Transcript of Conference Call with Josh Kosman to Discuss Private Equity and its Political Problems

Apr 28, 2022

On April 21, The Capitol Forum hosted a conference call with Josh Kosman, author of “The Buyout of America: How Private Equity is Destroying Jobs and Killing the American Economy,” for a discussion about private equity and the political problems the industry presents for policymakers. The full transcript, which has been modified slightly for accuracy, can be found below.

TEDDY DOWNEY: Thank you. Good afternoon, everyone. And thanks for joining us today. I’m Teddy Downey, Executive Editor here at The Capitol Forum. I’m fresh out of quarantine and back at headquarters. So good to be with you. We’re unfortunately still waiting on Josh. I think he is running around finalizing a story. He should be here in the next five minutes and we’ll kick things off. In the meantime, I thought I could field questions from the audience. If you have any questions for me, you can email them to

That’s Preferably about private equity because that’s the theme of the call today. And hopefully in just two or three minutes, Josh will be here. He said he was going to be arriving momentarily. And again, any questions, please email them to

Looks like I’ve got one here, a pretty general question. What’s your sense of the administration’s broader view of the PE industry? Good question. Maybe specifically, I’ll talk about antitrust. I’m sure we’ll get to this on the call with Josh in a few minutes here. But certainly, it’s been welldocumented former Commissioner Chopra’s and Commissioner Khan’s skepticism of private equity when it comes to buying assets out of—in divestitures or mergers. We have already seen more scrutiny there.

One thing I’d point listeners to, a couple of places, that I think shows a broader problem for private equity when it comes to dealing with the administration. The first is the speech today by Jonathan Kanter at the Stigler Center at the University of Chicago, talked a lot about real world analysis, talking about antitrust in a language for everyday Americans. And you look at the merger guidelines with the 5,000 comments coming out, a lot of these industries that are being complained about are industries that private equity has a role in the real world effects of private equity—and we’ll ask Josh about this—are lost jobs, cutting costs, cutting worker benefits and things like that. Those are the typical stories, high prices. A lot of these are wrapped up in private equity deals or decisions. And when you do a real world effects of the private equity deal, you’re probably going to be getting more problems from an antitrust standpoint than you do if you do sort of a narrow, technocratic analysis that’s based on consumer welfare and that rewards things like efficiencies because that’s sort of the main argument for private equity doing their deals. They’re making these companies more efficient. And so if you’re looking at a broader set of criteria, it makes it more problematic for private equity.

The last thing I’d mention, there was a series in the American Prospect on roll ups and a separate series on supply chain fragility. Private equity plays a starring role in a lot of those stories. And it was separately reported in Politico that those issues of the American prospect ended up on the President’s desk. Those are themes that come up with Tim Wu and the White House division that’s focused on competition.

So I think from a broader standpoint, you’re going to generally see a lot more scrutiny. I mean, that’s obviously why we’re doing this call with Josh here, one of the reasons. So that’s sort of where things are overall from an administration standpoint on private equity. I thought we’d have Josh by now. This is a little unfortunate. Sorry for the delay.

Let’s see if we have another question here from the audience. Again, if you have a question email them to That fire engine, that’s just authentic COVID era noise that we pipe in. So don’t mind that. There’s no emergency here. All right. Give me one minute. I’m going to check in on Josh. He said he’d be here by now. So give me one moment. I’ll see if I can’t figure out where he is.

Oh, we’ve got another question. The FTC has approved some PE buyers in the divestitures since Khan has taken over. Why is that? Is that a sign that maybe there isn’t as much private equity as we might think? I think the most likely thing with this is those deals have been PE owned to PE owned or that they’re not the type of PE firm necessarily that has a problematic, clearly problematic, track record. I think the deals that Chopra specifically identified or private equity buyers that had a bad track record in a specific industry or that had criminal allegations against some of the private equity players at the companies. So there was some real identifiable problems with those deals, clear problems. When we see that to the extent that a deal is trying to be pushed through, a merger is trying to be pushed through, with a divestiture share buyer from one of those types of private equity firms, I think that’s when you’re going to see litigation or you’re going to see the divestitures getting knocked down. I don’t know.

We’re going to check on Josh. Give me 30 seconds. I’m just going to go on mute here and see where he is. Hold on a second. All right. So I think he’s going to join us. I think he is here. Do we have Josh?


