Private equity has expanded its influence on the bar and restaurant industry, investing $94.5 billion between 2014 and 2024, according to data from PitchBook.
But some of these takeovers haven’t worked the way the eateries may have hoped.
“Companies that are owned by private equity firms are significantly more likely to go bankrupt than those that aren’t,” said Brendan Ballou, author of “Plunder: Private Equity’s Plan to Pillage America.” “There’s a lot of incentives for the private equity firm to take short-term extractive strategies towards restaurants that oftentimes can lead to their harm, or, in extreme cases, to their destruction.”
In 2024, 21 restaurant and bar chains filed for bankruptcy. Ten of those had been backed by private equity, according to PitchBook. Two of the most notable were casual dining giants Red Lobster and TGI Fridays.
Ballou said private equity’s traditional tactics like leveraged buyouts and sale-leasebacks are often to blame. Leveraged buyouts reference a sale where a firm buys a company using borrowed cash, yet the company has to pay back the debt, rather than the firm. Sale-leasebacks, if implemented, usually happen in tandem with a leveraged buyout. It’s when a company sells its real estate and then has to lease it back.
“This was key to Red Lobster’s failure,” said NBC senior financial investigative reporter Gretchen Morgenson. “Not only did it have debt that it had to repay, it now had rents that it had to pay that it had not had to pay before. And to add insult to injury, the new owner of the properties increased the rents to above market rates.”
At the same time, private equity can also infuse investments and much-needed cash into a restaurant concept, which can prolong the company’s lifespan.
“The goal of private equity is to be able to own the business, improve the business and exit the business,” said Donna Hitscherich, Columbia Business School senior lecturer and co-director of the Private Equity Program.
It’s impossible to know what an outcome without private equity’s involvement would have looked like.
“We don’t say, ‘OK, here’s a restaurant. It’s owned by private equity. How does it do? Here’s the same restaurant and it’ll be our control group,'” said Hitscherich. “Certainly, as in any business, there are some operators that are more successful and some operators that are less successful.”
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