Why Private Equity Is Suddenly Awash With Zombie Firms (forbes.com) 39
The private equity industry is experiencing a quiet reckoning as hundreds of midsize firms find themselves trapped between investors who have lost patience and portfolios of companies they cannot sell at acceptable prices.
"There is existential risk for a number [of funds] because of the fundraising environment," said Sunaina Sinha Haldea, global head of private capital advisory at Raymond James. "If existing investors don't come and support them, new investors are highly unlikely to."
According to data from Preqin, the average buyout fund that closed in 2025 spent 23 months fundraising, up from 16 months in 2021, and the total number of funds raised fell to 1,191 from 2,679 over the same period. New York's Vestar Capital scrapped plans for its eighth fund in late 2024 and has not invested in a new portfolio company since 2023. The firm's assets under management dropped from $7 billion fifteen years ago to $3.3 billion in 2024.
Three-year annualized returns through June 2025 for the Cambridge Associates U.S. Private Equity Index stand at 7.4%, trailing the MSCI World stock index by 11 percentage points annually. The average holding period for buyout deals has stretched to 6.3 years from 5.1 years in 2020. Blue-chip megafunds continue raising capital normally, but smaller firms face existential pressure.
"There is existential risk for a number [of funds] because of the fundraising environment," said Sunaina Sinha Haldea, global head of private capital advisory at Raymond James. "If existing investors don't come and support them, new investors are highly unlikely to."
According to data from Preqin, the average buyout fund that closed in 2025 spent 23 months fundraising, up from 16 months in 2021, and the total number of funds raised fell to 1,191 from 2,679 over the same period. New York's Vestar Capital scrapped plans for its eighth fund in late 2024 and has not invested in a new portfolio company since 2023. The firm's assets under management dropped from $7 billion fifteen years ago to $3.3 billion in 2024.
Three-year annualized returns through June 2025 for the Cambridge Associates U.S. Private Equity Index stand at 7.4%, trailing the MSCI World stock index by 11 percentage points annually. The average holding period for buyout deals has stretched to 6.3 years from 5.1 years in 2020. Blue-chip megafunds continue raising capital normally, but smaller firms face existential pressure.
No sobbing here. (Score:5, Insightful)
They should have invested in extremely small violins.
The gambling/looting operations will not be missed.
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Re:No sobbing here. (Score:4, Insightful)
I've spent much of my life working for small or mid-sized companies. I left one such company (on good terms) shortly before the owner/CEO passed away. He had always had a plan to keep the business going by making it a partnership in thirds. His vice president had a chunk of the company and their bookkeeper held the last third. He held out from selling out to a larger business that expressed interest in merging, when he figured out they really only wanted our customer list. Most of our employees would be on the chopping block. Sadly, his VP developed Alzheimer's right around the time the owner died, and the bookkeeper didn't really have the interest in owning/running the whole company on her own. So they're no longer around.
I'm also working, now, for one where the owner decided he wanted to retire. In his case, he sold to Private Equity, but only after being "sold" on the idea it was a good match for our business. (Supposedly, this was a firm who was very selective who they bought out, and had similar goals to expand the business, etc. etc.)
So far, it's shaping up to be every bit as bad as people always warn. I'm looking for an exit. Yes, they're trying to merge with several other companies and "grow", but it's all being done with zero interest in spending on more labor for people doing the computer support required to keep it all going. They're also floating some ideas to convert one company they're buying to operate exactly like ours does, and I can already see reasons that's a bad idea.
Ransom note: GoT MiLk? (Score:3)
Re:Ransom note: GoT MiLk? (Score:5, Insightful)
Don't 99.5% of businesses fail within 10 years?
Private equity invests in the already profitable / nearly profitable companies that can be worth a lot more if they scale. Think of things like Liquid Death (the water company) that is currently raising PE money to get into every grocery store. Their business is profitable so a lot of the risk is gone; at this stage, the failure rate is really low, because most of the work is done. https://dtcnews.substack.com/p... [substack.com]
The problem is that more companies are staying away from PE money because their incentives aren't aligned. Maybe you build a really nice company with 100 employees in your hometown, but private equity wants it to be worth 3x in 5 years, so they try to fire everyone and move the business somewhere bigger/cheaper. You might get rich, but everyone you know will hate you.
This happened to two guys in my town, who ended up buying the company back an moving to an ESOP - an employee stock ownership program where everyone owns part of the business. More owners are looking at options like ESOP or retaining ownership to avoid these scenarios.
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The problem is that more companies are staying away from PE money because their incentives aren't aligned. Maybe you build a really nice company with 100 employees in your hometown, but private equity wants it to be worth 3x in 5 years, so they try to fire everyone and move the business somewhere bigger/cheaper. You might get rich, but everyone you know will hate you.
That or they fire most of the employees and bleed the company until it is a husk, extracting the last vestiges of potential profit until everything of value has been fully depleted.
