The military and private equity get even closer, Trump tries to sink a housing bill, and Pizza Hut gets the PE treatment. Let’s take a look at a few of the big stories in the world of private equity. 

The Pentagon and Private Equity

Sen.Elizabeth Warren (D-Massachusetts) continues to shine a light on the Trump administration’s open door policy when it comes to military budgets and private equity profiteers. In a letter to Defense Secretary Pete Hegseth — which was also signed by Rep. Ro Khanna (D-California) and Connecticut Senator Richard Blumenthal  — Warren pointed out that PE’s military investments have been growing over the past two decades, and things are likely to get worse: “And thanks to President Trump’s reckless war in Iran and other unnecessary military excursions, private equity’s ability to profiteer off the technologies and services needed to maintain our nation’s defense system will likely continue to grow.”

The letter cites a range of problems – the increased risk of PE firms going bankrupt, price gouging, and the national security concerns inherent in dealing with such a notoriously opaque industry.  Separately, the same trio of lawmakers introduced a bill intended to increase oversight of private equity-linked military contractors. 

Unfortunately, these trends should come as no surprise. As we noted last year, when Trump nominated private equity billionaire Stephen Feinberg to be his deputy secretary of defense it was easy to assume that the Pentagon and private equity would become ever more entangled. 

Trump Goes After A Housing Bill He Theoretically Supports 

When the House and Senate both passed the 21st Century ROAD to Housing Act, lawmakers and policy analysts concerned about private equity’s footprint in the housing market were mostly pleased. In the end, the bill would place a cap on the number of single-family homes that institutional investors can buy. But President Trump abruptly canceled an event where he was to sign the measure, evidently because he wants lawmakers to pursue a voter ID bill that has failed to garner enough support. It was a bizarre turn of events, especially considering that Trump has long signaled support for reining in Wall Street’s power in the housing market – it was the subject of one of his first executive orders. The bill may eventually become law no matter what Trump thinks of it, or if anyone can figure out what he’s thinking at all.

Continuation Vehicles Eyed by SEC Regulators

Reuters reports that the Securities and Exchange Commission (SEC) is taking a look at the use of so-called ‘continuation vehicles,’ an increasingly popular maneuver that PE investors are using with assets they cannot sell. According to the report, the SEC is “investigating potential conflicts of interest around the CVs, how managers are valuing the assets, and whether investor disclosures are sufficient and consistent.”

While it might come as a surprise that the PE-friendly Trump administration would take any real action on this, some level of scrutiny is certainly warranted. As Eileen Appelbaum wrote back in January, these deals look something like this: “When a private equity fund (Fund A) has an aging company in its portfolio, it can sell the company to a new fund (Fund B) known as a continuation vehicle. In these transactions, Fund A sells assets in a fund owned by a PE firm to another fund that is also owned by the same PE firm.”

While that kind of structure should raise some eyebrows – and the core problem with all this circular deal-making is the motivation to overvalue portfolio companies that cannot be sold. As the piece last January observed, given the record-high levels of these transactions, “It is reasonable to expect more questions being raised about this kind of financial engineering.” 

Keeping Tabs

The Private Equity Stakeholder Project launched a new research tool that will track all the available data  on private equity-backed acquisitions of companies with 500 or more employees. The tracker gives brief updates on the dealmaking and breaks the data down by sector;  it is definitely worth a close look.

Youth Sports On the PE Radar 

A private equity company owned by former NFL quarterback Eli Manning announced a plan to buy RCX, a company that manages youth leagues linked to major professional leagues. Manning says his interest is in making flag football more accessible, but the deal comes at a time when criticism (and media coverage) of private equity’s pursuit of youth sports is only increasing. 

Indeed, several Democratic lawmakers have introduced the Let’s Play Act, which seeks to ban PE firms from investing in youth sports.

Private Equity Comes for Pizza Hut

The national chain Pizza Hut, which has been struggling for years, was sold by its parent company Yum Brands in mid-June to the PE group LongRange Capital. As Axios noted, pizza and private equity have some history; familiar brands like California Pizza Kitchen and Sbarro have passed in and out of the hands of PE investors, often winding up in bankruptcy. There is other food industry history to consider; Eileen Appelbaum wrote about the private equity takeover of the Friendly’s chain:

Three years after being taken private by an affiliate of private equity firm Sun Capital Partners, Friendly’s – the family restaurant and ice cream chain known for its Happy Ending sundaes – filed for Chapter 11 bankruptcy protection.  According to the filing, Friendly’s proposes to use the bankruptcy to jettison the pensions of nearly 6,000 employees and retirees. 

Friendly’s eventually changed hands a few more times, and is currently owned by a subsidiary of a different private equity group.