This conversation was first published by the Halifax Examiner on March 28, 2025.

Private equity firms have been in the news this year.

As I reported here, Canada’s oldest retailer, the iconic Hudson’s Bay Company, has declared bankruptcy and has been liquidating all but six of its 80 stores across the country.

Like so many other retail outlets before it, The Bay succumbed to the private equity buyout-and-bankrupt scourge. The Bay is owned by NRDC, a large U.S. private equity firm owned by real estate mogul Richard Baker, who has “driven a set of coffin nails into The Bay.”

Canada’s new Prime Minister Mark Carney has also been scrutinized for his private equity background. Before becoming leader of the Liberal Party of Canada and then prime minister, Carney spent nearly five years as chair of a private equity firm – Brookfield Assets Management – and there have been criticisms of the way Brookfield operates, and its use of the tax haven of Bermuda for two of its funds.

Many Canadians who are active on the stock market – including Conservative leader Pierre Poilievre – are invested in Brookfield through exchange-traded funds. That’s how pervasive large private equity firms have become.

In a recent report for the Canadian Anti-Monopoly Project (CAMP), author Rachel Wasserman laid out some problems with private equity, or more specifically, with “buyout private equity.” The buyout private equity playbook involves the “leveraged buyout,” when a firm borrows heavily to purchase healthy mature businesses, including consolidating or “rolling up” small independent businesses to take control of an entire sector (such as veterinary services, funeral homes).

The playbook includes saddling the acquired company with the debt used to acquire it, increasing profitability by cutting staff and expenses, stripping it of real estate assets if it has any, and renting premises back to the company. Buyout private equity firms profit massively from short-term serial investments, and then flip them, usually to another private equity firm. In some instances, however, their profiteering drives the company into bankruptcy.

Witness the demise of The Bay.

But it’s not just the owners and employees of the private equity firms who are benefiting from this parasitic playbook. Anyone receiving a pension may well be unwittingly complicit in the private equity business. Canada’s Pension Plan and the Ontario Teachers’ Pension Plan, for example, are two of the biggest investors in private equity in the world, because it is usually very profitable – even if, sadly and ironically, it often harms workers.

After I reported on the immense economic and social damage that buyout private equity causes, I received a lot of feedback from readers who expressed frustration about the problem, and asked what – if anything – could be done to rein in these firms.

I wanted to know the same thing.

So I got in touch with Jon Shell, chair of Social Capital Partners, an independent Canadian organization that sees extreme wealth inequality and concentrated ownership of assets in Canada as “big problems” it wants to help fix.

A few months ago, Social Capital Partners (SCP) hosted a panel discussion that examined private equity and its harms. SCP also recently published an article on the hidden takeover of the economy by buyout private equity firms, and five ways to push back against rollups of local businesses, the serial acquisitions that lead to private equity’s control of entire industries.

In a telephone interview, Shell said he joined Social Capital Partners in 2017, disenchanted with what he saw happening with private equity.

Back in 2006, Shell co-founded VetStrategy, which went on to roll up independent veterinary practices in Canada. Shell then founded another firm that did the same in Australia.

Then, over the years, Shell watched as private equity moved in and expanded its control of these companies, and he saw the effects it was having. Private equity differed from other businesses with incentives that drove behaviours he said were not good for democratic, progressive countries.

As a result, Shell left the business and is now with Social Capital Partners, which works to find ways for regulators to rein in private equity firms. Shell told me such measures would also promote strong communities, which Canada needs to protect itself from the ongoing threats of annexation and punishing tariffs from the Trump White House, which SCP is addressing with its project “Never 51.”

This interview has been edited for length and clarity.

Joan Baxter (JB): The Social Capital Partners (SCP) website starts off by saying that wealth and ownership are concentrated in very few hands in Canada, and it’s getting worse. It also says those who have the most influence on public policy seem fine with that, whereas you at SCP are not. Can you tell us a little about SCP, what you do to counter wealth and ownership concentration in Canada?

Jon Shell (JS): In the time I’ve been at SCP, we have focused on wealth inequality and the structures that grow and shape this wealth inequality in Canada and around the world. At the base of that wealth concentration are a set of incentives that drive behaviours. The world is not full of evil people and good people. There are incentives that drive behaviours, and that’s what we think is problematic in many areas and where we try to focus our time.