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Wrong problem (Score:2)
Oh, now it makes sense. (Score:1)
I read this as 'Zombie Films' and was extremely confused for a little bit.
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I read this as 'Zombie Films' and was extremely confused for a little bit.
The next installment of the night of the living dead will have bankers in brooks brothers suits slowly walking around trying to find investors who want to drain companies of value....
PE can fuck off (Score:5, Insightful)
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Also don't do business with PE-owned businesses (Score:5, Insightful)
This includes things like auto repair shops, dentists, veterinarians, home improvement contractors.
PE has been seeping into these businesses by buying out the owners.
A good way to tell if a company is PE-owned if they won't tell you is to look at their consumer contract.
Firms owned by PE extract as much from the customer as they legally can and leave no value on the table. Their contracts are full of binding arbitration, evergreening (automatic renewal) clauses, and short warranty periods.
The materials used by PE-owned businesses are sub-par as they cut their material costs to the bone. This explains the short warranty periods.
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It's sickening how many "local businesses" they've gotten their fangs into. The first 3 HVAC companies I looked at for a new furnace here were backed by those parasites. Finally found a smaller company that's still independent but it's getting harder and harder to find them.
Re: Also don't do business with PE-owned businesse (Score:2)
And the PE firms tend to "lose records" of long term warranties after they buy out the company. That happened to me once witha HVAV company. Inhad a HVAC system blow the coils after 3 years. 1yr labor / 10 yr parts means little when the parts are $1k but the labor is $5.
It was a builder grade HVAC that was poorly sized for the house anyway so I replaced everything. I insisted that anything inreplacee it with was 10 yr parts AND labor warranty though, including all materials like the refrigerant.
Got everythi
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Exactly what happened to my 2nd IT job. Clipboard-bearing suits came and were shown everything. 2 months later I left. 2 months after that the announcement came that the company had been sold off to a PE firm.
That PE took a 50-year old, money-making medical firm (billing, staffing, etc) and promptly ran it into an iceberg. After the carnage, it was sold yet again.. and one more time.
Now they exist in name only, a sub of a sub of a sub of some other company.
Getting bought out is almost universally undesi
Old news (Score:2)
If you're willing to take that level of risk, the overall performance of private equity is actually better than the stock market, but you're playing Russian Roulette with 4 of the chambers loaded.
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Private equity always had tons of zombie firms. The spread of performance on private equity was always huge. The top performers can multiply the money by 3x, 4x, or even more. But, most of them show a loss.
If you're willing to take that level of risk, the overall performance of private equity is actually better than the stock market, but you're playing Russian Roulette with 4 of the chambers loaded.
What does performance mean? Well, it depends on who you are. The PE firm and the owners of the company always win. They never lose money regardless of what happens to the company. The employees in the short term always lose because they will either be let go or operating expenses will be "optimized" in a way that doesn't favor employees. The customers generally lose because the products and prices will be "optimized" where optimization refers to company finances and not product quality or prices. In t
Investing is essentially gambling (Score:2)
Investing is gambling, just with a little more information about the game. Have you made bad bets and you don't want to sell at a loss? Well... Tough!
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The difference between investing and gambling, is that investing is backed by an actual asset, gambling is not. Investors buy into something that has intrinsic value, gamblers simply roll dice hoping it comes up 7's.
Re: Investing is essentially gambling (Score:2)
Yes and no.
Yes - your selection of funds is more informed and you think it may have coverage in assets.
No - it's just an illusion because it depends on whatever snake oil CEOs promise to you to affect your fund selection, and the unpredictable outcome when someone calls their bluff.
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If your "investing" is in a CEO's snake oil, then you are indeed gambling. If you are investing in Walmart stock, that is not gambling, Walmart is a highly valuable asset in its own right.
40% growth forever (Score:2)
The smartest guys in the room somehow failed to realize that 40% compounded growth forever at 80%-3000% gross margins wasn't possible. It can happen for 5-10 years of an economic turnover (whether driven by new technology, new forms of organization, immigration, or other fundamental changes) but just because it happens to some organizations for 5, 10, even 20 years does not mean it can/will happen to every organization - and trees don't grow to the sky.
They're going to raid your 401k (Score:4, Informative)
You're going to find it difficult to opt out of all of this in your 401k because it's going to be disguised so you don't see which companies are doing it.
What's worse is if you have parents or grandparents that have a bit of retirement money to invest, especially the kind that saved a little bit of money but not really enough to live off of so they are looking for a quick buck, they are prime candidates to be ripped off by private equity ghouls.
Furthermore Trump is openly selling pardons to the point where there's a Wall Street journal article about it. That means that they know they can rip you or your parents or your grandparents off and get away with it by kicking Trump a few million bucks and waiting for the pardon. State charges could be a problem but federal charges generally override State charges in these cases. So all they have to do is make sure they land in a federal court for the conviction and they are home free.
