How Private Equity Consumed America

Private Equity is a great idea… in theory. Funds  take investor money, buy a bunch of fledgling  

or faltering companies, shuffle around their  structure and leadership and operating model,  

grow their worth, then sell them a few years  later for a profit. What’s wrong with that? 

For example: do you remember Yahoo? In the early  2000s, it was an icon of the early internet. It  

was consistently worth more than Amazon and  Apple combined. Its market-cap reached a high  

water mark of over $125 billion. But today, it’s  known for what it isn’t—after rejecting a $44.6  

billion purchase bid by Microsoft in 2008, a  decade of decline led to its eventual sale to  

Verizon for a humiliating $4.8 billion. Verizon  then merged the company with AOL, previously  

bought for $4.4 billion, but after the downward  trend continued Verizon finally sold the combined  

company for just $5 billion—an enormous loss. The buyer was Apollo Global Management—a behemoth  

private equity firm previously headed by Leon  Black until his $158 million in payments to  

Jeffrey Epstein emerged in the media. Through  the years, Apollo has owned and transformed  

companies like ADT, Chuck E. Cheese’s,  Qdoba, and AMC Theaters, but this time,  

they believed there was value to be had in  the beleaguered web services company, Yahoo.  

For their strategy to work, they needed  a leader, and for that they turned to  

experienced businessman Jim Lanzone. Part of  the reasoning was surely that this wouldn’t  

be the first time Lanzone attempted to turn  around a faltering internet business. He made  

a name for himself while working at Ask.com.  This company started as Ask Jeeves—an early  

and promising competitor in the search engine  space focused on natural-language processing,  

much like today’s AI-driven chatbots. Google,  of course, won that competition, so the company  

pivoted its business model to center on  questions and answers, rather than search,  

and correspondingly rebranded as Ask.com. It was  around then that Jim Lanzone was appointed CEO,  

and while always overshadowed by the company’s  fall from its promising early days, Lanzone was  

recognized as having finished his term as  CEO with the company on a firmer footing,  

and is therefore credited for its continued  survival. In the years that followed,  

Lanzone went on to lead CBS’s digital business  leading up to its massive merger with ViaCom, and  

then was briefly CEO of Tinder in 2020, so Apollo  believed he had all the experience for the job. 

This new leadership team, CEO Lanzone and investor  Apollo, started by selling off extraneous yet  

valuable assets Yahoo had acquired through the  years—they wanted to focus on the company’s core,  

rather than just acting as a collection of  random revenue-creating resources that managed  

to survive through time. So the key assets  of the comparatively strong and independently  

operated Yahoo! Japan were sold off to its other  owner, SoftBank, for $1.6 billion, then Edgecast,  

a streaming technology company that the former  owner had grouped into the Yahoo/AOL merger,  

was sold for $300 million. With just those  two sales and the $2 billion they brought in,  

Apollo was reportedly able to more-or-less  recoup what it had borrowed to finance  

the purchase of Yahoo in the first place.  The key next step was facing reality—recognizing  

that Yahoo was no longer truly a search engine,  it was no longer an internet homepage, and it  

was hardly even an email provider anymore—really,  Yahoo was simply just whatever still worked. And  

what worked was clear: Yahoo Finance and Yahoo  Sports. Through the years, each had maintained  

and gained a reputation as the best places to  go for investing and sports news and data.  

So to double-down on success, they once again  hired from experience—Ryan Spoon’s time at ESPN  

and BetMGM gave him context into the fantasy  sports audience that drives so much of Yahoo  

Sports’ traffic, so he was tapped to be that  division’s president. Tapan Bhat’s time as  

Chief Product Officer of NerdWallet informed his  experience in the wants of the newest generation  

of retail investors, so he was appointed  general manager of Yahoo Finance. Structurally,  

within Yahoo, each of these core divisions was  given a high degree of autonomy to build out  

unique product offerings for their specific  customer-bases—Yahoo Sports started work to  

bolster its sports betting offerings, including  acquiring sector-startup Wagr in 2023. Yahoo  

Finance focused on growing its subscription-based  offerings, and its Yahoo Finance Plus platform,  

offering advanced trading tools and data, is  reported to now have more than two million  

customers and double-digit year-over-year growth.  The details of what Apollo and this new leadership  

team are doing go on and on, but in short,  Yahoo has gone through a transformation marked  

by cutting off its appendages, reinforcing its  core, and it’s working—while obscured by the lack  

of reporting requirements due to its private  ownership, all indications suggest that the  

company is, while smaller, as healthy as its been  in decades, and the CEO has said that it’s on the  

path towards IPO and is “very profitable.” However Apollo exits this investment,  

it will almost certainly yield them a tremendous  return. And it’d be fair to argue they will have  

deserved it—they came in, took a risk, found  a new leadership team, developed a viable  

strategy, then shepherded the company through a  transformation. They took an obsolete institution  

and brought it back into relevancy. And this  is exactly what the private equity industry  

would like you to believe private equity is.  Structurally, private equity firms are not  

complicated. Their cores are the General  Partner. General partners typically know  

the right people—it is not an entry level  job. To take the example of a rather random,  

rather unremarkable firm, J.W. Childs Associates  was founded by general partner John W. Childs  

after a long and successful stint at Thomas  H. Lee Partners, founded by Thomas H. Lee.  