TEDDY DOWNEY: We’ve got Josh. Okay, great. So we may have a little bit of a haphazard call here because Josh is working on a story that’s time sensitive and it’s still moving through the process despite our delay. But Josh has been covering the financial industry for 25 years. He’s the author of “The Buyout of America: How Private Equity is Destroying Jobs and Killing the American Economy”. And thanks, Josh, for doing this. Sorry, things are so hectic on your end.

JOSH KOSMAN: It’s okay. I apologize that things came up as well. I’m sorry that that happened today.

TEDDY DOWNEY: Yeah, yeah. So first, maybe you can quickly set the table for us. You wrote this book in 2009. Curious why you wrote the book and what were some of the big conclusions that you found in the course of writing it?

JOSH KOSMAN: Sure. So I was covering private equity, if we’re talking 2009, I worked on it for two years. So for about 10 years before that, I’d covered private equity, mostly for trade publications, for the Buyouts newsletter, then a publication that doesn’t exist anymore called “The Deal” and then “Merger Market”. And I’d been trying to sell the book for at least seven, eight years before I sold it.

So I thought that private equity would be interesting, and leveraged buyouts are interesting for a general audience, not just a business audience, as it impacts a lot of people. One out of every 10 people as of 2009 in the private sector work for a company owned by a private equity firm. And I thought a lot of what they did was pretty destructive. So I sold it as a critical book. At the same time, I wanted to go where it went. I hadn’t done a deep investigative research into how private equity firms really impact companies.

So I sold the book to Penguin Publishing. Again, took a while. Initially, it was going to be more of a profile of three private equity guys. One would have been Leon Black. I think Bonderman would have been another. And then I think Henry Kravis would have been the third. But we changed from being really profile driven to more a real look at the industry. And I was supposed to finish it in a year. It took two years of full-time work. And I’m proud of the results. And I think how it turned out was I thought to think that private equity—and when I say private equity, I mean, leveraged buyouts. It turned out to be probably even more destructive than I had initially anticipated.

TEDDY DOWNEY: And what was some of the best evidence to support that conclusion that private equity destroys jobs and kills the economy? One thing you hear from private equity folks is they argue they’re actually helping companies, making them better and more efficient. What’s your evidence to refute that and conclude the way that you did?

JOSH KOSMAN: Sure. Yeah, good question. So in the appendix, which I don’t expect everyone to read who’s looked at the book, but I looked, at the time, 10 biggest buyouts of the 90s. So I’m not cherry picking and I wanted to know where it went. And I looked at the 10 companies and compared them to their peers as far as profitability, as far as market share and growth. And in six of the 10 cases, clearly the company was worse off. Three cases, I think, was kind of mixed. And I think in one case, the PE firm helped the business.

So that helped really convince me as well as other evidence. But I thought that was, I mean, if we’re asking for one piece of evidence, that kind of got me over the hurdle that most of the time PE firms really hurt companies. So, for example, during that period, PE firms, for example, owned – I just want to make sure I get it right, because they’ve owned both companies, but say over time. But they owned Saks, the retail chain. And Saks is a direct competitor to Neiman Marcus. And Neiman Marcus, in those times that Saks had too much debt, just ran roughshod over Saks. As it turned out later, which is why I want to make sure I get the names of the two right, private equity firms bought Neiman Marcus, and then they struggle.

In the other cases, there were companies and industries that were a little tougher to understand. But I did my homework and it was pretty clear that when PR firms buy companies, at least especially large companies I looked at, it seems way more often than not when you look at them compared to their peers, they have a very tough time with the debt. Even if they can handle the debt, they still are not investing in research and development. They’re still laying off too many people. And business and life don’t stand still if you’re just worried about paying your debt and maintaining your EBITDA or growing EBITDA, but you’re not concerned about growth and you’re not investing in technology, it seems that there are very few companies that are going to succeed in that environment.

TEDDY DOWNEY: And your book actually had a big political impact at the time. Can you tell us how the Obama campaign incorporated findings from your book in their campaign against Mitt Romney?

