MARCH 6, 2025 | FEATURES | By Grace Bean
Welcome to RoCCynomics. This column is designed to explain the often complicated language of finance and economics, making it more accessible for the Colorado College community.
In a world where economic forces shape everything from the food we eat to the jobs we hold, we must graduate with a foundational understanding of these systems. By breaking down complex terms and concepts in a clear, digestible way, this weekly column ensures that no one is left behind in understanding how the economy works and influences our daily lives. Whether you’re studying economics or simply want to make informed decisions about your future, this column will provide the knowledge necessary to navigate the financial landscape confidently.
Money Talks: Winners and losers of the private equity game explained
The tentacles of finance extend into nearly every foundational aspect of the United States.
Private equity firms own food chains, like Jersey Mikes and P.F. Chang’s, along with your favorite suncare brand, Supergoop. They’re also to blame for the recent bankruptcy of Red Lobster.
Sometimes, big, confusing words and concepts obscure the nuances of the country’s fiscal system. Wall Street, some have said, is ‘eating America,’ and private equity firms own more than you might imagine.
Let’s break down private equity.
Private equity involves buying a large portion of private companies and trying to make some changes to increase the value. This comes with winners and losers.
Compare a private equity firm to the reality show “Love it or List it.” When the show’s host flips a house for profit, they gut the home, fix the pipes, replace countertops, change the home’s layout to maximize space and redesign or remove any components of the house that lack efficiency, adjusting structural flaws.
Then, the home assessors evaluate the new price of the house with the necessary changes and offer to list the home for resale. The renovators and home resellers are the private equity firms, and they are almost always the winners.
Private equity does the same thing to private companies — they cut costs to, in their words, increase efficiency and maximize profits. Those laid off in the process might disagree that their work was unnecessary or not strategic.
The losers in a private company buyout are the employees who lose their jobs due to cost cuts and the customers potentially receiving higher prices from the company to improve profit margins.
When private equity firms resell the company (think listing the renovated home), they profit from the sale and keep a percentage of the earnings. Essentially, they’re the realtor listing the new home and the homeowner.
Flipping a house comes with a similar set of expectations to make a larger return on the investment as a private equity firm executes with private companies.