JB: How does private equity fit into your work? And what do you think that Canadians need to know about private equity?

JS: There are many different types of private equity, and the one that we are most concerned about is a buyout fund. The reason we worry about [private equity] buyout funds is that the incentives are so short term, and so focused on the buying and selling of companies that it skews what that company should be doing, the actual economic purpose of the company, what it does for its community and for the economy … Their concern for the long-term effect is zero.

There are two groups of people who need to understand it. One is the business owners who may choose to sell to private equity buyout funds. Owners should understand that once a private equity company buys your firm, it will never be owned independently again. Once that private equity firm is finished its ownership, and it has to be, as it’s contractually obligated to sell it in a certain amount of time, it will sell it to another private equity company. And then it’ll sell again and again. It’s a treadmill.

So even if you like the people you’re selling to, and some of them seem great, eventually that company is going to be held by a private equity company that will not share your values. That will cause them to do things that will ruin the culture that you’ve built. That’s an inevitability. Any owner who chooses to sell to private equity should know that over time, the thing that they built will be destroyed.

The public should also understand who owns things in Canada, and [most] people don’t. Partly, that’s by design. If you’re a manager of a private equity firm, the very last thing you want is for the customer of a company you own to know who you are. You don’t want anyone emailing you with complaints or concerns. You don’t even want the employees of that company to really know who you are, because you sit behind the curtain. Your objective is not to engage in the day-to-day of the business. So, the public just doesn’t know [who owns what]. And that, I think, is problematic.

If you ask people, “Hey, do you think it’s okay that Mountain Equipment Company is owned by a private equity firm in Los Angeles, someone who’s spent a grand total of 15 hours in Canada,” I think they would say no. It’s the same with The Bay [put into bankruptcy under U.S. private equity ownership]. If you were to ask people is this the way our country should be owned, the vast majority would say no. But the information is not out there.

JB: You’ve been talking about how buyout private equity works, which is hard for many of us to get our heads around. How is it that private equity firms can buy those companies, and then flip them – or maybe allow them to go bankrupt – and make money off that? How does that work?

JS: They’re absolutely not intentionally bankrupting companies. It happens sometimes as a result of what they do, but it’s not what they’re setting out to do. The easiest way to understand it is to think of it as an accelerated mortgage for a house. If I buy a house and rent it out, and get a 30-year mortgage, the rent is essentially paying for the mortgage. That’s what you want it to do. I’m not making any money, any cash, along the way. But at the end of the day, I will have this asset [house] with the mortgage now paid off, and I can sell it. I only had to put in the down payment at the beginning, my 20%, and then 25 -30 years later, I get to sell it for 100%.

This is the same way with these [buyout private equity] businesses. I buy a business, and put down whatever it is – 20, 30, even 40%. Then I borrow the other 60%, and spend the next five years running it, a bit leaner if I can. I’m trying to do what I can to make it produce a bit more cash. I pay down the debt using the company’s cash flow. At the end of it I own all of it. In five years, I can go from the 40% I put down, to 100%. And I only pay capital gains tax on that.

The same thing with buying a house. I’m paying a lower rate of tax on that growth. So, I don’t care about whether I get cash out along the way, because I’m making two-and-a-half times my money just by paying the mortgage. Am I going to try to do some things along the way? Sure. If I have assets I can sell, I’ll sell them if they don’t contribute to the value of the business. That’s what the Hudson’s Bay did with its real estate. That’s common. If I could fire some people without affecting my cash flow or without affecting my sales, even if it’s just short term, I’ll do that. So that’s the simplest way to understand it.

JB: In a recent article, Social Capital Partners proposes five measures for reining in powerful private equity players. The article says the Competition Act should put these kinds of serial private equity acquisitions on its radar because most fall below the Competition Bureau’s merger notification threshold of $93 million. And it says the bureau should call out serial acquisitions in its Merger Enforcement Guidelines, gather better data on serial acquisitions, and ensure the public is informed about mergers – in plain language. Lastly, it proposes that provincial governments should make sure customers of businesses such as veterinarian offices are “fully informed” when ownership changes. Can you speak about these?

