A Better Alternative to Private Equity

Reader comment on: Trumka on Private Equity

Submitted by name withheld by request (United States), May 27, 2010 15:47

I recently sold my very profitable business (due to my age). I had three alternatives—sell to a competitor (who would have merely absorbed clients and fired all employees), sell to employees (through an ESOP), or sell to a private equity firm. I would have LOVED to sell to employees, but the ESOP approach was not a viable financial option.

So I sold to a private equity firm which promised to grow the business, add valuable services for clients, and strengthen employee benefits. What happened—it fired senior staff and brought in its cronies, it committed a number of unethical (if not felonious) deeds, it has not given raises for two years (while earning millions a year), etc. My opinion—it is just maximizing its return, through high leverage and financial manipulations.

Washington should vastly strengthen/broaden the ESOP or replace it with something that would REALLY promote employee ownership. Democrats would have a way of truly "spreading the wealth." Republicans could help strengthen small business. I am not a finance expert, but it seems that some type of tax and credit approach would be effective.

Private equity is like "flipping" homes—buying with little down and hoping for a rise in prices so the business can be sold in 5-7 years. Only employee ownership will sustain a business into the future, and continue to add jobs to the economy. In others words, grow and prosper rather than rape and pillage.

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