Thomas H. Lee founded his firm after a long  stint at the First National Bank of Boston,  

where he rose to the rank of Vice President.  Other examples of private equity general partners  

include Mitt Romney of Bain Capital, who was  also the 2012 Republican nominee for president,  

and Steven Schwarzman of Blackstone,  the 34th wealthiest person in the world. 

These connections are crucial thanks to step  two in the process—raising money. Typically  

general partners start by throwing in a couple  million of their own money, to set the stakes,  

then they’ll go around pitching investors on why  they’re the best person to manage the investors’  

money. Often it has something to do with having  particular experience in a particular industry  

that is particularly attractive for particular  reasons—in the case of J.W. Childs, he likely went  

around arguing that he had a particular knack for  investing in consumer food and beverage companies  

since at his prior firm he had helped arrange the  buyout of Snapple for $135 million in 1992, which  

his firm sold two years later for $1.7 billion  after massive revenue-growth. And he’d likely  

argue that food and beverage companies are great  for investment since people have to eat and drink,  

and therefore the sector is less subject to the  cycles of the market than something like tech. 

This sort of stability is particularly attractive  to the massive institutions that make up the core  

of private equity investors—in John W.  Childs’ case, insurance companies like  

Northwestern Mutual or employee pension  funds like the Bayer Corporation Master  

Trust. Individuals can theoretically invest  in PE funds, but only if they hold enormous  

wealth—it varies dramatically, but many funds  have minimum investments upwards of $25 million.  

Meanwhile, the way private equity firms themselves  make money is remarkably consistent—they just take  

two percent of it. Two percent, of all money, each  year, is taken as a fee, regardless of whether or  

not the firm actually grows the investment. But  then to incentivize returns, the firm also sets  

a benchmark, called a hurdle, that they’re aiming  to beat in year-over-year investment growth—say,  

7%. Any money earned on top of that hurdle is  then subject to a 20% fee that goes back to  

the firm. So, say, if a fund was originally worth  $100 million but grew to $110 million, $3 million  

would be subject to that performance fee and so  20% of it, $600,000, would go back to the firm. 

In practice, what’s earned from the 2% base fee  is fairly consistent, since there are generally  

restrictions as to when investors can take  money out of the fund so the sum does not  

generally fluctuate rapidly—therefore, firms  typically earmark this base fee for covering  

basic operating costs like office rent and analyst  salaries. But how much is made from the 20% fee  

varies enormously—some years it could be  nothing, others it could be yacht money,  

especially since the gains from that fee are  generally distributed primarily to the general  

partner. This is how general partners like John  W. Childs become billionaires. And even better:  

the money from these fees is not considered  traditional income by the American tax  

authorities—it’s considered capital gains.  Despite the fact that these earnings do not  

truly come from investment by the general partners  themselves, the IRS treats them as if they do and  

therefore only about 20% goes to taxes, versus  the 37% they’d pay on traditional income. 

So, considering it’s the primary source of  their wealth, the general partner is massively  

incentivized to maximize their firm’s gains, and  to supercharge this to the next level they almost  

all rely on one simple trick—they don’t actually  invest their own money, at least primarily. Now,  

if a $100 million fund bought a $100 million  company and increased its value by 25%,  

they’d gain $25 million. But, if a $100 million  fund bought a $400 million company and increased  

its value by the same multiple, they’d gain $100  million—they’d 2x the fund’s value. And believe it  

or not, a $100 million fund can buy a $400 million  company… as long as they have a friendly banker.  

This is what’s referred to as a leveraged  buyout—the fund puts in some of their money,  

but primarily relies on borrowed money to pay the  seller, just like a homebuyer with a mortgage.  

This magnifies the potential earnings, but  in turn, of course, the potential losses.  

