Private equity faces existential crisis in US as unsold companies pile up
Private equity firms and the companies they own employ over 13 million, from startups to rural hospitals and large retailers, but experts’ concerns of collapse are growing
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These once-trusted US companies have one thing in common: they were owned by private equity investors, who load companies with debt when they buy them and squeeze out profits as they restructure.
The business model is now facing an existential crisis that may have profound ramifications across the US.
Once fringe financial players, private equity investors have bought up vast swathes of US, UK, European and Australian industry, from local dentists to shopping mall anchors and fast-food chains and even the video games company EA.
In the US, these firms and the companies they own, employ more than 13 million people in everything from quirky startups like Dave’s Hot Chicken, Two Men and a Truck and School of Rock (all owned by Roark Capital) to the US’s largest pet retailer PetSmart (BC Partners) and classics Birkenstock (purchased by L Catterton in 2021) and Pyrex (owned by Centre Lane Partners).
Private equity investors also bought thousands of healthcare facilities in the US in recent years, including non-profit hospice care, rural hospitals and small-town dentists’ offices.
But this wave of buyouts is running smack into a wall of persistently high interest rates, rising buyout prices and pressure over moribund returns.
Private equity funds are sitting on a “record number of unsold companies, many of which they’ve been unable to sell … or at least unable to sell at the prices that they’re looking for”, said Jim Baker, the executive director of the Private Equity Stakeholder Project, an industry watchdog.
The US’s over 13,500 unsold companies in private equity portfolios include 2,563 consumer products and services companies, PitchBook data shows, and 1,536 healthcare companies. Hundreds of these have been sitting in PE portfolios for years longer than funds historically like to keep their investments.
A growing concern is that “eventually, the companies that have accumulated this much debt are going to collapse”, said Audrey Stienon, Industrial Policy Program Manager at Open Markets, an anti-monopoly thinktank that is examining private equity’s role in the greater economy.
And often, what private equity buys up “are really, really important businesses”, Stiennon said, providing jobs or vital services to local communities. “When they go down, either you need to bail them out, or you need to find someone to save them, or else you’re just stuck with fewer options for consumers down the line.”
Executives in the industry argue their deep pockets will help businesses weather any upcoming crisis. “Private equity-backed businesses face the same higher interest rates and economic pressures as other companies, but they also have committed investment partners that can provide additional capital and keep investing through difficult periods,” Will Dunham, the president and CEO of American Investment Council, an industry trade group, said in a statement.
“Ultimately, private equity only succeeds when the businesses it invests in succeed over the long term,” he said.
High rates, more competition
Think of private equity deals like buying a home, explains Brad Lipton, director of corporate power and financial regulation at the Roosevelt Institute. Investors buy the company with a hefty loan, like a mortgage, but plan to sell in a matter of years.
But unlike with a mortgage, the company is on the hook for making payments, not the buyer, and the buyer almost always plans to sell in a few years.
“Interest rates being unexpectedly high may have complicated exit strategies,” Lipton said.
Private equity firms promise investors higher returns than the stock market, in exchange for holding on to their money for a longer time period, generally 10 years, a business model that’s been the same for decades.
“What has changed is that the price of buying a target company has gone through the roof,” as the number of private equity funds increased, explains Rosemary Batt, a Cornell University management and labor professor who studies the industry’s impacts on workers and companies. Healthcare companies that once sold at 11 times EBITDA, a measure of enterprise value, are now priced at 18 times or more, for example.
That makes exiting the investment for a profit even more difficult on investors – and on customers and employees.
The higher prices for buyouts are “putting even more pressure on PE firms to squeeze the juice out of their portfolio companies”, Batt said, at a time when there’s almost no regulation governing how they do that.
“They can engage in financial engineering or just slash and burn on the operating side,” Batt said. “And it takes years for anyone to really see it.”