JOSH KOSMAN: Sure. So I’d be lying if I said it wasn’t intentional that there wasn’t a chapter on Mitt Romney called “Plunder and Profit.” At the time, it was clear he was going to run for higher, you know, probably run for president. And he did. So there’s a chapter in the book in which we take a look at how Bain Capital—and Mitt Romney owned Bain Capital. He didn’t just run Bain Capital. He owned 100 percent of the general partnership at the time—how Bain made a lot of money by buying companies, increasing EBITDA by cutting costs, then taking big dividends out where they borrow money against the company by taking more loans. So it’s kind of like a second mortgage. And then how several of those companies then ended up going bankrupt just a few years later. So Bain makes a fortune, but the companies go bankrupt. So I’m not saying that that is what the typical private equity firm does, but Bain Capital was more destructive than most. And yeah, that got a fair amount of attention from what I’m told. Although, I’ve never spoken to former President Obama or his team. But apparently, they used that chapter as the basis for a lot of their attacks on Mitt Romney. And I think a lot of it stuck.

TEDDY DOWNEY: And what do you think the politics of private equity in that context means for someone like Virginia Governor Glenn Youngkin, who reports today that he might run for President? Can we expect the same types of attacks? Will those still be as fruitful now? Is his private equity track record sort of along the same lines?

JOSH KOSMAN: Teddy, you pose a really good question. I think Youngkin would be open to attack. I think that Mitt did have some particular problems that were unique to him. For one, he owned 100 percent of the firm. So anything that happened to Bain could be laid at his feet. Also, the dividend destruction that Bain caused is very much a Bain issue. I don’t believe with Carlyle, you could take three or four of its biggest wins and point at those companies and say, hey, you took dividends out and they went bankrupt three or four years later. Which did happen with Bain. It was that extreme.

But when you look at a company like Manor Care, the nursing home chain, The Washington Post did a great exposé a few years ago about how care in the nursing homes was terrible. And that’s the largest nursing home chain in the country, and they were owned by Carlyle. That’s the type of thing that I believe in a national election could be used against Glenn. Carlyle has been invested in a few different companies, large, that have had a big impact on people, regular people, that arguably—not just arguably—the consumer service was terrible. There’s a company called Hawaiian Telecom where the service got well, worse. And they were there, the phone company of Hawaii. In fact, the company, I believe, went bankrupt or got close to bankruptcy. But the customer service fell off the map because private equity firms, including Carlyle, want companies that deliver solid cash flow, and they pushed more cash flow to pay the debt and often ignore customer service. And when it comes to nursing home patients or phone customers, that can get pretty sensitive. So yes, I think Glenn might have some tough questions he would have to answer in a political race. Maybe not as tough as Mitt Romney, but I think they’d be pretty tough.

TEDDY DOWNEY: And your book and other reporting has politically resonated with the Democratic strategists, but that hasn’t actually translated into policy changes. What are some recent examples of Democrats not implementing policy to take on private equity? And you’ve also reported on some cozy relationships between Obama era policy folks or Democrats generally in the private equity industry? Curious if you can talk about maybe why you think those policy changes haven’t been implemented, even though they translated into political success when they were used as political background.

JOSH KOSMAN: Sure, Teddy. And it’s a good question, and you’re 100 percent right. Not a lot has changed. So there’s been a lot of awareness, but not a lot has changed from a regulatory perspective. We don’t have to look much further than President Biden’s spending Thanksgiving at David Rubenstein’s home in Nantucket. It was either Nantucket or Cape Cod, but was at Rubinstein’s home. So Rubenstein is the head of Carlyle that we were just talking about with Glenn Youngkin. Biden is not naive. He certainly is fully aware of private equity. And he spent his Thanksgiving with his family, with Rubenstein’s family.

So private equity firms have ingratiated themselves with both the left and the right, including, for example, Senate Majority Leader Charles Schumer, who has protected them from a lot of, let’s say, from ending the carried interest provision, which seems like a very obvious one. There’s been very few changes. Senator Elizabeth Warren introduced a bill in October. Now, if you’re curious, look, if listeners are curious, you can look on my site dedicated to the book And there’s a copy of what she put out. It’s very detailed. But unfortunately, at a hearing in the fall, focusing on leveraged buyouts, very few senators showed up. The private equity guys are very good at donating to both parties, and they have a lot of power in Washington. And despite the fact that closing the tax loopholes that makes buyout profitable would make the government a lot of money and the government could use it, very little has changed. You’re absolutely right. There’s been a lot of awareness, but very little has changed.

TEDDY DOWNEY: And if you had a magic wand, what policies would you change to fix what you think is most problematic about the incentives in the private equity industry?

