American Prospect: Ex–Treasury Secretary Leads Massive Private Security Deal
March 18, 2021
“In a deal like this, the ones who really bear the risk for that debt are the 800,000 workers around the world.” — Private Equity Stakeholder Project Executive Director Jim Baker.
Earlier this week the American Prospect reported on G4S shareholders approving acquisition by Allied Universal — a $5.3 billion deal creating the world’s largest private equity employer with 800,000 workers globally between the two firms.
American Prospect, Mar 17, 2021: Ex–Treasury Secretary Leads Massive Private Security Deal
The combined companies will have as much as $13.8 billion in debt – a significant increase.
According to a 2019 study by Harvard University and the University of Chicago, leveraged buyouts like this, in which a private equity company buys a publicly traded company, on average result in a 13 percent decrease in employment within the first two years. Wages also typically fall after private equity buyouts. When a company takes on this much debt, it can be strained to cut costs wherever possible, often at the expense of its workers.
Additionally, private equity–backed companies are not held to the same standards of transparency as publicly traded companies. While G4S must regularly and publicly report its financial performance and major litigation as a publicly traded company, under the ownership of Allied Universal this transparency may disappear.
Behind this debt-laden merger is former Treasury Secretary Tim Geithner, who had helped banks escape the 2008 financial crisis relatively unscathed. Geithner is now the president of Warburg Pincus, the main private equity firm backing the acquisition.
Since Geithner took over Warburg Pincus, the firm’s portfolio companies have courted controversy on several occasions. One company, Mariner Finance, has been criticized for its business model of sending checks to poor Americans, with little disclosure that cashing the checks would tie the individuals to a high-interest-rate loan. It recently increased its stake in a Chinese car company whose chairman co-founded Luckin Coffee, which fabricated most of its revenues in 2019. And retail startup Julep went from thriving business to bankruptcy in just two years after a Warburg Pincus investment.