Podcast Summary: Ep. 380 Private Equity Wins, The Community Loses Out with Megan Greenwell

Introduction

In Episode 380 of The Stacks, host Tracy Thomas engages in an illuminating conversation with journalist and editor Megan Greenwell, author of the compelling new book, Bad Company: Private Equity and the Death of the American Dream. Released on July 16, 2025, this episode delves deep into the opaque world of private equity, unraveling its intricate mechanisms and highlighting its profound impact on various industries and communities.

Understanding Private Equity

Megan Greenwell opens the discussion by demystifying private equity for the listeners. Addressing the concept in simple terms, she explains:

"Private equity is a system of financing where they pool money from outside investors... and use it to buy companies. So unlike venture capital, this is buying companies outright." (06:06)

Greenwell contrasts private equity with venture capital, emphasizing that private equity involves the acquisition of entire companies, often leveraged with significant debt:

"The loans make up about 70 to 80% of the average deal, and the private equity firm is not responsible for paying those loans back. Only the portfolio company is responsible." (06:12)

This structure creates a split in incentives between the private equity firm and the acquired company, setting the stage for potential conflicts and negative outcomes.

Impact on Industries

The conversation transitions to specific industries affected by private equity, with Toys R Us serving as a prominent case study. Greenwell elucidates the detrimental effects of sale-leaseback agreements:

"If you sell all of those hospitals, you pocket the proceeds as the private equity firm, and then you start charging rent to the portfolio company... you're doing pretty well while literally weakening the company that you've acquired." (07:34)

Tracy Thomas further probes into the Toys R Us example, highlighting how private equity firms impose new financial burdens:

"They sell the buildings or sell the land on which the stores sit, and then make Toys R Us pay rent for something they already owned outright." (09:21)

This maneuver not only adds significant expenses but also destabilizes the companies, making them more susceptible to failure.

Financial Mechanisms: The 2 and 20 Model

A critical component of private equity's profitability is the infamous "2 and 20" fee structure. Greenwell breaks it down succinctly:

"The 20 is the private equity firm just automatically gets 20% of any profits over a certain threshold... The two is the private equity firm gets 2% of the total value of the deal every single year as a management fee, regardless of how the company is actually doing." (10:21)

This model incentivizes private equity firms to pursue larger and more lucrative deals, often at the expense of the acquired companies' long-term health.

Ethical Private Equity?

Addressing the ethical dimensions of private equity, Greenwell expresses skepticism about the existence of genuinely ethical firms. She references Pete Stavros of KKR, who attempts to mitigate negative impacts through initiatives like Ownership Works:

"They have sought to establish themselves and KKR as like the good private equity guys... workers at that company will get a small ownership stake in the company." (36:24)

However, Greenwell remains critical, pointing out that despite these efforts, the overarching system remains fundamentally flawed:

"The system is so broken that even if it works in individual cases, we still have like this fundamental problem that needs to be addressed." (37:26)

Megan Greenwell's Writing Journey

Greenwell shares her personal journey in authoring Bad Company, revealing the challenges of securing willing participants and the depth of research involved. She recounts a particularly difficult experience attempting to engage a subject for her housing section:

"I booked a plane ticket... and I get into my hotel... She is not there. I've never heard from her again... I was like, oh, no, this book isn't. I'm gonna have to return my book advance." (48:56)

This anecdote underscores the complexities and emotional toll of investigative journalism focused on exposing systemic issues.

Choosing Industries and Characters

The selection of industries—retail, hospitals, journalism, and real estate—was intentional, aiming to demonstrate the pervasive influence of private equity across varied sectors. Greenwell highlights the interconnectedness:

"You can see the playbook for modern private equity deals gets set in retail and then applied to industries like hospitals, as if those are the same thing." (23:52)

Her meticulous process involved interviewing over 150 individuals to find subjects who could vividly illustrate the personal and communal fallout of private equity acquisitions.

Related Works and Recommendations

Greenwell recommends several narrative non-fiction works that resonate with the themes of her book, including Evicted by Matthew Desmond and The Spirit Catches You and You Fall Down by Anne Fadiman. She emphasizes the importance of using personal stories to illuminate broader systemic issues, making complex topics more accessible to readers.

Conclusion

Tracy Thomas and Megan Greenwell conclude the episode by reflecting on the significance of Bad Company as a necessary exposé of private equity's detrimental effects on American communities. Greenwell's work serves as a clarion call for greater transparency and accountability within the industry, urging readers to understand the profound consequences of financial maneuvers driven by profit over people.

Listeners are encouraged to engage with the book to gain a deeper understanding of how private equity shapes industries and affects everyday lives, reinforcing the episode's central message: while private equity firms may thrive, the communities they touch often pay a steep price.

Notable Quotes with Timestamps

• Understanding Private Equity

  • Megan Greenwell: “Private equity is a system of financing where they pool money from outside investors... and use it to buy companies. So unlike venture capital, this is buying companies outright.” (06:06)

• Sale-Leaseback Agreements

  • Megan Greenwell: “If you sell all of those hospitals, you pocket the proceeds as the private equity firm, and then you start charging rent to the portfolio company... you're doing pretty well while literally weakening the company that you've acquired.” (07:34)

• 2 and 20 Fee Structure

  • Megan Greenwell: “The 20 is the private equity firm just automatically gets 20% of any profits over a certain threshold... The two is the private equity firm gets 2% of the total value of the deal every single year as a management fee, regardless of how the company is actually doing.” (10:21)

• Ethical Private Equity

  • Megan Greenwell: “They have sought to establish themselves and KKR as like the good private equity guys... workers at that company will get a small ownership stake in the company.” (36:24)

• Writing Challenges

  • Megan Greenwell: “I booked a plane ticket... and I get into my hotel... She is not there. I've never heard from her again... I was like, oh, no, this book isn't. I'm gonna have to return my book advance.” (48:56)

Timestamp Guide

• 06:06: Megan explains what private equity is.
• 07:34: Discussion on sale-leaseback agreements in hospitals.
• 09:21: Tracy elaborates on the Toys R Us example.
• 10:21: Explanation of the 2 and 20 fee structure.
• 23:52: Evolution of private equity's influence from retail to hospitals.
• 36:24: Ethical private equity practices at KKR.
• 37:26: Greenwell's critique of the private equity system.
• 48:56: Greenwell shares a challenging experience while writing her book.

Note: The timestamps correspond to the interview sections for easy reference.