But it’s worth considering what this does for the  General Partner. In a $100 million fund buying a  

$400 million company with 75% borrowed money,  very small margins of growth can make all the  

difference for this one individual. With a 7%  hurdle and 7.5% growth, 20% of the margin above  

7% on that $400 million company would earn  this individual $400,000 But if, instead,  

the company reached 7.75% growth, the general  partner would earn $600,000—because of this  

amplifying effect, every quarter of a percent  growth, a rather small difference, earns the  

general partner another $200,000 in income.  It’s also worth considering that it really  

doesn’t matter exactly how this value is  created. For every miraculous Yahoo-turnaround  

story there’s a Marsh Supermarkets. At no point did Marsh reach the size  

or level of national ubiquity as Yahoo—if  you aren’t from Indiana or Western Ohio,  

you’ve likely never heard of Marsh SuperMarket.  Yet, while confined to just two states, Marsh  

Supermarkets and its private equity takeover,  exemplifies a pattern that spans all fifty. 

The first Marsh opened here, a small local grocer  catering to specific local needs in Muncie,  

Indiana in 1931. The simple concept  took. Weathering the Great Depression,  

then outlasting World War II, the budding Indiana  institution began to expand: by the 1950s there  

were 16 Marsh locations across the state, by 1952  there was a Marsh distribution center in Yorktown,  

Indiana, and by 1956, the store was expanding  into Ohio. As demands changed in the ‘60s,  

the company adjusted. Marsh Foodliners became  Marsh SuperMarkets, growing in size to accommodate  

one-stop shopping. Diversifying as decades  progressed, the company also established its  

own convenience store: The Village Pantry, its own  bargain bin store: Lobill Foods, and eventually  

purchased its own upscale grocers in O’Malia  Foods and Arthur’s Fresh Market. Blanketing urban  

and suburban Indiana and western Ohio, Marsh and  Marsh properties were a mainstay through the ‘90s  

and 2000s. And it was at about this time that  Sun Capital became interested in the company.  

Today, there are zero Marsh locations. In  2017, unable to keep up with rent payments  

and struggling to pay vendors, the company  filed for chapter 7 bankruptcy, closing  

every last location and liquidating all remaining  assets. Like an empire spread too thin, Marsh had  

reached its territorial epoch before collapsing  in on itself within just two decades—all on a  

timeline that rather neatly lines up with the  brand’s time under Sun Capital’s ownership.  

Now, Sun Capital Partners didn’t instigate the  regional grocer’s fall from grace. Prior to the  

sale, Marsh had expensively failed to expand into  Chicago; it had felt the revenue squeeze from  

encroaching box stores; and it watched Krogers  parade into its grocery market. In response,  

the company began to fall behind, failing to  modernize its stores or products, backing out of  

sponsorship deals with the Indiana State Fair, and  opening itself up to the possibility of selling.  

In an atmosphere of supermarket consolidation,  though, there wasn’t much interest in the  

struggling chain… not until someone noticed in a  footnote in the company’s financial report that  

the company held a rather robust real estate  portfolio. A $325 million purchase point then  

became more palatable, and in early 2006,  Sun Capital jumped, paying $88 million in  

cash and assuming $237 million of debt.  To Sun Capital, the deal was a can’t lose  

proposition—either they’d turn around and flip  a bloated business, or they’d sell the assets,  

assets which just in real estate have been  estimated to be worth $238 to $360 million.  

Under new ownership, things changed quickly: they  pared management, they sold the company jet, and  

with the money saved, they renovated storefronts.  Sales went up. Then came more maneuvering,  

but less the kind that would help bump sales.   Almost immediately after Sun Capital took over,  

store locations went up for sale: this one  for $750,000, this one for $2.15 million,  

and this one for $1.2 million. They’d stay  operating as Marsh stores, but they’d now  

be paying a lease while Sun Capital would collect  an unspecified commission on the sales. They even  

went as far as selling the company headquarters  for a reported $28 million before then straddling  

the grocer with a 20-year lease increasing on  a 7% clip every five years. This maneuver is  

called a sale-leaseback, and it's quite common  in private equity, because at least on paper,  

it makes sense for both parties. Marsh Supermarket  properties were no exception as they could boost  

dividends or provide capital for another  leveraged buyout for Sun Capital, while also  

helping the grocer to pay down debt and provide  investment flexibility in the short term. But  

as for the consequences accompanying that long,  escalating lease on company headquarters—along  

with cost-saving moves like carrying name brand  products, cutting staff, and contracting out more  

and more services—well, Sun Capital just hoped it  wouldn’t have to deal with them. As early as 2009,  

news bubbled to the surface that they  were trying to sell the grocery chain.   

  But to the dismay of Sun Capital, the new,  leaner, streamlined Marsh just wouldn’t sell.  

Ultimately, the new-owner business boost was  short-lasted, and in 2017, the grocer would go out  

of business with Sun Capital at the helm until the  very day it filed for bankruptcy. To Sun Capital,  

failing to sell was a missed opportunity in a  company overhaul that they would deem a loss,  

as the group ultimately came $500,000  short of recouping their investment  

into the chain grocery store.  But even in a loss the private  

equity firm won. They still collected their  management fee each year of ownership,  

afterall. They also collected their commission on  sold assets as the company spun off its property  

at seemingly every turn. Really, the only  loss was that they just didn’t win more.  

