HALO Talks Fast Break: History of Private Equity

In today's episode, Integrity Square Founder Pete Moore dives into the roots and current landscape of private equity (PE) — and why it matters to literally 𝘦𝘷𝘦𝘳𝘺𝘰𝘯𝘦 in the HALO sector. Ignore at your own peril. 

• PE's Evolution: PE started when changes like the Prudent Man Act allowed institutions (think university endowments and pension funds) to invest in private companies. This ushered in a new era for higher-risk, higher-return investments.

• The PE Playbook: Early pioneers like Kohlberg, Kravitz & Roberts (KKR) built the model we see today: Acquire private companies, add layers of financing, optimize operations, make additional add-on acquisitions, and resell for higher multiples and strong returns over a 5-7 year hold period. 

• PE’s Widespread Impact: For better or worse (more on that in future videos) private equity now owns major brands across industries (including popular gym chains and franchises in the HALO sector.) Their involvement accelerates change, competition, and operational improvement—if you’re in the industry, you’re either a target, a competitor, or a potential partner. 

If you missed our video about EoS Fitness, we touch on that here: https://youtu.be/CQtaGUQIyxY 

Want to learn more? (You should. Otherwise you're playing checkers while the rest of the industry plays chess.) 

Give us 10 hours of your time at the next HALO Academy starting June 24th. Register at https://www.thehaloacademy.com now for $495 and earn a $100 gift card from our friends at Promotion Vault.  Testimonials at https://www.thehaloacademy.com/testimonials 

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Thanks to Promotion Vault and HigherDose for sponsoring. For 15% off products sitewide (excluding bundles, kits, and full saunas) use the code GOHALO at https://tidd.ly/4l1WXEf

 

 

Episode Transcript

(00:01):
This is Pete Moore coming to you today on a Thursday fast break
sponsored by Promotion Vault Reward Intelligence. Might be a good
idea to find out more about your members. I'm sitting in Chicago right now. I
am on a higher dose PEMF map. Pulsating
electromagnetic field. Bam. Bam. And I'm going to talk to you about the first two
letters. Pe, which is private equity. People say, oh, private equity

(00:22):
owns eos, they own Crunch, they own Bay Clubs, they own Dunkin Donuts. Well,
let's find out where this private equity came from. Okay, so if I was an
endowment fund back in the 70s, I would only be allowed to invest in public
equities like stock market, real estate, treasury bills,
municipal bonds. But I could never invest in private companies. I was not
allowed to do that. That was called an alternative investment. And there was a new

(00:45):
law passed called the Prudent man act that allowed endowment
funds and pension funds to start investing in things that maybe would give them a
higher return but have higher risk. So what happened back in the
70s? There were a couple of guys who were bankers called Kohlberg,
Kravitz and Roberts. And those guys left Bear Stearns and started to
buy private companies. And they went to all the pension funds and they said, hey,

(01:07):
give me some money. Pay me 2%, I'll keep 20% of the
upside. I'm going to go and find some undervalued companies because I've seen
thousands of them. And I know that these guys make a ton of cash. And
quite frankly, they don't know exactly what they're doing. However, I'm going to go in
there, I'm going to put a lot of debt on the business, not recourse. And
I'm going to go get these families that own these businesses that

(01:28):
don't have a succession plan or don't want to give it to their kids. And
I'm going to say, hey, I'm going to offer you the deal of the lifetime.
I'm going to give you $200 million cash for your
business. I'm going to go borrow $150 million from different
banks, and then I'm going to put a sliver of equity in and I'm going
to go and I'm going to gut the company, going to clean it out. If
you remember Wall Street, Blue Horseshoe loves Anacott

(01:51):
Steel. Watch that movie and you'll understand that buying
private companies now became an asset class. So you had
guys like, guys at Bear Stearns, you had a guy named Thomas H. Lee and
Partners, you had another Guy named Forceman Little. And what they did was they
consolidated funds and pools of capital from endowment
funds, the schools you went to where there was $875 billion

(02:14):
worth of money. And all these schools and universities and
pension funds are looking for returns. How am I going to get a higher return?
I'm going to take more risk. If I want to take more risk, I can
put a sliver of my fund into private equity, and I'm going to give these
guys money on every deal. And in three to five to seven years,
they're going to return that money. And hopefully they'll get me a 20 to

(02:34):
30% return, where in the stock market, I'm getting a 7
to 12% return. Real estate, I'm getting a 6 to 10%
return. And in treasury bills, I'm getting a 2 to 4%
return. So little by little, all these groups started to
prop up, usually with people's last names, like my boy Brockway at Peter
Brockway, Brockway, Miranda Partners, where I used to work. And their strategy was

(02:56):
to go and buy middle market companies, grow them, give them
financing to go make acquisitions, bundle them up, and then sell it to
the next private equity fund. And those funds were returning anywhere between
18 to 35% returns. And as that started to happen,
a lot of these college chief investment officers said, hey, I got to get
in on this private equity game. I don't care what they're buying. I'm not really

(03:19):
going to ask too many questions as long as they're legitimate businesses and they do
their work. And the private equity market became a private
equity community. And all these guys and all these women went out there,
formed funds and went out and said, hey, I'm going to charge you 2%.
Oh, I'm also going to charge the company a management fee. And I'm going to
put a little bit of my own money in, but not too much. And then

(03:40):
I'm going to get 20% of the upside. So if I buy a company for
100 million and I sell it for 300 million, five years later, I made
a $200 million gain, which you'll see right up here. And out of that,
the partners keep 40 million. Okay, so private equity is
starting to eat up the entire economy. There are groups that look at
industrial deals only. Aerospace, defense, retail,

(04:02):
consumer halo. And in the halo sector, Eos is
private owned by private equity. Now it's owned by TSG
Consumer. Leonard Green owns Pure Gym and Crunch.
Mountainside is owned by Garnet Station Partners. So as you see,
these private Equity firms taking more and more of the economy and
turning them into private companies, they must grow these businesses. If

(04:24):
you are a business that is a target of a private equity fund, you probably
have one time to sell the company and then they're either coming to eat your
city and they're going to grow around you through greenfields, or they're going to buy
up some of your competitors. So the game is not going to stop. It is
going to continue. This is like playing chess and you are playing
checkers. Okay? They do are able to get debt without

(04:45):
any personal guarantees. You don't have to sit down with your husband or wife and
think about if you get a mortgage or home equity and you're going to pledge
all of your assets to build a new location. They just call capital. They
get debt with no recourse. So private equity is here. It
is an alternative to groups such as endowment funds,
companies, pension funds investing in other assets. And

(05:06):
they're giving their money to groups like Blackstone, groups like kkr,
groups like Leonard Green, groups like TSG Consumer. And they're
coming and they're going to go buy as many companies as they can, clean them
up, optimize them, and then hopefully sell it to the next guy. And what you're
going to see on next Thursday's session of Fast Break is how
private equity is basically turned into the equivalent of of a baseball farm system.

(05:29):
So if you want to learn more about this, if those five minutes help clarify
anything for you, this is Petey Moe here from Halo Academy.
I've got a class that I'm doing starting on June 24th. It's
$495. I'm going to teach you everything you know in 10 hours over
two weeks. I encourage you to attend. And remember, go
Halo.