The PE Gambit: Checkmate, Repeat?

Ever wondered how struggling businesses suddenly rise from the ashes to become thriving enterprises? Behind these remarkable turnarounds lies the world of Private Equity (PE). Imagine stepping into a world where financial wizards don't just crunch numbers, they rescue struggling businesses, revive fading brands, and transform entire industries. This is the realm of Private Equity (PE), where strategy meets audacity. You don't need to be a Wall Street insider or a finance expert to understand its magic, it's like taking a broken chessboard and turning it into a masterpiece of precision and power.

Private Equity is a league of bold financial strategists who go beyond mere investment to intervene and transform struggling businesses into thriving enterprises. These firms craft meticulous strategies, overhaul operations, and uncover hidden potential in undervalued companies, from small-town hospitals to legacy brands and tech startups. Think of PE as the ultimate rescue mission combined with a high-stakes chess game, where every move is calculated to unlock growth and create remarkable value.

Buying, Building, Flipping Big

Private equity funds are investment pools typically opened to wealthy investors and institutions as they require high minimum investments, effectively shutting out smaller investors from participating. They then invest the money they collect on behalf of the fund’s investors, usually by taking controlling stakes in companies that are not listed on a public exchange. Once they acquire a company, they work with company executives to make the business, so-called portfolio companies, more valuable so as to sell them off for profit after several years, either through inviting IPO or selling to other investors. Here comes a remarkable insight, the foremost factor private equity firms emphasise on it’s the ability to grow the revenue of the company.

Over the past 13 years, PE firms have silently refashioned India’s business landscape, pouring in over $100 billion and serving as a guiding light for businesses on the brink. This steady stream of investment has played a crucial role in helping businesses, especially small and medium enterprises, expand, innovate, and compete on a larger scale. The influx of capital has not only bolstered businesses but also enhanced job opportunities and fostered the development of strategic competencies nationwide.

The state of the PE market in the country in 2024 comprises a multitude of obstacles from major political events to persistent geopolitical tension, with slowing growth and the impact of the depreciating Indian rupee. Nevertheless, PE investment held strong, totalling $56 billion - the second highest on record, the highest was in 2021, when PE investments in India reached an all-time high of around $77 billion.

Promising kickoff to 2025: Optimism grows

The beginning of 2025 has shown signs of optimism, with the increasing PE investment by 37% month on month in January. Another important factor that will influence PE investments and exits in the country is the declining interest rate in 2025. This trend could offer a fuel in investment, notably in sectors like infrastructure and real estate, as investors move fast to buy assets to take advantage of yield compression (even though yields are falling, investors expect asset prices to keep rising). Lower borrowing costs will also improve Profit After Tax (PAT) of the companies that are looking to take on debt to fund capital expenditure (capex) growth.

From Buyouts to Breakthroughs: PE’s Debt Play

Private equity, what we know today, was born out of the leverage buyout boom in the 1980s, in which ruthless investors would pile on debt to purchase companies and then squeeze out every penny, often by selling off assets and draining employee pension funds. The percentage of deals that have been financed with debt money has declined significantly over time. In the 1980s, as reported by Kaplan, deals were frequently consummated at a 90% debt-to-enterprise value ratio, stating nearly all the money used for acquisition was borrowed. In the 1990s, this ratio declined closer to 70%. At present, it’s about 50% - 60% range.

Now the question arises, why does private equity use so much debt? Typically, it amplifies the PE fund’s expected ROI because the government allows interest payments on debt to be tax-deductible. As it enhances returns, it also enhances the firm’s expected profit. The trade-off is that heavy leverage means higher financial risks. If the acquired company doesn’t generate enough profits or cash flow to service that debt, it can lead to defaults, financial distress, or even bankruptcy.

