Small businesses are pushing back against private equity
Story by Michael Sasso and Saijel Kishan
(Bloomberg Businessweek) — Jay Cunningham says he’s fielded hundreds of calls and emails over the years from private equity firms poking around his Atlanta-area plumbing business. He wagers he could fetch tens of millions of dollars for Superior Plumbing, freeing up time for him to see his grandkids, say, or travel more to New York. But Cunningham refuses to make a deal with a buyout firm. Going from independent to PE-owned, he says, would be bad for his employees—including several of his adult children—as well as the wider community. “I’ve resisted selling, because of the people that work for me,” Cunningham, 64, says, adding that shoppers, too, are starting to boycott PE-backed companies if they’re aware the ownership has changed. They understand “that when these firms are getting gobbled up, it’s less favorable for the customer.”
For at least a decade, private equity has been encroaching on America’s mom and pop businesses, the backbone of the US economy, scooping up independent roofing contractors, veterinary practices, health clinics and other operators at a rapid clip. Now a PE pushback is brewing among small-business owners such as Cunningham, who are increasingly refusing to take part—and making sure everybody knows it, loudly touting their antibuyout stances and locally owned credentials.
Cunningham’s Superior Plumbing, for instance, has been advertising on electronic billboards across metro Atlanta that it’s “Still Locally Owned & Operated.” (It might as well read, “We’re Not Private Equity.”) In central Florida, Next Dimension Construction & Roofing posted a sleek video on social media warning about PE-owned businesses “run by investors who’ve never set foot in your neighborhood.” Some smaller-scale financiers see an opportunity in the backlash. Mark Peterson, a self-described “anti-PE” investor, buys minority stakes in small landscape and heavy construction businesses to help them stay independent without needed backing from new-to-the-sector investors who parachute in from faraway finance hubs, wearing suits to the worksite. “Boots before spreadsheets,” says Peterson, owner of Blue Collar CFOs in Idaho.
Spanning HVAC contractors in Texas and snow plow operators in Illinois to pest control businesses in New Jersey and electricians in Ohio, owners are increasingly sounding the alarm against PE, warning that buyout firms’ cost-cutting and debt-heavy deals are hollowing out the US’s small-business sector. Resistance to buyout deals has existed to some degree ever since Wall Street started invading Main Street with its typical PE playbook: Buy companies in fragmented industries, consolidate them in a “roll-up” strategy, improve their cash flow and sell them for a profit in a few years. But now the opposition appears to be intensifying, especially as baby boomer business owners prepare to sell their homegrown companies in what’s been dubbed an impending “silver tsunami.”
Roughly a quarter of small-business owners in the US are 65 years or older. As they prepare to retire, more than a million viable small and midsize companies will be up for sale by 2035, together worth as much as $5 trillion, according to a February report by the McKinsey Institute for Economic Mobility. These “owners have put a lot of sweat equity into their businesses. It’s part of their identity,” says Michael Strain, a director of economic policy studies at the American Enterprise Institute, a conservative think tank. So when PE comes calling, “there’s definitely a backlash.”
At the same time, the spread of software that digitizes scheduling, billing and customer service for even the most niche sectors has opened the door for PE firms to enter markets beyond health care and housing, where they already hold large positions. For instance, traffic-flagging companies, which help wave motorists through road projects, are seeing a surge of PE interest in the past two years. “We get notices every week that another firm has been acquired,” says Stacy Tetschner, chief executive officer of the American Traffic Safety Services Association, a Virginia-based trade group. Buyouts have been so hot in the landscaping industry that trade magazine Landscape Management introduced an annual mergers and acquisitions scorecard edition a year ago, editor-in-chief Scott Hollister says.
Software vendor ServiceTitan Inc., which has roughly doubled its revenue since 2023, to almost $1 billion, promotes “hypergrowth” opportunities for PE firms focusing on the trades. (ServiceTitan, based just outside of Los Angeles, didn’t respond to requests for comment.) Putting a recently acquired small business on such a software platform, which might let the new owner tap virtual customer service agents and automate scheduling, is usually one of PE’s first moves, says Robert Tymowski, an investment banker at Livingstone Partners LLC in Chicago. Home service companies never had big numbers of back-office staff, but they’re likely to shrink further with the growth of artificial intelligence, says Terry Tillman, a software analyst at Truist Securities Inc. in Atlanta. “It is a selling point,” he says. “Do more with less.”
In fact, going digital is such a big part of the PE playbook that customers mistakenly assumed Yossi Wachtel had taken a buyout after he upgraded the systems at his plumbing business in the Los Angeles area. Wachtel added branded trucks, introduced a digital scheduling system and began sharing technicians’ bios and photos with clients before visits, all in a bid to distance his company from the old caricature of a plumber wearing sagging pants exposing his backside. But those improvements backfired when a customer replied to a maintenance follow-up message asking to be removed from his list because they didn’t “do business with private equity owned companies,” says Wachtel, founder of Monkey Wrench Plumbing, Heating, Air & Electric. Now he instructs technicians to emphasize the operation’s family ownership whenever they’re on a job.
Supporters of private equity are quick to point out the benefits of the industry’s model. Private ownership can bring in capital, helping to strengthen businesses and create jobs; it can also help companies innovate and modernize. Some PE firms today even encourage the small-business founder to keep a minority stake in the company, hoping to preserve its culture. Buyouts in businesses worth $100 million or less totaled $89 billion last year, up 56% since 2015, according to data firm PitchBook. Will Dunham, president of the American Investment Council, an advocacy group for the private equity industry, says buyout firms are a key driver of growth for small and midsize businesses in the US. “Research shows that PE-backed businesses consistently boast higher wages and benefits, more job creation and stronger revenue than their non-PE-backed peers,” he says.
But critics point to the darker side: higher prices for customers, a singular focus on the bottom line, potential layoffs, less benefit to the community. In the New Orleans area, small-business owner Craig Jacomine has been encouraging other operators to consider local partnerships to help them become more streamlined and professional instead of selling to private equity, especially after seeing the fallout firsthand at competitors who made deals: a loss of control, higher debt leverage and payout structures that can limit what sellers ultimately get if they don’t meet performance targets.
“If we keep going down this route,” says Jacomine, who says he turns down nonstop calls from buyout firms looking to acquire his electric generator company, “everyone is going to be buying from one company—and that’s it.”
