Private Equity's Perfect Storm

Private Equity's Perfect Storm: How Leveraged Buyouts and E-Commerce Are Dismantling American Retail

Record bankruptcies expose financial engineering's toll on iconic brands as digital disruption accelerates industry upheaval

Wall Street Journal Investigation

The headlines blame millennials for "killing" everything from casual dining chains to department stores, but a deeper analysis reveals a more complex culprit: private equity firms whose aggressive financial engineering is systematically dismantling American retail while e-commerce disruption accelerates the industry's transformation.

Private equity-backed companies filed a record 110 bankruptcies in 2024, representing nearly 16% of all U.S. corporate filings and the highest annual count since tracking began in 2010, according to S&P Global Market Intelligence. More striking, these firms were behind 65% of billion-dollar bankruptcies in the first half of 2024, directly resulting in at least 65,850 layoffs nationwide.

The carnage extends far beyond the headlines. Private equity firms were involved in 56% of large corporate bankruptcies (those with liabilities exceeding $500 million) in 2024, despite representing just 6.5% of the U.S. economy according to industry lobbying groups.

The Leveraged Buyout Machine

The mechanics are straightforward but devastating. Private equity firms acquire companies using predominantly borrowed money—often 70% to 90% debt—then saddle the target company with that debt burden. In 2016 and 2017, equity made up less than 43% of buyout prices in private equity acquisitions, meaning the rest was funded largely with debt.

Consider the retail sector's largest private equity deals: PetSmart issued $1.9 billion in bonds and a $4.3 billion loan to fund its buyout by BC Partners. Gymboree took out $400 million in bonds and an $820 million loan when Bain Capital bought it in 2010. The debt doesn't belong to the private equity firm—it sits on the acquired company's balance sheet, creating an immediate cash flow crisis.

"These are cash-generating businesses, which is what drives a lot of the attractiveness in the retail environment," explains a PwC retail expert. But retail's competitiveness makes highly leveraged companies vulnerable when rivals invest in innovation or pricing.

The toll is evident in private equity's retail track record. Among the 20 largest private equity buyouts in retail, there's a 25% bankruptcy rate, including household names like Claire's, Mattress Firm and Toys R Us. Meanwhile, Neiman Marcus is reportedly in talks with its creditors in an effort to stay out of Chapter 11 as debt maturities loom, and PetSmart is said to have hired advisers to advise on its massive debt load.

The Extraction Strategy

Private equity's business model incentivizes short-term profit extraction over long-term sustainability. Under private equity ownership, companies commonly engage in sale-leaseback transactions—selling real estate assets and immediately leasing them back. While this strategy can generate short-term liquidity, it often undermines long-term stability and profitability.

The strategy worked devastatingly at Toys R Us. Before bankruptcy, private equity owners made sure to pay themselves big management fees and bonuses, laughing all the way to the bank as 33,000 Toys R Us employees got laid off. The firms faced no financial responsibility because when private equity firms take out loans to buy businesses, those loans are under the names of the businesses themselves, not the firms.

Recent examples abound. Joann, the fabric and craft store, filed for bankruptcy twice—first in March 2024, then again in January 2025, announcing closure and liquidation with 19,000 employee layoffs. The company was owned by Leonard Green and Partners throughout its decline.

E-Commerce Acceleration

While private equity weakens retail companies from within, e-commerce disruption attacks from without. Online shopping sales reached a record $41.1 billion this holiday season, with 76% of American shoppers planning to buy at least half of their gifts online. The retail sector is projected to shrink by 0.2% annually over the next decade as in-store sales continue to decline and e-commerce expands.

The shift creates a perfect storm for debt-laden retailers. Retail store closures are projected to reach 15,000 in 2025, with private equity-owned companies disproportionately affected. Global retail ecommerce sales surpassed $4.1 trillion in 2024 and are projected to exceed $6.4 trillion by 2029, while traditional retailers struggle under debt burdens that prevent necessary digital investments.

"Retail is more complex than other industries," explains Nick Egelanian, president of retail real estate services firm SiteWorks. "You have to be good at picking merchandise, be good in how you buy it, be good at finance, be good at capital markets. You have to be good at real estate... I happen to think private equity is not really a great vehicle for retail. It tends to drop retailers off a cliff."

The Restaurant Sector Collapse

The restaurant industry exemplifies private equity's destructive impact. In 2024, 21 restaurant and bar chains filed for bankruptcy. Ten of those had been backed by private equity, including casual dining giants Red Lobster and TGI Fridays.

