbying for legislation, speaking in front of pension fund boards, because pension funds are among the biggest investors in private equity, and many workers have stood in front of those boards and said, "You have an ethical obligation to stop investing in one or another private equity firm until they commit to treating workers better."

It can also look like reinventing industries from the ground up, right?

We were talking about media, and media had structural issues that far predated private equity coming in.

And so in that case, a lot of the work that has to be done is finding new models.

And I've been really excited by the wave of local news nonprofit startups that are well funded, that are insulated from corporate responsibility to shareholders.

And a lot of them are doing really well, winning Pulitzers, becoming financially sustainable, all of that.

And so I came away from this reporting process thinking there is no one silver bullet to this problem.

Elizabeth Warren's bill would fundamentally rework the way private equity operates, but even that wouldn't fix everything, and that's not likely to pass anytime soon anyway.

But a sort of piecemeal approach, you know, working on the business models, working on the pension funds, working for legislation on the state and local level, working to create more justice in housing, which a lot of nonprofit organizations are doing, there are all sorts of interesting ways of approaching this problem.

- You know, Megan, you mentioned the four protagonists that you profile are Liz, Roger, Natalia, and Loren.

You told me that you had interviewed more than 300 people and considered 150 different protagonists.

How did you settle on these four?

We got about 45 seconds left here.

- These four are just incredible characters.

I think readers will really want to read about them because they have amazing stories to tell.

And I really hand-selected these folks because they're the kind of people who will just tell the entire story.

And I did spend a lot of time with them.

And I really think readers will be captivated by what they went through and what they have to say about it.

- Really quick, have you gotten any kind of reaction from private equity folks since publication?

- Only from lower-level private equity workers who secretly agree with me.

I've not heard any anger yet from private equity executives.

- Interesting, interesting, well, the book is "Bad Company," Megan Greenwell.

It's an important read.

Thank you so much for sharing it with us today.

That is all the time we have this week.

But if you wanna know more about "Story in the Public Square," you can find us on social media or visit salve.edu/pellcenter, where you can always catch up on previous episodes.

He's Wayne, I'm Jim, asking you to join us again next time for more "Story in the Public Square."

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