Rebuilding Giants: The PE Way

Private equity doesn't just move money, but it reshapes companies. You’ll often find a PE firm pulling the strings behind some of the most remarkable business comebacks in recent decades. For instance, take Blackstone’s bet on Hilton. When the hotel chain was weighed down by debt and facing an economic downturn, Blackstone saw opportunity where others saw risk. They stuck through the 2008 crisis, streamlined operations, and helped Hilton emerge stronger, ultimately taking it public in one of the biggest hotel IPOs ever. Then there’s 3G Capital, which changed Burger King’s fortune by flipping its strategy. Cost cuts, smarter supply chains, and bold marketing moves helped the fast-food giant reclaim its lost ground. Across the retail sector, BC Partners leaped with PetSmart, and a masterstroke was acquiring Chewy.com. Betting on them paid off massively as Chewy became an e-commerce giant. These stories aren't just about smart investments, they’re about vision, timing, and the ability of private equity to turn faltering brands into market leaders.

Dark Truths of High-Stakes Investing

The Hidden Costs of Private Equity: When Profit Takes Precedence Over People

Despite the benefits, critics warn that the private equity model prioritizes short-term gains over long-term sustainability. Nowhere is this more evident than in industries where cost-cutting directly affects human lives. A national study led by Harvard Medical School found that hospitals acquired by private equity firms saw a 25% increase in hospital-acquired complications, including a 27% rise in patient falls and a 38% increase in bloodstream infections. The aggressive cost-cutting measures imposed by PE firms have led to understaffing, reduced investment in training, and the closure of unprofitable but essential services, such as emergency care units and psychiatric wards. These decisions may drive up profit margins, but they come at an enormous human cost.

Higher Mortality Rates in Nursing Homes

Elderly care has been one of the most affected sectors under private equity ownership. Nursing homes that have been acquired by PE firms have seen a sharp decline in care quality, leading to a 10% increase in mortality among Medicare patients. In an industry where empathy and round-the-clock care are essential, private equity’s tendency to maximise revenue by reducing staff and overburdening caregivers has proven disastrous. Reports suggest that some facilities have cut nursing staff by nearly 50%, leading to overworked professionals and neglected patients. When profits are prioritised over patient safety, the consequences can be deadly.

Exploitation of Child Labour and Human Rights Violations

One of the darkest aspects of private equity’s influence is its connection to industries notorious for labour exploitation. Many PE-backed companies operate in supply chains that have been linked to child labour and unsafe working conditions. Reports from human rights organisations have highlighted how textile factories, electronics manufacturers, and mining companies—many of which receive PE investments—have been found guilty of employing underage workers in hazardous environments. These children, some as young as ten, are forced to work long hours for meagre wages, with little to no access to education or healthcare. Despite global pledges to uphold ethical sourcing, the pressure to generate high returns within short investment cycles has led many PE-backed firms to turn a blind eye to such human rights abuses.

“Packer Sanitation Services — a Blackstone portfolio company — is a case in point. Packers is a cleaning contractor for slaughterhouses operated by meatpackers such as Tyson Foods. As its workers scrub butchery equipment, they have sometimes suffered injuries that include acid burns from cleaning agents and even, in a few cases, amputation. The business was purchased in 2018 by Blackstone Core Equity Partners. In 2022, a girl in Nebraska attended school with chemical burns on her hands and knees, apparently the result of her illegal night-time career in slaughterhouse sanitation. The US Department of Labour launched an investigation and filed a lawsuit against Packers, which led to a nationwide injunction in Nebraska federal court against what the judge called ‘oppressive child labour’.” — An Extract from Financial Times — ft.com

The Next Chapter in PE Strategy

Looking ahead, believing private equity in India is on the brink of something big. With interest rates cooling and confidence quietly rising, 2025 could be the year PE finally sheds its “buy-and-flip” image and leans into building real, long-term value. The appetite for transformative investments—especially in infrastructure and real estate—is growing. If played right, this could be the most defining chapter for private equity yet.

Author: Gagangeet Matharu and Rohit Sinha

Illustration: Dhruv Garg

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