Across the Midwest, family businesses once woven into the fabric of local life are vanishing. Not because of globalization or waning demand, but because of something closer to home: private equity. What began as a tool for capital efficiency has, in too many cases, become a wrecking ball for generational legacies.

As someone who has spent decades navigating the capital markets and participating in the development of the alternative asset category, I have witnessed how private equity has morphed into an immensely important investment class. As a pioneer in the development of that category, I saw its evolution from a largely unknown investment technique — leveraged buyouts — to an explosive force in the capital markets.

In the 1980s, it was viewed as an innovative transactional structure that allowed financiers to leverage small amounts of equity into meaningful pools of capital to acquire businesses that otherwise would have been untouchable. These leveraged buyouts allowed those investors to purchase public companies that were worth many multiples of the contributed equity with the gap being provided by high-yield — or junk — bonds.

Many of the early practitioners were well-intentioned, long-term-oriented investors. But with the flood of high-yield debt in the 1980s came a different breed: the so-called corporate raiders. They deployed debt aggressively in hostile takeovers, often targeting much larger publicly traded companies. Hostile buyouts proliferated, leading to the breakup and dismemberment of mainly highly regarded firms.

At the time, my firm often found ourselves in the position of saving companies from these attacks — taking them private to preserve their integrity and shield them from destruction. But the raiders’ influence lived on.

Unfortunately, the story did not end with publicly traded giants. In recent years, excessive leverage and a short-term focus on profit extraction have devastated many privately held, often family-owned companies — the backbone of Midwestern economic life.

Take Art Van Furniture. Once a proud Michigan family-held business employing thousands, it was bought out by a private equity firm in 2017. Just three years later, drowning in debt, the chain closed all 190 stores, eliminating 3,100 jobs and erasing a legacy built over generations. That wasn’t an isolated event. Indianapolis-based Marsh Supermarkets faced a similar fate. Through lucrative real estate deals benefiting the investors, Marsh was weakened to the point of bankruptcy.

Necco, Fairway Markets, Prima Wawona, Scott Brass — the narrative repeats itself again and again. Each one a community institution. Each one methodically drained, leveraged, sold and ultimately collapsed. Greed and excessive risk-taking continue today.

And now, as the great wealth transfer accelerates and baby boomer owners look to sell, the stakes have never been higher. Family businesses — often built on trust, reputation and decades of sacrifice — will need liquidity to cover estate taxes and succession planning. States such as Illinois and Minnesota, which impose their own estate taxes in addition to the federal levy, create additional financial burdens for families — burdens for which they must account. But they must be cautious.

It is imperative that matriarchs and patriarchs of these businesses choose their capital partners wisely. Family-held companies are simply too important to be jeopardized by the involvement of investors whose values diverge from those that made the businesses successful in the first place.

Since family-held businesses represent the fulfillment of the American dream, it would be both wrong and tragic to allow the legacies of those businesses to be destroyed by the introduction of private equity players that prioritize short-term gain over long-term value. Owners must remember that leverage is often the enemy of sustainable growth and that true partnership means shared values and aligned missions.

Private equity is not inherently destructive. It has funded transformative innovation and delivered significant returns for pension funds, university endowments and charitable foundations. But to truly do well and do good, private equity must embrace a more ethical, community-minded approach.

State pension funds and university endowments — some of the biggest investors in private equity — must set the tone. They should demand returns, yes, but from funds that uphold local values, family-held business dignity and community welfare.

Traditional private equity practices too often prioritize extracting immediate value over preserving long-term sustainability. The past teaches us that when private equity recklessly pursues opportunities, they undermine the very foundations on which family businesses stand.

Founders of family-held businesses nearing retirement must realize that what looks like a lifeline can quickly become a trap — stripping away not just their company but also their values, their culture and their legacy.

What private equity must learn is that doing well financially and doing good socially are not opposing goals. Ethical, sustainable investing models flourish precisely because they fuse strategic discipline with a deep sense of responsibility — to employees, to communities and to the future.

Doing well and doing good are not mutually exclusive; they are inseparable. The future of our communities, our local economies and the integrity of the industry depend on it.

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Robert F. Mancuso is a graduate of the University of Chicago Booth School of Business and was the first president and CEO of Merrill Lynch Capital Partners, the private equity arm of Merrill. He is founder of White Knight Capital, which through its Capri Capital Partners Fund focuses exclusively on helping midsize family-held businesses preserve their legacies.

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