Punchbowl Event: Sen. John Thune (R-SD) & Small Business Leader Praise Private Equity

Thune: “In the middle of the country, there are lots of businesses that are benefitting from [private equity].

WASHINGTON, D.C. – Yesterday, the American Investment Council (AIC) sponsored an event hosted by Punchbowl News examining how private equity provides critical capital and expertise to grow and support small businesses nationwide. Punchbowl News Founder Anna Palmer interviewed Senator John Thune (R-SD) in a one-on-one conversation. Afterward, Anna sat down with Drew Maloney, President & CEO of AIC and Hagan Kappler, CEO of Threshold Brands, a private equity-backed home services company.

Private equity supports South Dakota small businesses

In 2021, the private equity industry invested over $1 trillion dollars in the U.S. economy and over 74% of that investment went to small businesses. In Senator Thune’s home state of South Dakota, private equity backs over 30 local businesses and directly employs over 29,000 workers. Senator Thune highlighted the important role private equity investments play in supporting small businesses in his state, “There are a lot of businesses who absent investment by private equity would probably have a hard time getting going. If you look at South Dakota, for example, in western South Dakota there is a company called Property Meld that is an incredibly successful young company started in a basement. It went through an incubator now and is employing lots of folks in Rapid City.”

Senator Thune continued, “There’s a company out there called VRC Metal Systems which came up with the technology to help with repairs on airplanes. It is currently being used on the B1 at Ellsworth Air Force Base. There is a company called Farmers Business Network in Sioux Falls employing several hundred people financed largely with private equity. There are just lots of contributions that it makes to create jobs. I think that any company that is trying to get started is looking for investors … In the middle of the country, there are lots of businesses that are benefitting from [private equity].

74% of all private equity investments support small businesses

Small businesses are the lifeblood of local communities. AIC President & CEO Drew Maloney began his segment by explaining how private equity provides capital and expertise to small businesses nationwide, “If you think about the number of companies, it’s like 35,000 companies across the country. There are 11 million workers that are employed in portfolio companies, and most of these companies, more than 70% are small businesses that get funding from private equity backers.”

Maloney also added, “And what you see with a lot of the private equity companies is they work side by side with the leadership to grow the company over time and I think that’s really important, especially in this really challenging economic time. Private equity backed companies not only have their internal leadership team, but they have this entire other leadership team, associated with the private equity company.

Private equity built and grows Threshold Brands

Hagan Kappler, the CEO of Threshold Brands, a home services and maintenance business founded in partnership with private equity. Kappler discussed how private equity has provided critical investment and strategic advice to grow her business into a successful brand with more than nine service lines including plumbing, installation, heating, and cleaning services among others, “Threshold Brands was started by private equity. So, the private equity firm invested initially in what they call a platform company, which was our home cleaning business and a couple of other brands. And then from there pursued a roll up. They really stitch together a company.”

Hagan continued, “So we have a private equity owner who has helped to pull together this thesis and put together a management team. Now it’s our company and now we’ve got our own mission. We’re driving the company forward, but we know that we’ve got the backing of a private equity firm to continue to invest, support, and provide best practices playbooks. In our case, the private equity firm has done this before, so there’s a playbook and they’ve created value in this space already. And so that really helps to ensure that we’re on the right track.

Protecting small businesses from tax increases

During the Inflation Reduction Act (IRA) legislative process, the Senate considered a proposal that would subject private equity-backed small businesses to a tax increase originally intended to target large corporations. Fortunately, bipartisan members of the Senate decided against this misguided tax hike. Senator John Thune discussed how he worked with his colleagues to protect private equity-backed small businesses, “[this provision] was a tax added at the last minute without again, I think consideration to some unintended consequences. And so, we were able to strip it out. And so, it was… a tax that I was able to get a Democrat to work with me on and we were able to get it out of the bill.

AIC President and CEO Drew Maloney also discussed how the proposed tax increase would have hurt small businesses, “If you were a company like Threshold Brands, and because you’re held in a fund that may be associated with 30 other companies, they would have rolled all those companies together and treated them as one. Then Threshold Brands would have been subject to the book minimum tax just because all the companies combined in one fund was greater than a billion dollars. And that wasn’t the point of the book minimum tax … that’s why you saw, 57 votes, seven Democrats joined Republicans to strip it out. And so, there’s bipartisan support there.”

Click here to read more about how private equity supports small businesses.

Click here to watch the full event hosted by Punchbowl News.