Private Equity and the Demonic Musical Chairs Trap Every Business Owner Needs to Know About
What Is Demonic Musical Chairs?
I have been using this term for decades, and if you are new to what I do, let me explain it simply. You remember musical chairs as a kid at birthday parties. Music plays, kids walk around, music stops, and whoever is left standing is out. Demonic musical chairs is what happens in the world of money and investing when deals are structured so that someone is always going to be left standing without a seat. The early players get out. The late ones get burned.
This shows up in IPOs where the proceeds do not go to the company but to the early investors cashing out. It shows up in private equity deals where a business gets bought, loaded with fees and debt, and then sold again to the next buyer. Somebody always ends up holding the bag. That is not capitalism. That is just being a crook.
The Private Equity Exit Machine
Here is what I am seeing happen across the country, and I hear these stories constantly from clients and people I know personally. An entrepreneur builds something real. A car wash, a childcare center, a corner store, a regional service business. They put years into it. Then some firm shows up with a briefcase full of money and an offer that is hard to say no to.
And here is the thing. I understand why people take the deal. Regulations have made running a business increasingly painful. Once you cross certain employee thresholds, you get hit with healthcare mandates, compliance costs, and a mountain of government requirements. Many of these business owners are not looking to become the next Jeff Bezos. They just want to get out with something to show for their work.
Private equity provided that exit. And a lot of very good, very honest people took it.
The Problem Nobody Talks About
What happens after the sale is where things get ugly. I want you to picture the guys showing up to buy these businesses. Ivy League degrees. Puffer vests. Confidence that could fill a stadium. And in many cases, absolutely zero understanding of how to actually run the business they just purchased.
These are what I call the Kendall Roys of the world, a reference to the show Succession that I think captures it perfectly. Entitled, credentialed, and fundamentally incompetent when it comes to the real work of building something.
What typically follows the acquisition:
- Cost cutting that strips out the people and processes that made the business work in the first place
- Debt loading where the firm puts leverage onto the company’s balance sheet to juice their own returns
- Fee extraction at every step, management fees, transaction fees, monitoring fees
- A flip to the next buyer who is now holding an overleveraged, hollowed-out version of what was once a thriving business
Why This Matters to You
If you are an entrepreneur thinking about a private equity offer, you need to understand what you are actually agreeing to. The check you receive may be real. The promises about how they will grow your business and take care of your employees may not be.
If you are a worker or a customer of a business that just got acquired by a private equity firm, watch closely. The changes usually come fast.
And if you are an investor, understand that many private equity structures are built around fees and the deal itself, not necessarily the long-term performance of the underlying business.
Demonic musical chairs does not care how smart you are or how hard you worked. The music is always playing. The question is whether you know when it is about to stop.