JOSH KOSMAN: I think the biggest one, the third rail, is ending what’s called interest tax deductibility on corporate takeovers. So that would mean that when a private equity firm buys a company—and as probably most of your listeners know when they do that, they put maybe 25 percent down and 75 percent of the purchase price is borrowed against the company. They’re not putting it down. So the company can take those loans and take the interest off of their taxes. So companies acquired LBOs, paying much less in taxes than their peers. That’s part of the financial game that takes place.

So if you ended the tax break in, just let’s say as far as takeovers go or LBOs, you don’t have to end them for real estate transactions. But if you ended them for LBOs, because that was never meant to help LBOs. That rule has been around for decades. That has nothing to do with LBPs, but private equity firms figured out how to take advantage of it. If you ended it as far as leveraged buyouts, the most destructive buyouts wouldn’t be profitable anymore, and they just wouldn’t happen.

TEDDY DOWNEY: And unlike Congress, antitrust enforcers are putting in place policy that affects private equity, both Lina Khan and Jonathan Kanter have promised more scrutiny of divestiture buyers where merging parties divest assets to appease antitrust enforcers. Private equities track record in these purchases is, to put it charitably, not great. Can you talk a little bit about private equity’s role in buying up these types of assets, their track record and what you expect to see from Kahn and Kanter going forward on this topic?

JOSH KOSMAN: Sure. Kahn and Kanter, especially Lina, are certainly very progressive, for lack of a better way of putting it, obviously, tough enforcers and are very aware of private equity. And certainly when a merger happens and an asset is divested to a private equity firm to preserve competition, it’s hugely important that that company can compete. So if that company is bought by a private equity firm and put in deep debt and can’t really compete, that’s a major problem. And they are aware of that.

it is certainly something they’re looking at. And I’m aware that they’re aware of it. You might know better than I what they’re actually doing about it. But it certainly is making them more skeptical when there is a divestiture and a merger and it goes to a private equity firm. I think they’re asking more serious questions.

TEDDY DOWNEY: One thing Kanter mentioned today that kind of frames how the antitrust enforcers will look at private equity purchases and private equity’s role in consolidation is real world harms rather than sort of economic theory or sort of technocratic analysis. Your book spends a lot of time on real world harm from private equity role in the economy. Can you just be a little bit more specific about the types of things like job losses and other problems that will catch the eye of a Kahn or a Kanter that otherwise wouldn’t have been viewed as a problem by other antitrust enforcers?

JOSH KOSMAN: Sure. So here’s just an example, a good recent example, of private equity destruction. So tax is just an easy one to understand. So Topps, the baseball card company owned by Madison Dearborn, large private equity firm. Seems like it has secure contracts with all the major sports. Nice, dependable cash flow. You can put a lot of debt on it. The theory is it will pay off its loans and be fine. And that was the case for a few years.

Private equity firms levered it up again, essentially a second mortgage, taking a dividend out. The contract with Major League Baseball was coming up. Fanatics, an aggressive—and I don’t mean that in necessarily a bad way—company that make merchandise for the major sports leagues. They came in, without Topps knowing, and go to Major League Baseball and basically say how about giving up that contract? By the way, the players union will get a stake and so will Major League Baseball in our sales. And we’ll do NFPs and all these neat, advanced things, and we’ll really grow the company. We’ll move it into the Next Generation. And they already worked with Major League Baseball on merchandise.

Baseball says, yes, that’s great. Michael Eisner, who was the CEO of Topps, shocked. Madison Dearborn shocked. But Topps was spending one percent of its earnings on R&D. Basically, nothing. So they get shocked. Fanatics wins the contract. And not only do they win the contract in the MLB and the NFL and the NBA, then they turn around to Topps. Now, they’re stuck. They ended up buying Topps for a song. So a company that had been around for nearly 100 years gets gobbled up by fanatics, loses its biggest contracts and clearly leverage had a lot to do with it.

And just not growing. The assumption by Madison Dearborn that you could just live forever on these contracts, not do much, keep sucking money out of the company. That was the assumption, and it didn’t work because there was an aggressive company that they didn’t think about that was in the corner and that ended up stealing their business and was growing it. So a company like Topps was not investing heavily in NFPs and all these other ways you could grow a sporting card business and they got topped—for lack of a better way of putting it. So that’s a good recent example, I think, of a company that got destroyed by private equity.

TEDDY DOWNEY: So in terms of antitrust enforcers looking at this, they’re going to be thinking, okay, well, you’re not really competing in the way that we envision you competing by spending on R&D and investing in the company and growing the company. And that makes you less of an appealing buyer of an asset where you’re expecting the company to replace lost competition and compete bigger and clean the market? Is that a fair way?

