In an article by Dealbook and a study conducted by Moody's, firms owned by private equity are less prone to bankruptcy and layoffs despite media's portrayal of PEs as liquidators from Romney's affiliation with Bain Capital:
The Moody’s study reviewed more than a thousand situations going back to 1988 where companies defaulted on their debt. Two hundred involved companies that had undergone leveraged buyouts backed by private equity; the others had not. The results of this exhaustive study repudiate the “conventional wisdom” of the anti-Wall Street crowd that leveraged buyouts destroy companies and jobs.
Most surprising, if a private equity-owned company defaults on its debt, it is half as likely to be liquidated as its counterparts. The Moody’s report notes that “a much higher percentage of bankrupt LBOs were acquired or emerged from bankruptcy instead of being liquidated.” When companies are acquired or emerge from bankruptcy, jobs are much more likely to be preserved than when the enterprise is liquidated.
While deals have also been slower in the fiscal year coupled with negative publicity, another article by DealBook also reveals the bullish attitude of PE firms.
A 28-page study, released this week by professional services firm Rothstein Kass, found that 77 percent of 293 private equity firms polled believe there will be more attractive investment opportunities this year than last year.
Thoughts on these trends? How do you feel about the current negative publicity that private equities are getting? Do you share the same bullish sentiment or are these findings nothing new to you?
Who gives a shit about jobs? I care about productivity, median wages, and GDP per capita. PE helps in all of those.
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