Good for business – or profit at any cost? The controversial side of private equity – a visual explainer

Private equity could be the two most controversial words in business. For its supporters, it can bring investment, expertise and efficiency to a company. For critics, it is a one way ticket to profiteering, cutting costs and losing staff. The arguments over private equity are particularly fierce when it is used in the public sector, particularly the NHS. What is undeniable is that it is everywhere , with one in eight British workers employed by firms funded by private equity. So what exactly is it? And why do some aspects of it provoke such strong feelings? To help explain, the Guardian has created a fictional vet practice to explore some of the controversial practices that can happen within private equity. The example below is illustrative not definitive, and focuses only on some of the elements that have attracted criticism. It is a vast, complex industry that is hard to capture, with a range of financing structures and practices. But this example may help to explain why these three more divisive aspects have drawn attention. 1. The use of debt Responding to criticism that private equity’s use of debt places a burden on the companies they buy, James Gribben, a spokesperson for UK Private Capital , an industry body and trade association, says private equity uses “leverage” responsibly. In finance, leverage is the use of debt to increase returns gained from an investment. …