JOSH KOSMAN: Exactly right. And it certainly happened in the antitrust space as well. But I think they would just be looking in general how much debt is being put on the company. Can this company compete like a strategic would? And when you’re thinking of antitrust, I know this is going to go a little bit away from the topic, but it kind of doesn’t. Dish is not a private equity firm, of course. They’re a strategic buyer. But we just recently had with T-Mobile and Sprint merging. we’re going to give the spectrum—sell the spectrum, not give it—to Dish and Dish hasn’t done much with it. And it looks right now like a pretty big mistake. Because Dish doesn’t have the money to put behind it. So even though Dish is not private equity, that doesn’t help private equity. There’s too many examples like that of divestitures that were made to satisfy regulators where the divested company doesn’t do what they’re supposed to do. Then you have obviously less competition, and that’s not good.

TEDDY DOWNEY: And what about in your book you talk a lot about private equity cutting jobs, cutting pay, cutting benefits, not being active in the community where the workers and the companies are, sort of being absentee owners? If folks like Jonathan Kantor and Lina Khan are focusing more on labor, which they 100 percent are, wages, things like that, how bad of a sign is that for private equity in terms of them sort of when —

JOSH KOSMAN: It’s not a great sign. I mean, I don’t think you can stop—or at this point, I don’t think you can stop a merger or a divestiture within a merger that allows it to happen because of jobs. Or at least, I don’t think that’s what regulators—that’s not what the FTC or DOJ would do. But still, that’s got to impact their thinking. So I would think, yes. If you’re focused on jobs, there have been studies, including recently by the World Economic Forum, that Davos and Davos is pretty pro-business and thorough studies, and they show that private equity firms when they buy a company in a leveraged buyout—so again, to be clear, we’re not talking about venture capital. We’re talking about LBOs—when they buy a company in an LBO, often there’s job cuts that equal four or five percent after two or three years, and they get up to seven eight percent after four or five years compared to their peers. That’s a lot of people. And intellectually, if they were growing the company, that’s great. Or that’s not great. But you could more intellectually understand it or I think I could. But that’s not happening either. So, yeah, that’s got to influence their thinking. I don’t see how it couldn’t.

TEDDY DOWNEY: Now, let’s talk about the Republicans quickly. You point out in some of your writing that a conservative think tank, American Compass, has said private equity invents, creates and builds nothing. There are two Republican Senate candidates right now, J.D. Vance and Blake Masters, saying they’re interested in creating good, higher paying jobs in the U.S.

On the other hand, we’ve reported recently here at The Capitol Forum that Republican FTC Commissioner Noah Phillips pretty regularly with the head of the Private Equity Trade Association, the American Investment Council. What’s your take on where the Republican Party is headed when it comes to private equity policy and specifically at the FTC? I wonder if you agree that they’ll need a third Democrat there before they really start sort of implementing a lot of these reforms when it comes to taking on private equity?

JOSH KOSMAN: I think I do agree. Good report on your on your part as well. But I think that, yes, I think I do agree with that. And I think that within the Republican Party, and within the Democratic Party, many of the people who have been there a long time are going to be sympathetic to private equity because of the money that comes from private equity, meaning donations. Kyrsten Sinema really protected private equity. She gets a lot of money from the Blackstone Group. So did so did Susan Collins, a moderate Republican.

So what the danger is for private equity – although, despite all the awareness, they have grown bigger and bigger and bigger. So nothing has changed, like you said, except awareness. But the danger is the grassroots in both parties. So it’s a little obvious that would mean AOC, Elizabeth Warren on the left. But I think it also means on the right. I think the real grass party level on the right. I don’t think they’re so enamored with private equity either. But the Mitch McConnells are. And obviously, he’s not the only one.

So it’s kind of the larger question is, is the Republican Party the party of corporate America? Or are they the party of the working class, angry, suburban and rural? That’s something I think that’s still being decided. Fortunately for private equity, former President Trump was close to Steve Schwarzman and is a product of Wall Street. And even though he may want to keep more jobs in America, former President Trump is pretty pro-private equity. He himself built his businesses on leverage. But whoever the next candidate is on the Republican side may not feel that way. And I know just from reporting, as you do too, there are grassroots elected officials on the Republican side who very much don’t like Wall Street. So I think there’s real anger towards Wall Street, and specifically private equity, that at some point could be unleashed. It hasn’t yet. So I’m loath to predict it will happen, but it could happen and it could happen from either side.

