Key Takeaways
- Private equity-owned companies are approximately 10 times more likely to go bankrupt than non-PE-owned firms, with PE companies accounting for 11% of all U.S. corporate bankruptcies despite representing only 6.5% of the economy.
- A record 110 PE and VC-backed companies filed for bankruptcy in 2024, marking a 15% increase from the previous year and causing at least 65,850 job losses across the United States.
- Excessive debt loads from leveraged buyouts, asset stripping practices, and short-term profit focus create systemic risks that make portfolio companies vulnerable to financial distress.
- Healthcare and retail industries have been hit hardest by PE failures, with 70% of large bankruptcies in early 2025 involving private equity-owned firms with liabilities exceeding $1 billion.
- Understanding these failure patterns proves vital for investors evaluating PE fund allocations and business owners considering exit strategies.
The private equity industry’s reputation for generating exceptional returns faces growing scrutiny as bankruptcy rates among portfolio companies reach unprecedented levels. Recent data reveals alarming trends that every investor should understand before committing capital to PE funds or considering partnerships with private equity firms.
Private Equity Bankruptcies Hit Record Highs in 2024
The year 2024 marked a watershed moment for private equity failures, with S&P Global Market Intelligence reporting that 110 U.S. companies backed by private equity and venture capital filed for bankruptcy—a 15% jump from 2023 and the highest annual total on record. This surge represents more than numbers on a spreadsheet; it signals fundamental problems within the PE model that ripple through entire industries.
Private equity firms played a role in 56% of large U.S. corporate bankruptcies with liabilities exceeding $500 million during 2024. Perhaps most concerning, PE-owned companies accounted for 11% of all corporate bankruptcies despite representing only 6.5% of the U.S. economy. These statistics paint a troubling picture of an investment strategy that may be creating more risk than reward.
For business owners considering exit opportunities, understanding these failure patterns becomes vital when evaluating potential buyers. Core Growth Group’s expertise in navigating complex business exits can help identify red flags and structure deals that protect long-term business viability.
What is the failure rate for PE backed Plumbing Companies?
While specific data for plumbing companies remains limited, the broader construction and home services sector shows concerning trends. PE-backed service companies in this space face similar pressures from debt loading and operational changes that have plagued other industries. The cyclical nature of construction and maintenance services makes these businesses particularly vulnerable to the short-term profit extraction strategies commonly employed by private equity firms.
This is why PE firms love to buy residential or commercial service heavy plumbing companies and Not companies focused on new construction. If your plumbing company is 80% or 90% revenue from service calls and service contracts you’re in good shape and highly desirable to be bought. If a majority of your revenue now comes from new construction, now that you know this data, you can pivot and do more marketing and sales to increase your percentage of revenue that comes from commercial and residential service work.
PE is the Biggest Source of Funds so What Do You Do to Pick the Right PE Firm to Buy Your Plumbing Company?
Despite the risks, private equity remains a major funding source for business acquisitions and growth. When evaluating PE partners, focus on firms with longer investment horizons, demonstrated operational expertise in your industry, and track records of building rather than stripping businesses. Look for partners who prioritize sustainable growth over quick financial engineering, and ensure any debt structure allows for continued investment in equipment, training, and market expansion.
The biggest key like in any industry is to find those top 10% of PE firms that manage their risk and provide their portfolio companies with maximum support for success. There are over 8,500 PE firms now and a lot of them are not true institutional PE firms. It’s a wealthy guy or a wealthy family who started a PE firm but doesn’t have enough money to play the private equity game. This is where it gets dangerous. Focus your plumbing company on getting to $4 million EBITDA or $10 million EBITDA and then you can play the game at the highest level with true institutional private equity that has $100 million+ in the fund and in the firm. This way if you get into some trouble there’s plenty of money to keep you in business and turn things around. This minimizes your risk and maximizes your opportunity for a 2nd and 3rd buy out and for your company to keep employing your people and growing.
Portfolio Companies Face 10x Higher Bankruptcy Risk
Research from the CFA Institute reveals that private equity portfolio companies are approximately 10 times more likely to go bankrupt compared to non-PE-owned companies. This startling statistic challenges the narrative that private equity firms are skilled operators who improve business performance through strategic guidance and operational expertise.
The Statistics Behind PE Failure Rates
The data tells a consistent story across multiple research sources. The Private Equity Stakeholder Project reported that PE-owned companies represented 75 out of 697 total bankruptcy filings in 2024. In the first quarter of 2025, the trend accelerated with 70% of large U.S. bankruptcies involving companies with liabilities exceeding $1 billion connected to private equity ownership.
Between 2010 and 2023, PE companies typically averaged under 9% of all corporate bankruptcies, making the recent surge particularly alarming. The 2024-2025 levels represent nearly a doubling of long-term norms, suggesting systemic issues rather than temporary market conditions.
