Its ghoulish reputation is ill-deserved
NEW YORK, NEW YORK / The Economist / February 25, 2026 — The day starts in one of the loud, dark studios run by Solidcore, a Pilates-inspired fitness chain. Your correspondent, balancing on top of a sliding platform, dutifully performs plank holds and cross-legged lunges as her energetic instructor cheers her on. Having worked up an appetite, she heads to Maman, a chic, French-style eatery. Next comes a facial at HeyDey, where a beautician beams light across this correspondent’s face in order to give her skin a more youthful glow.
As e-commerce gobbles up a growing share of consumer spending on goods, service businesses such as these have been taking over America’s shopping streets and strip malls. Customers working remotely visit them to break up their day with a workout or a coffee. Because they spend more time at home, they are also investing in their property’s upkeep, spending more on landscapers and the like. Technology underlies these trends: the internet has made online shopping and remote work possible. But it is not the only force transforming small business in America. Each outlet this reporter visited, on the shopping street closest to her house, is owned by a private-equity (PE) firm.
When many think of PE, they think of takeovers of big companies such as RJR Nabisco, a consumer-goods conglomerate, in the 1980s or Toys “R” Us, a retail stalwart, in the 2000s. But such mega-deals now reflect only a small part of what the industry does. Today 85% of PE investments are in firms with fewer than 500 staff. Over the past few years the industry has been hoovering up small service-providers, from coffee shops and nail salons to pest controllers. In 2016 PE firms owned two of America’s ten biggest car-wash chains. They now own all ten. In the year to June 2025, PE accounted for half of all acquisitions of air-conditioning contractors.
Local service-providers are attractive to PE because they are largely internet-proof. “Amazon can’t wash your car, they can’t work out for you, they can’t deliver your coffee,” says Scott Romanoff of Franchise Equity Partners, a PE firm. Often a handful of such businesses are acquired and merged into a chain.
Some may find this alarming. The caricature of PE is that it loads companies with debt and sacks staff indiscriminately, resulting in juicy short-term profits but deteriorating service and, in the most egregious cases, failure of the business. Its approach is to “suck money out of [a company] until it collapses”, Elizabeth Warren, a senator, declared in a video posted online in November. Few ideas unite Gavin Newsom, governor of California, and President Donald Trump—but taking PE down a peg is one of them. In January both proposed measures to ban the industry from purchasing single-family homes.
PE investors are not saints; there are plenty of examples of portfolio companies being gutted by their owners in pursuit of a quick buck. Yet to believe that, by and large, the industry is a poor steward of the businesses it acquires is to misunderstand the strategy of investors who rely on being able to sell their portfolio companies after a few years in order to return money to their backers. Those they sell to—a larger company, investors in public markets or another PE fund—are hardly fools. Indeed, many small businesses will emerge from PE ownership as bigger, more profitable firms that do better by their customers.
Nobody doubts PE’s penchant for borrowing and its willingness to wield the axe. Yet it is difficult to find compelling evidence of widespread ill effects. Perhaps more than 20,000 American businesses are owned by PE. Of these, just 75 went bankrupt in 2024, according to the Private Equity Stakeholder Project, a non-profit watchdog. The most rigorous studies find that, even with more debt, pe-backed firms are no more likely to default than others.
Academics have examined whether PE undermines businesses in more insidious ways without causing outright collapse. A 2021 paper by Atul Gupta of the Wharton School of the University of Pennsylvania and his co-authors looked at the impact of PE ownership on nursing homes. Patients admitted to them are not a healthy bunch: on average, one in six will die in the facility or within three months of discharge. But Mr Gupta and his co-authors found that, for patients covered by Medicare, a government programme for the elderly, the chance of death in the short term was 11% higher if the nursing home they went to was owned by PE. The higher mortality risk appeared to occur as a result of cuts to nursing staff, which increased the risk of injuries, pressure sores—and death.
Yet the case is not closed. A paper from last year by Ashvin Gandhi of the University of California and his co-authors shows the importance of competition in shaping how PE owners behave in the nursing-home industry. In less competitive markets they found similar effects to Mr Gupta, but in highly competitive markets PE-backed homes were likely to have higher staffing ratios and better ratings than others.
Caution over PE’s incursion into the care sector is understandable. PE firms now run at least 5% of America’s nursing homes, offer around 10% of available places in child-care centres and own about 12% of dental surgeries. The care sector is rife with information asymmetries that unscrupulous PE bosses could exploit. Youngsters at child-care centres and residents of nursing homes are often unable to communicate anything about the quality of their care. And even lucid adults are rarely in a position to determine whether they need a costly MRI scan or root canal. But customers have less reason to worry at Pilates studios or smoothie bars; those unhappy with their instructor or their açai bowl can go elsewhere.
In some cases, the financial firepower provided by a PE backer may be just what a small business needs to thrive, especially when it is trying to compete against big incumbents. A 2009 paper by Alexander Popov of the European Central Bank and Peter Roosenboom of the Erasmus University of Rotterdam concluded that the rate of new business formation in industries with steep barriers to entry is significantly higher in countries with more PE investment relative to GDP.
Carried up
The experience of Solidcore shows how PE ownership can transform a small business for the better. Bryan Myers, its boss, says he knows that “private equity gets a bad rap,” but he points out that Solidcore would be a fraction of the size it is now without its backers (the chain is owned by L Catterton, a PE firm focused on consumer industries). At the outset, Solidcore could grow only by reinvesting its profits, which meant opening around five studios a year. The rate more than doubled after it first took PE money in 2017.
The other advantage Mr Myers points to is expertise. In 2021 Solidcore’s PE owners helped it to conduct a price-elasticity study, which showed that its memberships didn’t make sense “unless you were going to come here literally every day of the week”. So it reduced the price of a membership relative to paying for single classes. “It completely upended our business model,” says Mr Myers. Recurring membership fees now make up 60-70% of revenue, up from just 20% before the change.
Solidcore’s staff share in its success. Coaches are paid a flat fee plus a percentage of the revenue their classes generate—a strategy intended to motivate trainers. Senior coaches can reportedly make around $100 an hour if their class is full.
The upheaval of retail landscapes over the past decade or so has required extensive adaptation. In America, where PE money is plentiful, investors have rushed to take advantage of the opportunity to replace goods retailers with service businesses. The vacancy rate in American retail spaces is around 4%. Across Europe, where PE funding is less abundant, the figure has lingered higher for longer; in much of Britain, vacancy rates are double or triple the level in America. Consumers may grumble about getting their lattes or facials from a business owned by PE. The alternative may be empty shopfronts.
