Plain English
What is private equity?
Private equity is a way of owning companies. It isn't automatically good or bad, but it impacts who is in charge and what they're optimizing for — which can reach all the way down to you as a customer.
The basics
A private-equity (PE) firm buys companies using pooled funds from investors, including pension funds, university endowments, insurers, and wealthy individuals. Sometimes a PE firm buys a business that is already private, and sometimes it takes a public company private. These deals are often financed partly with borrowed money, with much of that debt placed onto the acquired company itself.
The firm then aims to increase the company's value over a holding period of roughly three to seven years. Then, they sell it to another company, another investor, or back onto the stock market through an IPO. The profits from the sale benefit the fund's investors and the firm itself.
Not the same as…
Venture capital usually buys minority stakes in young, fast-growing startups. PE typically buys control of established companies.
Being publicly traded means shares trade openly and ownership is spread across many holders. A PE-owned business is usually controlled by the fund, though a company can be publicly listed and still controlled by its PE sponsors. (Petco is just one example of this.)
Why you might care
Because the return depends on raising a company's value within a few years, PE ownership can change how a business is run. Critics and some researchers point to cost-cutting, higher or new fees, thinner staffing, the sale of owned real estate, and the strain of acquisition debt. Studies in sectors such as healthcare, nursing homes, and veterinary care have linked some buyouts to higher prices or worse measured outcomes.
At the same time, private equity is a large, normal part of the economy. It supplies capital and management to companies that need turning around, funds growth, and its returns flow to the pension and retirement funds that millions of ordinary people rely on. Plenty of PE-owned businesses are run well. Ownership alone doesn't determine quality; outcomes vary widely by firm, sector, and strategy.
The bottom line
This site doesn't tell you to avoid private-equity-owned businesses. It tells you which ones are, with verifiable evidence, so the choice is informed and yours.
Further reading: Private equity (Wikipedia). This page is general information, not financial advice.
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