These Are the Plunderers: How Private Equity Runs ― and Wrecks ― America
- By Gretchen Morgenson and Joshua Rosner
- Simon & Schuster
- 400 pp.
- Reviewed by Stephen Case
- May 17, 2023
An impassioned, one-sided look at big-money behemoths.
These Are the Plunderers explores “the crucial role a very small cohort of…asshole capitalists” in the private-equity industry has played in impoverishing “millions while enriching themselves.” These “barons mine their wealth from the poor and middle class,” assert authors Gretchen Morgenson and Joshua Rosner.
“[D]on’t let the name fool you, very little about their business is equitable, just or fair,” they quip, even though they know “equity,” in this context, means “common stock of a corporation”; “private equity” refers to capital raised from pension funds, endowments, insurers, and wealthy people, which is then invested to acquire stock and take over control of businesses.
Cannonading castigation at private equity, the agreeably written Plunderers is informative and thought-provoking. A major subject of the book is private-equity firm Apollo Global Management, Inc. and its now-retired founder/CEO, Leon Black. Before Apollo, we learn, Black worked for the now-defunct Drexel brokerage firm, which had sold to California’s onetime biggest life-insurer, Executive Life, large amounts of high-yield bonds. In 1991, trading prices plummeted for these so-called junk bonds, and belly-up went Executive Life. Plunderers concentrates on the aftermath, in which some policyholders suffered losses, while others (92 percent of them, claimed one former regulator) were “made whole.”
Apollo bought from the insolvent Executive many of the same bonds Black (while still at Drexel) had previously sold to it, paying steeply lower prices than Executive had paid. In the end, Apollo and Black made beaucoup bucks from these bonds, although some dealings required new investments of risk capital. None of the profits went to Executive’s former clients. Plunderers claims that they should have.
However, one wonders, did California officials possess the legal power, personnel, skills, and funding necessary to have achieved from inside government what Apollo and Black accomplished via the private sector? Should the selling regulators have negotiated sales-price formulae that captured some of Apollo’s windfall? The book addresses these questions only briefly and superficially.
Also criticized are Apollo’s activities vis-à-vis a Noranda aluminum smelter, the luggage maker Samsonite, and Taminco Chemical. The authors further denounce the roles played by the non-Apollo private-equity companies that acquired, among others, Jazz Pharmaceuticals, ManorCare, Neiman-Marcus, Michaels, Telemundo, Toys “R” Us, Zales, and even the Bayonne, New Jersey, water system.
Converting silk-purse businesses into sow’s ears, claim the authors, encapsulates what private equity does. The cases presented here tend to presuppose, without so stating, that the companies described were, before private equity, efficiently managed, appropriately staffed, and financially okay. The authors present each selected situation as “rapacious bad-guy private-equity firm rips off sinless good-guy business,” perpetrating willy-nilly, unjustifiable layoffs while incurring excessive debt and inflicting needless pain on employees, customers, and communities.
This paradigm, no doubt, is sometimes true. (The authors report their efforts to get private-equity firms’ side of the story. Perhaps fearing a hatchet job, most refused to comment.) Nevertheless, a curiosity: If all these companies were, pre-takeover, in such good shape, why were they for sale to begin with? Were at least some of them basket cases? Overstaffed? Incompetently managed? In need of aggressive cleanup? Are there, in private equity, ever any sow’s-ear-to-silk-purse successes? On this, Plunderers is largely silent.
The book’s full title declares How Private Equity Runs ― and Wrecks ― America. Yet the authors acknowledge that private-equity-controlled companies employ only seven percent of America’s workforce and constitute a slightly lower percentage of the nation’s gross domestic product. To be sure, this is substantial, but it’s hardly large enough to run or wreck the United States.
Morgenson and Rosner further contend that private-equity firms grossly overpay their higher-ups at the expense of the little guy. (Many readers will agree.) But what percentage of private-equity wealth goes to investors rather than to these insiders? And who are the investors? If many are pension funds and charitable endowments, don’t social benefits come from the fat returns they earn? Shouldn’t those benefits outweigh — or offset — the harm done to the unfortunate businesses being scavenged? The book offers few answers to these questions.
All in all, These Are the Plunderers’ one-sided approach and shallow treatment of big-picture issues left this reviewer wishing for a more comprehensive, broader-perspective assessment of the pros and cons of private-equity firms and the many, many, many dollars they control.
Stephen Case is a member of the Independent’s board of directors and serves as its treasurer.