As they hold the company, these investors generally channel free cashflow to “creditors and equityholders, often constraining capital expenditures, worker training, and safety investments”, the University of Chicago’s Business Law Review warns. Tightening macroeconomic conditions can result in forced restructurings “that are costly and value‑destroying for the going concern”.
One vulnerable area is rural hospitals and other health provider chains which could face cashflow issues, making debt payments even more difficult, as the Trump administration’s cuts to the Affordable Care Act tax credits and Medicaid bite, warns Pablo Willis, spokesman for the Americans for Tax Fairness, which is advocating for changes to how private equity managers compensation and the firms overall are taxed.
“There’s bound to be a very negative effect,” he said.
A lack of financial transparency means it is hard to predict where or when, though. Companies owned by private equity generally don’t disclose their debt levels or other financials unless they go public or issue bonds themselves.
“By design, the industry takes place in the shadows,” Lipton said, so “everything has to begin with the thought that we don’t have a lot of clarity.”
More bankruptcies ahead
In a hint of the turmoil to come, private equity-backed companies have accounted for the lion’s share of big corporate bankruptcies in 2025 and the first half of 2026, research from the Private Equity Stakeholder Partnership shows.
The biggest determinant of whether or not a company will go bankrupt is leverage – the amount of borrowed money explains Edith Hotchkiss, a finance professor at Boston College. Private equity-backed companies are no more likely to default than other similarly leveraged firms, but their business models mean they have more debt.
They carry debt of about 50% of their enterprise value, recent studies show.
US consumers have felt private equity’s impact through the deteriorating quality of some fast-food outlets and disappearing stores as brands under PE ownership go broke.
Other industries have been hit too. More than 60% of big manufacturing bankruptcies in the US last year were private equity-backed, Baker said, as were an outsized number of healthcare bankruptcies.
Still, the number of PE-backed companies entering bankruptcy declined in 2025 from the year before, even as overall bankruptcies climbed, S&P found, as more companies pursued out-of-court settlements.
The entire process is disruptive by nature. “By definition there is not enough money to go around to pay” a company’s debts, Roosevelt’s Lipton said. “Someone is going to lose out and all too often that can be workers” who are owed pensions.
“It is a cause of concern for workers and consumers left holding the bag,” said Lipton.
New rules ahead
Private equity operates without the rules and regulatory oversight of publicly traded companies. The industry has long argued that because it caters to sophisticated, high-net worth investors, it doesn’t need the same scrutiny.
But tens of thousands of layoffs, high bankruptcy rates, and the soaring wealth of dozens of private equity billionaires has created bipartisan momentum for more oversight, even before the current interest rate crisis. And Donald Trump’s push to allow everyday Americans to invest in the sector through their retirement plans has raised new concerns.
Congress’s June housing bill curbs private equity investments in single-family homes. November’s midterm elections, which are widely expected to deliver one or both houses of Congress to Democrats, could see a sea change for the industry in Washington, while several states are pursuing their own regulation.
“For private equity, the question increasingly is not whether Congress will investigate private equity firms and their practices, but rather where the scrutiny will turn to next,” corporate law firm Holland and Knight warned this month.
Multiple bills are circulating on Capitol Hill that would regulate how private equity is taxed, how it can invest in certain industries and how fund managers and investors can take profits. States’ bills would limit private equity in healthcare, scrutinize deals more closely and put caps on debt.
The “Let Kids Play” Act seeks to ban private equity from youth community sports, now a “$40bn industry dominated by private equity, with the singular goal of extracting as much profit as possible from families”, it contends.
The Massachusetts senator Elizabeth Warren, one of the industry’s most vocal critics in Washington, is leading a healthcare bill that seeks criminal penalties for “executives who loot health care entities like nursing homes and hospitals if that looting results in a patient’s death” and clawbacks of PE compensation.
Whether US consumers see some relief could depend on what state they live in, or what other issues Congress takes up in the fall. “Even Democrats will be very hard pressed to do much,” if they have any clout in Congress, Batt predicts, because they have so much on their plate. “The best opportunities right now are for local and state level initiatives,” she said.
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