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Private Equity Shutters MDL Logistics

After 12 years of trucking and warehouse operation, Michael Dusi Trucking and Michael Dusi Logistics Warehouse, Inc., otherwise collectively referred to as MDL Logistics, closed down Friday. The sudden closure took workers by surprise. The end follows a 2-year period of management by a private equity firm many blame for the unfortunate turn of events.

Consisting of 45 power units and 120,000 square feet of warehouse space, MDL Logistics’ closing affects 30 employees. MDL Logistics primarily served the California wine industry, a dominant economic force where the trucking and warehouse company operated.

Headhaul Capital Partners, a private equity fund based in New York, bought out MDL Logistics from its founder in 2018. Seth Wilson, an investment banker, founded Headhaul as a fund focused on transportation and logistics buyouts.

As part of the MDL Logistics deal, Headhaul loaded $3.75 million in debt to expand the company’s business. Instead, it closed MDL Logistics down.

Private Equity Targeted by Presidential Candidates

The collapse of MDL Logistics at the hands of a large investment fund marks the latest in a history of private equity closures. Most notably, the failure of Toys ‘R Us in 2017 followed investment by three private equity firms, Bain Capital, KKR, and Vornado Realty Trust.

Their stated intention was to purchase and revitalize the company. By executing a buyout, they pulled it from the public stock market with the eventual goal of returning it to make good on their investment. Instead, their management led to the toy store chain’s bankruptcy and the unemployment of thousands of its workers.

That national story exposed the methodology of private equity firms’ business model. While they use a portion of their own funds to buy a company, most of the purchase gets funded by debt saddled by the company itself. Through management fees, asset stripping, and dividends, private equity firms make themselves and their investors money while the company struggles to make good on its debts.

Because such firms insulate themselves from the debt, they aren’t held responsible. Therefore, when companies like Toys ‘R Us go under, Bain, KKR, and Vornado avoid loss. Instead, company assets and even pension funds liquidate to pay off the debt.

PE funds draw ire from politicians, and progressive from the Democratic field running for the presidential nomination call for PE crackdowns. Senators Elizabeth Warren and Bernie Sanders admonish the industry as operating against the interests of the companies it purports to assist. Warren unveiled proposed legislation, titled the “Stop Wall Street Looting Act,” to tamp down on PE investments.

Effectually, it seeks to reintroduce financial responsibility by tying liability to the PE firms in addition to the companies they force into debt.

Such legislation might have spared MDL Logistics from its fate. Instead, its employees now scramble to pick up the pieces.

In a letter, the employees of MDL Logistics called out the PE firm responsible for the company’s downfall. Read the excerpt below:

“As we were beginning to see the fruits of our long nights and lost weekends come to fruition, the investors and company leadership summarily departed to the East Coast without warning. Effectively, we have been left to close down the company with no guidance and no warning from our leadership team.”

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