The selling of America

The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis
By Josh Kosman
Portfolio, 256 pages, $26.95

The jeremiad is a venerable American literary form, and it's hard to imagine a fatter target than private-equity firms. Journalist Josh Kosman indicts the industry for what he describes as a slash-and-burn management style, mediocre investor returns and reckless use of debt. Once praised as turnaround artists who spent time and money reviving businesses, some of these outfits are now better known for piling unsustainable debt onto companies, grabbing outlandish fees and dividends, slashing payrolls and, where possible, making a quick and lucrative getaway.

Private equity's influence is nothing to sneeze at. From 2000 through the first half of 2007, Kosman writes, private-equity firms bought companies employing some 10 million workers, or nearly 10% of the U.S. nonfarm, private-sector labor force. Since 2000 roughly $1.2 trillion has changed hands in private-equity deals, most funded by heavy borrowing. Kosman warns that the industry's dramatic leverage could create a private-equity crash in the next few years, causing widespread credit defaults and extensive job losses.

Why should you care about the predations of private equity? Because you might want to sell your business someday, which could result in an offer from a private-equity firm. If you care about your pocketbook and about what happens to your company and its people after you sell, you might want to think about the nature of this particular beast. Kosman's book will help you get up to speed.