TEDDY DOWNEY: Another topical issue, I’d like to quickly talk about rising interest rates and credit. You’ve written that PE owned companies have the lowest debt rating and that a lot of speculative U.S. corporate debt matures in the next couple of years. Can you tell us about how big of a ticking time bomb we have here with these PEE owned companies as interest rates are rising?

JOSH KOSMAN: Well, I certainly thought, and reported in 07, 08, that—and I know from Treasury Secretary Paulson at the time that he also was very concerned that a lot of companies were going to blow up because interest rates were rising at the time. Instead, there was quantitative easing. It largely didn’t happen. Although, it has happened in the retail space. A lot of retail companies did go bankrupt. They were owned by private equity. But generally, a credit crisis did not happen.

I guess we’re kind of at the same place again. Or we could be. I shouldn’t say we are. We could be. So yes, with interest rates rising and most private equity owned companies owing money that is based on a certain interest rate plus LIBOR, the interest rates float. And a lot of these companies don’t have a lot of wiggle room to begin with and are at risk. So I’d be careful not to predict what I thought might happen in 07 and 08, or what I predicted in 07, 08, because it didn’t happen. But you think quantitative easing, because it was politically somewhat unpopular, probably wouldn’t happen again.

So the risk is clearly there. And the amount of money that private equity firm owned companies owe is off the charts. The leverage ratios that they buy companies, the leverage ratios are higher than they even were in 06 and 07. So the risk is clearly there. And depending on which party’s in power in a couple of years, and we’ll see, quantitative easing got a bad rap, for better or worse. So I would think it would be harder to do that again. And that definitely puts the economy at risk.

Again, when I wrote the book, “Private Equity Firms Own Companies” have one out of every 10 Americans in the private sector. Today, I’m sure it’s one out of eight. They’ve grown larger. So it’s a significant part of the economy. And certainly, if a lot of PE owned companies all went bankrupt at once, it would be a major problem for the banks and a major problem as far as employment.

TEDDY DOWNEY: Do you think that makes them a little bit too big to fail? They were rescued pretty aggressively during COVID by the Fed? Are they too big to fail? And this pushes back a little bit on your point that quantitative easing wasn’t that popular, but you also make a pretty compelling argument that if one out of every eight people are employed by them, they’ll almost certainly get bailed out.

JOSH KOSMAN: Well, you could be right. It is what happened in 09 and 2010 with a Democratic president. So you could be right. It would seem to me, and again, it would depend on who’s in office. The Republicans have been railing maybe because it happened under Obama. That quantitative easing was a bad idea. Economically, I’m not sure I’d agree with that, but no matter. Politically, it’d be a little hard to imagine for a Republican president, if that’s where we end up, and a Republican Congress to push through quantitative easing when they railed against it 10, 15 years earlier. But it could be too big to fail. It is what happened in 09, 2010. So certainly there is the possibility they’re too big to fail.

TEDDY DOWNEY: I do want to focus a minute here on branding for private equity. You talk a lot about the history of private equity, how the branding has evolved. Can you talk a little bit about that history and where we are today in terms of reputation and brand for the industry?

JOSH KOSMAN: Sure. So private equity started out as corporators in the 80s. I mean, they really started out in the 70s. But the private equity we know really started in the 80s with Michael Milken. They were called corporators. Movies like “Wall Street” gave them a bad name as they would go in, bust up companies and lay off a lot of people. Then if we go up to 88, 89, Milken ends up in jail for green mailing. Pensions won’t invest in private equity because of their reputation. And private equity goes basically dormant for a few years. They come back. Instead of being corporate raiders or leveraged buyout firms, they become private equity. Well, what’s wrong with private equity? They’re providing equity. And they very successfully rebranded themselves. And if you think about the term private equity, it sounds like they’re providing equity. Like venture capital.

But private equity in the sense we’re talking about this leveraged buyouts. That means you buy a company by putting it in debt and expecting it to pay its loans based on their earnings. You’re basically putting a company in deep debt, not to buy equipment or hire workers or invest in technology. It’s basically so an LBO is profitable. So it’s not equity at all.

