Owned, Optimized, and Sold

Parisa Bahrami • February 28, 2026

Booming business and bankruptcy are two sides of the same coin that is private equity, and bankruptcy was exactly the case for companies like Sprinkles Cupcakes. Founded by Candace Nelson and established in 2005, the company was sold to the private equity firm KarpReilly LLC in 2012 after Nelson decided to step away from operating the Sprinkles bakeries. On Dec. 31, 2025, the company abruptly shut down without giving workers proper warning, leaving them bombarded with orders from distraught customers (Los Angeles Times). While this sudden shutdown, and the many like it, may be confusing, understanding the intentions of private equity firms makes them easier for consumers to recognize and to watch out for in the future.

Private equity firms pool capital from investors to buy and gain ownership of a company, improve company sales and eventually sell the company for more than they bought it (Corporate Finance Institute). After these firms gain ownership of the companies, they can no longer be publicly traded or listed on a stock exchange (Morgan Stanley). There are three main types of private equity: growth equity invests in companies that are already stable and have room for improvement, leveraged buyouts allow firms to buy companies through borrowed funds while venture capital funds invest in early stage companies with high growth potential (Corporate Finance Institute). While private equity has the ability to improve company performance, it can also pose a high risk of business shutdowns and job losses, as it recently did to Sprinkles Cupcakes, as well as negatively impacting industries like healthcare, food and clothing (Chartered Financial Analyst Institute). The main goal of private equity firms is to acquire stakes of a company, allowing them to enhance performance, profitability and overall value of the company. However, this was not the case with Sprinkles Cupcakes.

Sprinkles Cupcakes originally decided to sell to private equity because ingredient and labor costs were too high for them to afford. However, this decision ended up leading to their demise as private equity firms such as KarpReilly LLC tend to make persistent, profit-driven choices that destroy product quality and can lead to quick, unforeseen shutdowns like that of Sprinkles Cupcakes (Los Angeles Times).

Private equity may not be the best option for profit-starving companies to rely on. In addition to this, economics teacher Allen Aronson shared his opinion on companies’ choices to sell to private equity.

“When companies sell to private equity because of the operational improvements that come with it, I’m all for it, but it’s all about the intent [of the private equity firm],” Aronson said. “Brands [like Sprinkles Cupcakes] may not have known the tactics that the firm would use, and may feel that they made the wrong decision to sell their company to private equity looking back.”

Aronson’s point supports the nuance behind private equity; private equity firms can both benefit and hurt companies with their “get-rich-quick" strategies. The intent of the firms determines the fate of the companies that are sold to them: profitable success for both the company and the firms, or an inevitable shutdown caused by a firm that overfocused on profit maximization.

Issues that come with companies owned by private equity are affecting both consumers and workers. For instance, the clothing brand Reformation was known to have high-quality and sustainable products. However, after being sold to a private equity firm called Permira in 2019, customers claimed that the clothing quality at Reformation declined greatly, as prices increased for clothes that were produced with low-quality materials (Vanderbilt Business Review). Junior Lucy Lam described why consumers feel the effects of private equity firms exploiting companies for the sake of monetary gain.

“Private equity firms tend to raise prices in order to maximize their profit,” Lam said. “I think that consumers feel dissatisfied paying higher prices for products of the same quality [prior to private equity ownership], or even of a lesser quality like [the merchandise] at Reformation.”

Around 53.1% of young people (ages 16 to 24) in the United States are employed, and along with the rest of the workforce, teens with part time jobs can be uniquely affected by private equity takeovers (Bureau of Labor Statistics). Junior Sabrina Safford who works at Java Wave Coffee in the Lunada Bay Plaza discussed how teen workers can be affected when employed under companies owned by private equity.

“Private equity firms [who prioritize profit] would lower pay rates and shift assignments for workers, especially for teens who have less work experience,” Safford said. “Sometimes companies will cut worker hours just below the amount that makes them eligible for things like health insurance, which allows the firms to take advantage of their workers even further.”

In continuation with Safford’s point on health insurance, private equity-backed health providers like anesthesiology, air ambulances and those of hospital-based services are one of the driving factors in the rising cost of health care. Some of these groups rely on aggressive billing strategies in order to maximize profit at the expense of consumers in need of medical attention. Additionally, private equity makes it more difficult for physicians to provide the best care for their patients by limiting the amount of patients they can see a day. Doctors may shorten appointment times to increase patient visits, ultimately in hopes of more profit for private equity firms (AMA Journal of Ethics). Now, the unethical tendencies of private equity are not only affecting the everyday lives of workers and consumers, but are also overcharging people who are actually dealing with emergencies that end up costing them hundreds of thousands of dollars, as well as giving industries like health care an unfavorable reputation in treating patients with less care than they should be (America’s Health Insurance Plans).

Private equity buyouts have increased in recent years, and have already shown the ability to reshape the economy in the United States by encouraging company growth and expanding economic opportunity (Private Equity Insights). If private equity firms only stay focused on profit maximization, they can potentially weaken company performance, but they can be beneficial if they use longer-term, sustainable techniques (Chartered Financial Analyst Institute). These techniques include minimizing the advantage they take on consumers and workers and making sure they improve profit for the company in the long run (Chartered Financial Analyst Institute). Before committing to private equity, companies should carefully consider whether becoming involved with a private equity firm will help or hurt their business in the long run.