Small Business vs. Private Equity Firms
In this video, Robert Kennedy Jr. talks to Tiffany Cianci, previous owner of a gym for children, on how a private equity firm destroyed her life and business.
Tiffany was the owner of a Little Gym franchise. Like many other small businesses, she was forced to shut down during the pandemic… for nearly 17 months! This made her franchise more susceptible to a takeover by a private equity firm.
The new owners informed the franchisees they had to pay more money, buy new services, and sign a new contract. That’s a lot for a small business. Tiffany tried to stand strong and hired a lawyer, but they immediately terminated her franchise.
Why aren’t more small business owners speaking out? Because the private equity firm uses arbitration clauses in their contracts and non-disclosure agreements. Many others don’t blow the whistle because they fear similar retaliation and the legal fees are exhausting.
Listen to Tiffany’s ordeal here. You can also read more detail in this article: Lawsuit From Hell: The Battle Over a Kids’ Gym.
What is a private equity firm?
A private equity firm is an investment management company that provides capital to businesses in exchange for a stake in equity, typically partial or full ownership. They usually target mature companies that are privately held (not publicly traded on stock exchanges). Their goal is to grow the companies they buy to ultimately sell for a profit.
Private equity can make a company more competitive by improving its operations. However, there are potential negative impacts to consumers and communities depending on the firm’s goals and priorities:
A company could be saddled with unsustainable debt, depending on the firm’s skills and objectives.
An equity firm most likely doesn’t have the same local connections or commitment to the community as the original small business owners, which can lead to a loss of local character and identity.
Prices can be increased to generate higher revenues more quickly for the firm.
A monopolistic environment is created where one company dominates a market, leading to higher prices and reduced competition.
Due to a focus of short-term profits, an equity firm is less likely to invest in long-term research and development that could stifle innovation.
Incidentally, private equity firms raise their funds from institutional and high-net-worth investors, i.e., pension funds, endowments, insurance companies, and wealthy individuals. Money is funneled away from the community to the wealthy owners of the equity firm.
As consumers, how long will we let this continue?