But they’ve rebranded themselves as private equity. It worked very well. Now, private equity has developed something of a bad name again, though not as bad as it was in the late 80s. And I don’t know what they hide themselves behind. Mitt Romney tried to hide himself or tried to cloak himself as I’m a venture capitalist. Didn’t work too well for his presidential ambitions. When we talk about ending something like corporate interest deductibility, they hide themselves behind real estate. Are you going to end it for everybody, for the homeowner? Well, you don’t have to. You could end it just in takeovers. Or just in mergers. That was proposed in the late 80s, by the way, by the House, by Dan Rostenkowski, who was, I believe, the head of the Ways and Means then.

So usually they try to hide themselves behind something. And so far, it’s clearly worked. But when they say they build jobs, numbers by the World Economic Forum show that’s just not true. And when they hide themselves behind venture capital, they’re not venture capitalists. Now, as you know, Teddy, at this point, the largest private equity firms have completely diversified themselves. So with Blackstone and Apollo or KKR, now they do a lot of lending. So they would call themselves an asset manager, and they are. It’s just they still do a lot of leveraged buyouts. But they would say we’re asset managers. We’re not really private equity anymore. We’re much larger. And that’s a fact. They are. They are asset managers. But it doesn’t mean you couldn’t change regulations and tax laws that would affect their LBOs.

TEDDY DOWNEY: Now, we’ve covered a lot of ground today. I do want to ask you, can you walk us through maybe one more industry that’s sort of a household name or a product, a retail product, maybe that everyone knows and uses? I know you’ve talked about the mattress industry in the past. But can you give us an example of private equity destroying an industry that sort of industry everyone knows about?

JOSH KOSMAN: Sure. Well, mattresses is just such an obvious example, meaning obvious in that everybody can kind of relate to it. So private equity firms owned at a time Sealy, Simmons and Serta, the three S’s, the three big mattress companies. And the idea was you could keep raising prices and people need mattresses and they flip the companies to each other—private equity firms selling to private equity firms—for seven or eight years, always raising money, raising the prices, making more money.

Ultimately, Simmons is the one that decides, and its owners, you know what? People don’t need two sides to a mattress, do they? Because for those of us old enough to remember, it used to be you could flip a mattress. One side would be about seven years, and then the other side would be about seven years. So they decided to make a one sided mattress and put a lot of padding on the one side you could sleep on. And that certainly increases EBIDA. Because at that point, it costs a lot less to make a mattress.

So initially, Sealy, owned by another private equity firm, Bain at the time and Mitt Romney, initially they advertised, we make a quality mattress. Simmons, our main competitor, does not. You want a two sided mattress? You want a Sealy. This is in the mid-90s. So they thought their sales would increase. They didn’t. The one sided mattress worked. Meaning from a marketing perspective and sales perspective, sales didn’t really change much, but they didn’t go down. So after their marketing campaign, within a year, they started making one sided mattresses. And then, so did Serta. So the only thing you could really buy was a onesided mattress with a lot of padding, which breaks down pretty easily. So we were stuck if you wanted a Sealy, Simmons or Serta with a pretty lousy mattress or at least one that didn’t last long. And the prices just kept rising.

So eventually, out of nowhere, here comes Tempur-Pedic, puts ads on TV for its foam mattresses. Tempur-Pedic becomes bigger than any of them. But guess what happens? KKR, a big private equity firm, buys Tempur-Pedic. Then Tempur-Pedic starts struggling. And they did. And we’ve really had a mess in the mattress industry, there’s still lasts really until this day. So mattresses it used to be you could buy a basic mattress for not much. You could buy a better mattress that had nice, fluffy coils on the inside, lots of coils. Then it turned into a one sided mattress, and even that one side wasn’t that good. And now they’ve kind of played havoc or created havoc with the air mattresses. So I think the mattress industry is a good example of an industry where private equity firms have come in there, bought all the major companies and made it a complete mess.

TEDDY DOWNEY: Well, it’s an interesting time for private equity, certainly from a political standpoint. They’ve got, obviously, a lot of power behind them. We’ll see how these fights go, particularly when it comes to these antitrust enforcers. I do agree with you. I think there’s going to be a lot more scrutiny, even despite Biden having Thanksgiving at Rubenstein’s house. I think his administration is going to be giving a lot more scrutiny to the industry. I think it’s only a matter of time before they reject one of these divestiture purchases from private equity. So very timely conversation. Thank you so much for doing this.

JOSH KOSMAN: Sure. No problem. Thanks for having me.

TEDDY DOWNEY: And thanks everyone for joining the call today. Sorry for the scheduling changes, but thanks as always for joining us. This concludes the call.