JS: The SCP article is focused very much on Main Street rollups [when a private equity firm scoops up and merges under its ownership small independent businesses across an entire sector], and those serial acquisitions, those solutions are great. But there’s a broader question of the incentives that drive this behaviour. I know a lot of these guys. They’re not bad human beings … It’s the incentives that drive the behaviour.

So how do you shift the incentives? If one were interested in driving private equity ownership out of the economy, there are absolutely lots of ways of doing that by shifting incentives. The last two points in the article are powerful – requiring alerts to changes in business ownership and informing the public about mergers, making the activity of private equity less hidden. We see right now [in Canada] how powerful consumer choice can actually be. Maybe for the first time we’re seeing that.

A national public registry of ownership of companies would absolutely matter. And if you acquire a service company, like an audiology clinic, or a dental clinic, it would be powerful if there was a regulation requiring you to inform your customers of a change in ownership so they know who really owns it.

JB: The Social Capital Partners article also states, “We already face economic assault from the south—we cannot accept unchecked serial acquisitions as a tactic in this economic war against us. These “rollups” of local businesses don’t create jobs and they don’t drive innovation.” The article says the Canadian government “must make it a policy priority to prevent American investors from buying up the Canadian economy.” Is this still happening? And is this, could this be an election issue?

JS: I certainly hope economic sovereignty will be an election issue. I think the Liberals very recently changed the Invest in Canada Act so that they can act more aggressively against foreign purchase of Canadian companies. That absolutely should be an election issue. How much do we want to allow Americans to own our companies? And with an increasing value of their dollar, with uncertainty in the Canadian market, you could certainly see there being an opening for more of that. Is it happening? One interesting thing that’s maybe worth understanding here is that Canada also of course has private equity companies.

We also have our own buyout firms that no one has ever heard of. Birch Hill is a good example of a Canadian private equity buyout firm. From one perspective, it’s better for a Canadian private equity company to own a Canadian company, in that at least they’re Canadian. But in terms of the way they operate, it’s exactly the same. They’re not more moral. They’re the same, with the same incentives. So as companies get bigger, like our company VetStrategy, initially it was sold to a Canadian private equity fund. But then they sold it to an American private equity fund, as we got too big for there to be a logical Canadian owner. So VetStrategy is now owned by American and European interests, whereas back in 2013, it was owned by a Canadian.

JB: Social Capital Partners has a project called “Never 51,” which I assume is in response to the Trump administration’s current assault on Canada?

JS: “Never 51” is entirely a response to Donald Trump. There are a number of different ways for us to resist American intervention and an American assault. First of all, we think it’s important that we do it as aggressively as possible, you know, elbows up. But also in a way that maintains the things that make Canada the country it is, with an inclusive economy that does its best to make life better for all Canadians, including workers, with health care that’s available, and education that’s available, and all of the things that make Canada a great country today. The danger is that we do “Never 51” in a way that makes us look more like the United States, which would be a very bad outcome for the country.

JB: You write that with Canada’s sovereignty at stake, the country should invest in every approach to keeping Canadian businesses in Canadian hands, and you refer to the UK’s success in incentivizing employee ownership conversion. Can you talk a little about employee ownership?

JS:  Sure. The UK started their employee ownership program back in 2014. And last year, almost 10% of all companies that were sold in the UK were sold to an employee ownership trust, which is a vehicle to keep the ownership of the company in local hands, by their workers. That represents 400 different transactions in the UK last year. It’s a huge number of companies to keep local. And the outcomes of employee ownership in the UK have been sustainable communities. The wealth stays in communities, the proceeds of those companies now go to workers of those companies. For keeping a community resilient, it’s an incredible policy idea. And we have that here in Canada. Although it started back in June [2024], there are still holes in the policy, and it’s not aggressive or comprehensive enough to achieve what they’ve achieved in the UK.

JB: So what you mean by Canada “Never 51”?

JS: I spoke to a Canadian manufacturer a couple days ago, and said, “This whole buy-Canadian thing, does it really matter?” And he said, “Well, first of all my sales are up 50% over this time last year. Not only that … the American brands are down 80%.” So, I tend to not have faith in requiring individual behaviours across a vast disparate group to create change. But it’s happening in a way that we’ve never seen in this country. Not even close.

And so, I think yes, I think we’re Never 51.

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