The same couldn’t be said about the consumers  or employees, though. Deeply embedded in Indiana  

and Ohios’ urban areas, Marsh locations provided  healthier, fresher alternatives in areas at risk  

of fading into food deserts. Beyond nostalgia,  residents who lost their local grocery and  

pharmacy were mad, confused, and lost with the  disappearance of a longtime local institution.  

Then there were the people that worked for  Marsh. According to Washington Post reporting,  

at the onset of Sun Capital’s ownership only one  of three retirement plans was agreed to be fully  

funded by the new ownership—unsurprisingly,  the executives’ plan. As for store employees,  

their pension went underfunded by some $32  million dollars, which fell not on Sun Capital  

to even out, but to the government insurer. As for  warehouse workers, Marsh owed some $55 million at  

the time of bankruptcy to their pension which  was already struggling to pay out full checks.  

Ultimately, Marsh Supermarkets as a business  and Sun Capital as a private equity firm are  

relatively small potatoes. But their  ill-fated 11-years speak to a larger  

pattern in American life. Private equity  quietly maneuvers, takes over, reorganizes,  

and moves on while consumers and employees grapple  with the consequences. Private equity fixates on  

industries: regional grocery chains like Marsh;  casual restaurant chains like Red Lobster;  

odd-end industries like animal retail and  veterinary care; and, most unnervingly, the most  

consequential industry of them all in healthcare.  In most cases, only the sharpest-eyed consumer  

notices the subtle changes, but frequently  enough, private equity’s internal tinkering  

turns things sideways. The local market goes out  of business, the menu items track upward in price,  

the understaffed and over-priced veterinary  clinic’s care drops in quality, the elderly home’s  

staff unintentionally neglects a call for help.  All this happens in the name of efficiency gains,  

cost-cutting, and corporate streamlining—bad  outcomes not even private equity firms can deny.  

On average, headcount at public companies  bought by private equity shrinks by 12% over  

the following two years, translating to thousands  upon thousands of layoffs. PE-owned nursing homes  

see 11% higher mortality rates than the non-PE  owned counterparts, summing to a total of 1,000  

excess deaths per year. Companies acquired by  private equity firms through leveraged buyouts are  

found to be 10 times more likely to go bankrupt in  the following ten years than those that are not.  

Theories abound as to why a benign structure  leads to such malignant results. But none are  

surprising. They all have to do with what happens  when one shrinks a conglomeration of hundreds or  

thousands of people, their relations,  their creativity, their capabilities,  

their faults, their everything down to a deluge of  figures on a spreadsheet. The stories of a private  

equity firm going in, working on the human  level, changing the fundamental culture of a  

company in a way that strengthens collaboration,  creativity, innovation towards the end of just  

creating a stronger, more competitive product for  their customers are tough to come by. The stories  

of a private equity firm going in, hiking pricing  after their analysts told them they could, hiring  

lobbyists to create more favorable legislative  conditions, initiating mass layoffs for divisions  

that are not yet profitable, saddling companies  with debt in complex financial maneuvers,  

shuffling assets around to create the illusion  of transformation, sacrificing future potential  

for present-day returns—those stories, and their  calamitous human results, go on and on and on.  

Exploitation is easy without emotion. When  the person making decisions is the same  

person unlocking the door each morning, it is  much more difficult for them to profit off of  

their employees' suffering. They have to face  the consequences of their greed face-to-face,  

and that’s uncomfortable. When the person  making decisions is the boss of the vice  

president who’s senior associate manages the  associate who sits on the portfolio company  

board which appoints the CEO who’s direct report  manages the division who’s vice president manages  

the regional manager who oversees the branch  manager that unlocks the door each morning,  

exploitation in the name of profit is easier. And those small number of individuals at the top,  

the general partners, have all the incentive  in the world to exploit on the margins.  

Because of the compensation model, the industry  is focused on growth at all costs—after all,  

without gangbusters growth, the person whose name  is on the sign doesn’t get paid. And finally,  

with a massive 20% of over-hurdle performance  multiplied by leverage then paid out to the firm,  

tiny margins of difference—say, outsourcing HR  to a third-party firm that is less effective yet  

cheaper—make all the difference on the general  partner’s annual income. The incentives push  

towards brutality, then this brutality is shielded  by layers of bureaucracy, and finally the US  

government rewards the brutality by subjecting the  gains from it to a lower tax rate. It’s a great  

system, assuming you happen to be the general  partner of an American private equity firm.  

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