Private equity has expanded its influence on the bar and restaurant industry, investing $94.5 billion between 2014 and 2024. The firms employ familiar tactics: leveraged buyouts where companies must repay acquisition debt, and sale-leaseback arrangements that extract real estate value while burdening operations with rent obligations.

StarKist tuna, whose executive claimed millennials are "too lazy to open a can of tuna," exemplifies the broader pattern. StarKist is owned by a private equity firm called Lion Capital since 2002. The company's struggles aren't about millennial preferences—they're about financial engineering that prioritizes debt service over product quality and innovation.

Manufacturing's Similar Fate

The destruction extends beyond retail into manufacturing. Instant Brands, acquired by Cornell Capital for $600 million in 2019, faced creditor lawsuits over a $345 million dividend recapitalization they claim left the company insolvent. Cornell Capital called the allegations "baseless attacks," but the company still filed for bankruptcy.

At today's interest rates, cash interest, taxes and maintenance capex estimates for many companies could consume nearly 100% of EBITDA. Higher interest rates are exposing the fundamental weakness of the leveraged buyout model, where nearly $270 billion of leveraged loans carry weak credit profiles and are potentially at risk of default.

The Growing Crisis

The crisis is accelerating. Of Moody's list of most speculative companies (probability of default rating of B3 negative and lower), private equity portfolio companies represented 73% as of October 2024. More troubling, private equity assets under management will grow from $540.72 billion in 2024 to $1.2 trillion by 2033—well over double its current footprint.

Seven out of 10 bankruptcies at companies with over $1 billion in liabilities in the first quarter of 2025 were at companies owned by private equity. The trend shows no signs of slowing.

Consumer Impact

The human cost extends far beyond corporate boardrooms. When 100 direct jobs are lost in retail, an additional 122 indirect jobs are also lost, magnifying the economic impact. Store closures devastate local communities, eliminating tax revenue and neighborhood anchors while forcing consumers to travel farther for basic goods.

The narrative blaming millennial consumer preferences masks a more systemic problem. When private equity strips companies of resources while loading them with debt, the resulting decline in product quality, customer service, and store experience inevitably drives customers away. Millennials and Gen Z consumers, facing historic wealth inequality and cost-of-living pressures, simply demand value for their money—something debt-laden, cost-cutting retailers increasingly cannot provide.

"Companies that are owned by private equity firms are significantly more likely to go bankrupt than those that aren't," said Brendan Ballou, author of "Plunder: Private Equity's Plan to Pillage America." "There's a lot of incentives for the private equity firm to take short-term extractive strategies towards restaurants that oftentimes can lead to their harm, or, in extreme cases, to their destruction."

Looking Ahead

As e-commerce continues reshaping consumer behavior and higher interest rates strain leveraged companies, the crisis appears likely to worsen. Many retailers are already embracing artificial intelligence within their daily operations through innovations ranging from personalized pricing to digital twins, but debt-laden companies lack resources for necessary technology investments.

The combination of financial engineering and digital disruption is creating what industry observers call a "retail apocalypse"—but the apocalypse has specific authors. While headlines continue blaming generational preferences, the data reveals a more troubling truth: an entire industry being systematically hollowed out by financial firms that profit from destruction while taxpayers and communities bear the costs.

The question isn't whether millennials are killing retail—it's whether American retail can survive private equity.

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SIDEBAR: Solutions to Protect American Companies

As private equity's destructive impact becomes clear, policymakers and business leaders are developing alternatives to protect American firms from financial engineering that prioritizes extraction over sustainability.

Legislative Reform

The most comprehensive solution is the Stop Wall Street Looting Act of 2024, reintroduced by Senators Elizabeth Warren and Tammy Baldwin. The legislation would make private equity firms liable for the debts and obligations of companies they control, cap dividend payments at 10% of acquired companies' debt, and extend fraud investigation periods to 15 years.

"Without major changes, a handful of ultra wealthy Wall Street executives will continue getting richer at everyone else's expense," said Lisa Donner, executive director of Americans for Financial Reform, which supports the legislation.

Employee Ownership Alternatives

The most promising alternative involves transferring ownership to workers through several mechanisms:

Employee Stock Ownership Plans (ESOPs) now cover 14.9 million American workers across 6,358 companies. These federally-regulated retirement plans give workers ownership stakes while providing significant tax benefits to selling owners.

Worker Cooperatives are businesses owned and democratically controlled by their workers. The United Nations declared 2025 the International Year of Cooperatives, recognizing their role in sustainable development.

Employee Ownership Trusts (EOTs), popular in Europe and growing in the U.S., hold company shares on behalf of workers, providing stability and protection from hostile takeovers.

