Strip-mining success: the march of private equity firms

Opinion

Hey there, time traveller!
This article was published 12/03/2025 (190 days ago), so information in it may no longer be current.

Pour one out for another fallen comrade. Hooters has declared bankruptcy.

Yes, I am being facetious. I have never set foot in a Hooters, nor have I had a desire to do so since I was 12 years old and vaguely beginning to understand my motivation for wanting to. But the fall of Hooters is emblematic of something that corrodes the foundation of our society, so its fate concerns us all.

No, it wasn’t DEI, as some on the right have been quick to declare, predictable as the passing of gas after a chili dinner. But the quickness to obfuscate with a goofy scapegoat such as diversity among Hooters Girls is typical when dealing with this particular culprit.

It’s becoming so cliché that I am sure some people guessed it the moment they heard of the bankruptcy. In 2019 Hooters was purchased by private equity. The death knell of many a business to come under its shadow. There’s no point in talking about Nord Bay Capital and TriArtisan Capital Investors specifically, as they are of a vulture class of supposed venture capitalists that all share the same philosophy. These firms buy up a business, suck whatever short-term gains out of it that they can, leaving a trail of shuttered storefronts and laid off workers in their wake.

The details of Hooters specifically are still being sifted through, but the wreckage is similar to what we have seen many times before. Take Red Lobster, for example. Despite the smoke screen explanation that it was their “endless shrimp” promotion that tanked the company, a closer examination reveals damage from that folly was merely cosmetic compared to the extractive practices of ownership.

Golden Gate Capital, the private equity firm which acquired Red Lobster, sold off the franchise’s real estate holdings in a sale-leaseback for US$1.5 billion. This now put Red Lobster in the position of having to pay high rents as a part of their operating budget. Eventually, the debts started piling up, but Golden Gate had already sold off its shares, leaving a burden impossible for the business to bear in their wake as they skipped off to count their quick profits.

Compared to the reported US$11 million lost on the endless-shrimp promotion, it seems clear where the real damage was done.

This practice of acquiring a business and profiting off the process of saddling it with debt, essentially an act of plunder, has become increasingly common in the private equity sphere. And it goes well beyond the world of chain restaurants.

The collapse of Sears was largely blamed on the company not being able to keep up with the times. Less talked about is how hedge fund operator Edward Lampert made a killing by selling the business off piece by piece while also loading it with debt, a process that in our perverse financial system can pump up the stock price while resulting in thousands of lost jobs.

Other retailers such as Toys “R” Us have similar stories, but we should end on the most harrowing sector impacted. One we should take heed of in Canada as more of our health care becomes privatized. Because private equity is not above pillaging the health-care sector, where they have a record of cutting wages to health-care staff, shortening the length of appointments and committing downright fraud.

A recent study out of the BMJ medical journal found that private equity acquisitions in every health-care setting “were most closely associated with up to a 32 per cent increase in costs for payers and patients” and also “associated with mixed to harmful effects on care quality.”

Private equity firms have also settled judgments of over US$600 million dollars on claims of fraud between 2013 and 2022, a trend that seems to be increasing rather than subdued by such fines.

This insidious extractive philosophy has infected every aspect of the U.S. health-care system, from the sale of medical supplies right on up to long term care. A 2024 report from the Center For Economic and Policy Research has determined that the Medicare payment system for hospice care has created an incentive for private equity to both legally and illegally game the system. So it should come as no surprise that hospice fraud is on the rise in correlation with private equity buying up more long term care facilities.

You don’t have to worry about grandma getting scammed over the phone anymore — you can leave her directly in the scammer’s care!

This is the sort of innovation we get in our contemporary capitalist landscape, where endless shareholder growth cannot be interrupted even if one is void of ideas to grow a healthy company. So instead it simply devours itself. And far too many of us seem ready to vote for leaders who want to give even more free rein to this ouroboros.

I am as loathe as anyone to defend the current state of things. Our society is in desperate need of a revolutionary overhaul. But the hierarchy will not be subverted by destroying the few barriers we have for extractive capitalists. It will only exacerbate the problems we already suffer.

What we need are policies that put a stop to this sector, which if left unchecked will continue to cannibalize our economy.

Alex Passey is a Winnipeg author.