Why PE Firms Often Target Distressed Companies
Critics argue that private equity firms gravitate toward companies already in distress, which naturally inflates their failure rates. While this explains some elevated risk, it doesn’t account for the dramatic difference in bankruptcy probability. The targeting strategy itself raises questions about whether PE firms are truly adding value or simply extracting whatever remains from struggling businesses.
Why Private Equity Deals Go Wrong
Understanding the root causes of PE failures helps explain why these investments carry such elevated risk. Three primary factors consistently emerge in failed deals: excessive leverage, value extraction practices, and misaligned time horizons.
1. Excessive Debt Loads from Leveraged Buyouts
Private equity firms typically use leveraged buyouts, investing minimal equity while loading portfolio companies with substantial debt. This financial engineering creates immediate cash returns for PE sponsors through dividend recapitalizations, where companies borrow money to pay dividends back to their PE owners. The strategy leaves businesses vulnerable to economic downturns, interest rate increases, or operational challenges.
The debt burden becomes particularly problematic when combined with ambitious expansion strategies funded by additional borrowing. Companies that might weather moderate difficulties as debt-free entities become fragile when carrying leverage ratios that leave little room for error.
2. Asset Stripping and Value Extraction
Many PE firms employ sale-leaseback transactions, selling company-owned real estate to related entities while locking the operating business into long-term lease obligations. This practice extracts immediate value for PE sponsors but removes valuable assets that companies traditionally use as collateral during difficult periods.
The Shopko example illustrates this dynamic perfectly. After the PE acquisition, the firm executed sale-leasebacks that locked the retailer into 15-year lease commitments, removing the flexibility that property ownership provides during retail’s cyclical downturns. When market conditions deteriorated, Shopko lacked the assets needed to restructure or weather the storm.
3. Short-Term Focus Over Long-Term Health
Private equity’s typical 3-5 year investment horizon creates pressure for quick returns that often conflicts with sustainable business building. PE firms may cut research and development, defer maintenance, reduce staff training, or eliminate other investments vital for long-term competitiveness to maximize short-term cash flow.
This approach works when exit timing aligns with favorable market conditions, but leaves companies poorly positioned for challenges that emerge after PE sponsors have moved on. The misalignment between PE timelines and business investment cycles explains many post-exit failures.
The Real Cost of PE Failures
Beyond financial losses for investors, private equity failures create widespread economic damage that extends far beyond portfolio companies themselves.
At Least 65,850 Jobs Lost in 2024
Private equity-related bankruptcies resulted in at least 65,850 layoffs across the United States in 2024, according to tracking data. This figure likely understates the true employment impact, as it only captures formal layoff announcements and doesn’t account for job losses at companies that avoided bankruptcy through other restructuring methods.
The employment impact extends beyond direct layoffs to include suppliers, contractors, and service providers who lose business when PE portfolio companies fail. Local communities often bear disproportionate costs when anchor employers disappear, creating ripple effects that persist long after bankruptcy proceedings conclude.
Healthcare and Retail Industries Hit Hardest
Healthcare and retail sectors have experienced particularly severe impacts from PE failures, with entire hospital systems, nursing home chains, and retail networks disappearing from communities. These failures don’t just represent financial losses—they eliminate services that communities depend on for basic needs.
The healthcare impact proves especially concerning, as PE-owned medical facilities often serve vulnerable populations who may lack alternatives when services disappear. Rural hospitals and specialty care providers frequently cannot be easily replaced, creating lasting gaps in community healthcare infrastructure.
What These Failure Rates Mean for Your Investment Strategy
For limited partners considering private equity allocations, these failure rates demand careful evaluation of fund selection criteria and portfolio construction approaches. The 10x higher bankruptcy risk doesn’t necessarily disqualify PE investments, but requires appropriate risk pricing and diversification strategies.
Focus on PE funds with demonstrated track records of operational improvement rather than pure financial engineering. Look for managers who maintain longer hold periods, invest in portfolio company capabilities, and demonstrate genuine industry expertise beyond deal structuring skills.
Consider the broader economic implications of PE strategies when evaluating funds. Firms that prioritize sustainable business building over maximum value extraction may offer better risk-adjusted returns while avoiding the reputational and regulatory risks associated with high-profile failures.
Due diligence should include specific questions about leverage policies, value creation strategies, and post-investment support capabilities. Understanding how PE firms actually add value—beyond financial engineering—becomes vital for distinguishing between legitimate investment opportunities and potentially destructive capital allocation.
The data clearly shows that private equity carries significant inherent risks that many investors may not fully appreciate. While successful PE investments can generate exceptional returns, the elevated failure rates require careful fund selection and appropriate portfolio allocation to manage downside risk effectively.
For business owners and investors managing complex exit decisions, Core Growth Group provides strategic guidance to help structure transactions that balance growth opportunities with long-term business sustainability.