State-Level Action

Multiple states are implementing support programs. Colorado offers $10 million annually in tax credits covering up to 50% of employee ownership transition costs. Washington provides $2 million in annual credits for feasibility studies. The federal government established its first Employee Ownership Initiative within the Department of Labor in 2024.

International Models

The European Union's Alternative Investment Fund Manager Directive includes anti-asset stripping provisions that prohibit funds from making distributions or reducing capital for 24 months after acquiring companies. Canada offers a $10 million capital gains tax exemption for business sales to employee ownership structures.

Market Impact

Employee-owned businesses demonstrate superior resilience. Research shows workers in employee-owned companies earn 20% more on average, experience significantly reduced turnover, and report higher job satisfaction. Over 90% of employee-owned contractors report positive impacts on company culture.

"When employees have a stake in the company's success, they tend to be more motivated, committed and proactive in their roles," explains Project Equity, a leading employee ownership advocacy organization.

The momentum is building for 2025 to be a breakthrough year for employee ownership as an alternative to private equity extraction, offering business owners attractive exit strategies that preserve jobs and communities rather than destroying them.

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SIDEBAR: The Titans of Destruction - Major Private Equity Players

The private equity industry is dominated by a handful of mega-firms that have orchestrated many of the most destructive leveraged buyouts of the past decade. These financial titans, managing trillions in assets, have perfected the art of extracting value while loading companies with unsustainable debt.

The Big Four

Blackstone Group - The world's largest alternative asset manager with $1.27 trillion in assets under management as of 2024. Notable destructive deals include the 2007 acquisition of Hilton Hotels for $26 billion (though this eventually became profitable) and the 2019 acquisition of Ancestry.com for $4.7 billion.

KKR & Co. - Founded in 1976 by Jerome Kohlberg, Henry Kravis, and George Roberts, KKR manages $638 billion in assets. Infamous for the $31 billion RJR Nabisco takeover in 1988, KKR's recent failures include the catastrophic 2007 $45 billion Energy Future Holdings (TXU) deal that ended in bankruptcy and Toys R Us, which collapsed under debt burden in 2017.

Apollo Global Management - With $548 billion in assets under management, Apollo specializes in distressed investments. Major deals include the 2016 acquisition of ADT Corporation for $6.9 billion and Chuck E. Cheese for $1 billion in 2014, which later filed for bankruptcy during the pandemic.

TPG Capital - A major player in retail destruction, TPG was involved in the failed buyouts of several retail chains and faced collusion charges alongside Blackstone and KKR for allegedly rigging LBO bids between 2003-2007, resulting in a $325 million settlement.

Recent Mega-Deals (2020-2024)

The industry executed 18 mega-deals valued at $5 billion or above in 2024, more than double the prior year total. Major transactions include:

• Vista Equity Partners & Blackstone: Near $8 billion acquisition of Smartsheet in 2024, the year's largest U.S. software buyout
• TowerBrook Capital Partners & Clayton Dubilier & Rice: $8.9 billion take-private of healthcare revenue cycle management company R1 RCM
• Apollo: $11 billion acquisition of 49% equity interest in Intel Ireland's Fab 34 facility
• Multiple Consortium Deals: The trend toward "club deals" involving multiple private equity firms sharing risk while maximizing extraction potential

The Collusion Legacy

In 2014, major private equity firms paid $475.5 million to settle charges that they colluded to suppress takeover bids between 2003-2007. The lawsuit alleged that Blackstone, KKR, TPG Capital, Goldman Sachs, Bain Capital, and others rigged 19 LBOs to shortchange shareholders out of billions of dollars. The firms denied wrongdoing but settled to avoid further litigation.

Assets Under Management (2024)

• Blackstone: $1.27 trillion
• KKR: $638 billion
• Apollo: $548 billion
• Carlyle Group: $427 billion
• TPG: $229 billion

The Financial Performance

Despite the destruction they've wrought on companies and communities, these firms have been enormously profitable for their executives. In 2024 alone, the wealth of top executives at Blackstone, KKR, and Apollo surged by over $56 billion, driven by record share prices and S&P 500 inclusion.

The firms deployed $134 billion (Blackstone) and $60 billion (KKR) in new investments during 2024, continuing their hunt for companies to acquire, load with debt, and extract value from before inevitable collapse or distressed sale.

This concentration of financial power in the hands of a few firms has enabled the systematic destruction of American businesses while insulating the perpetrators from consequences—the very dynamic that legislative reforms like the Stop Wall Street Looting Act aim to address.

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Sources and Citations

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Millennials Aren't Killing Businesses. Private Equity Is. - YouTube