Private Equity Firms Face Significant Losses from 'Continuation Vehicle' Strategy
A prevalent strategy within the private equity landscape, known as continuation vehicles, is currently under intense scrutiny following a notable setback involving United Site Services (USS), a company specializing in portable sanitation solutions. This situation has led to considerable financial implications for several prominent investment firms, drawing attention to the inherent risks associated with such investment structures, especially when facing volatile market conditions and operational challenges. The incident serves as a stark reminder of how even seemingly promising ventures can falter, resulting in significant capital depreciation for investors.
Platinum Equity established a continuation vehicle in 2021 with the express purpose of transferring USS from one of its established private equity funds into a newly formed fund. This strategic maneuver appraised USS at a substantial valuation of $4 billion, designed to facilitate an exit for initial fund investors, allowing them to liquidate approximately $2.6 billion of their holdings without an outright sale of the company. This approach has become increasingly common as a mechanism to realize value from assets in a sluggish deal-making and initial public offering environment, offering liquidity to existing stakeholders while retaining a promising asset within a firm's portfolio.
However, the anticipated success of USS did not materialize. Despite initial projections based on a post-COVID resurgence in events and construction activities, the company encountered significant operational and financial headwinds. Elevated interest rates negatively impacted the construction sector, a crucial client base for portable sanitation services, and simultaneously strained USS's own financial health, as debt servicing consumed a substantial portion of its cash flow. Furthermore, the company struggled to effectively integrate its numerous prior acquisitions, exacerbating its operational difficulties.
As a direct consequence of these challenges, Platinum Equity is reportedly preparing to cede operational control of USS to its lenders, which include Clearlake Capital and Searchlight Capital Partners. This impending handover is widely expected to result in a complete financial loss for investors who participated in the continuation vehicle, highlighting the severe consequences of a highly concentrated, single-asset fund strategy. The situation underscores the precarious nature of such investments, where a singular focus on one asset can amplify exposure to specific market downturns and operational failures, leading to irreversible financial damage.
This case vividly illustrates the potential pitfalls of continuation vehicles, a financial instrument that accounted for nearly 20% of all private asset exits during the first half of 2025, according to analyses from financial institutions. While these vehicles provide private equity firms with enhanced flexibility to extend their ownership of high-potential assets, the considerable losses incurred by USS investors demonstrate that such structures can expose new capital providers to illiquid, concentrated, and ultimately unsuccessful investments. The experience serves as a crucial cautionary tale for investors navigating the complex landscape of private equity strategies.