I know nobody wants to hear it and somebody will probably use one of their alts come on me down but well, elections have consequences.
There's a damn good reason Trump himself said Democrats are better for the economy.
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You may have to change jobs to get rid of those awful funds. The whole 401K thing is a closed garden racket.
Ever wonder why you can't invest in an IRA when your employer offers a 401K?
Ever wonder why the annual contribution limits for IRA's are much lower than 401K's?
Ever wonder why the owner of a small business can invest more in a "Sole Proprietor" IRA or SEP then an employee can if they work for a company who doesn't offer a 401K?
These rules are there because special interests were able to lobby for them
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Once you get pretty close to the C suite there are extra benefits that might protect you, might. You are still very much middle class at that point just upper middle class.
Also IRAs give you more investment opportunities but that also gives them more opportunities to scam you.
Remember the part you are missing is that they're trying to scam you so it's not going to be obvious what's the scam and what's not
They bought my plumber! (Score:4, Informative)
Seems like there is too much money out there.
Famously, they’ve been buying up residential homes and apartments at a torrid pace, with all the fun that will bring.
But they are also buying up small service firms like my plumber (and funeral homes, and insurance agencies, and medical/dental practices, and). My plumber probably has 100 employees. So, not tiny, but not huge, either. I knew the guy who started it. He sold out. I suppose I can’t blame him. First thing I notice next time I need help? Hourly rates doubled. Parts much more expensive.
I get these PE masters of the universe are going to buying and selling companies. It’s what they do. But can they stay off Main Street?
We will wake up 10 years from Now and none of the local businesses you use will be locally owned. I think that’s a bad thing.
Spare me any talk that they are providing some sort of efficiency service here. I bet my plumber’s business is well run. What they found was that they could charge a lot more for worse service. That’s all.
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Time to find a new plumber.
Once PE buys a home improvement contractor, they change the terms in the contract to extract all the value for themselves and leave nothing on the table for the consumer.
Read the contract before committing to any new business. The contract will almost tell you that a business is PE owned. It will have shitty terms for you and indemnify them.
Re:They bought my plumber! (Score:5, Interesting)
Same deal works with more or less any business with a lot of mom 'n pop operators; as well as things like rental housing. Maybe there are some marginal efficiency improvements in back office functions because it's not eleventy zillion individual copies of quickbooks; but most of the actual margins come from the higher prices you can command from customers and the lower prices you can offer to suppliers and employees once you consolidate a given sector in a given area. The effect is particularly lurid when it comes to thinks like small medical and dental practices; or care homes; since there it's about the money; but being about the money is also about pushing your employees to recommend unnecessary implant surgery and cutting patient/staff ratios as hard as you can without anyone noticing too many bedsores. Fantastic stuff, really.
Lot of Stupid Money Out There (Score:2)
Seems like there is too much money out there.
Agreed. Seeing the eye-watering returns that some of the big, blue chip players made, you've got a lot of people chasing after them. Problem is, the blue chip guys are able to get the best deals, and these smaller ones are having to rely upon riskier opportunities. No surprise them that they thus have more difficulty meeting their returns. I shed no tears - risk is an inherent part of capitalism. They made a risky bet with this midsized firms, so if, surprise, they don't make their money, then it's on them.
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It's just as destructive to the middle class though.
equityzen, startengine - the worst investments (Score:1)
Myopic to the last... (Score:2)
I'm not sure words can adequately express the hubris and myopia of someone who blames "the fundraising environment" for the fact that their heavily leveraged buyout of a bunch of things they had no actual plan to improve value of is catching up with them.
In the strict legal sense it might not be a ponzi scheme; you can end up depending on new suckers to pay off your current creditors through incompetence as well
Sounds like someone (Score:1)
is gonna need a bailout! How many tax dollars will it take to fix their troubles?
Private equity is a symptom of a problem (Score:2)
But why are PE firms able to profit in these markets? Why is there a lack of liquidity that gives them an arbitrage advantage?
In housing it is the high
I work for one of them (Score:2)
My company is PE-owned. The owners have been trying to sell for a while now, but not finding any suitable buyers.
Yes, it's the stereotypical PE firm, less-than-average pay and stupid execs. But the bright side is, because the execs don't have a clue, there are good managers around the company who are able to shield their teams from the stupidity. The execs have no idea what the teams are doing, so they can't really question what the managers tell them. Also on the plus side, PTO is pretty good (4 weeks per
Overall Economic Shrinkage. (Score:2)
Demographic collapse, de-globalization. Less people, over-the-top excess money printing, etc. The side-effect being that money loses its worth extra-fast and you get (hyper)inflation. It also means that more and more stock-trade growth prospects turn into pipe-dreams and ginormous money-vortexes like the recent bazillion dollar AI ringtrade involving big-tech. That is on top of l00ny b*llshit like a sad-and-sorry IRC rippoff or a PHP website that stores text and images being "valued" at half a trillion doll