PBS on Friday aired this piece about Private Equity and the companies they invest in:
Potential Risks of Buying Companies on Borrowed Money ExaminedA few observations:
- Private Equity companies clearly have a PR problem. They have to come to grips with the fact that they will have to change and be more open about what they are doing.
- The companies presented here would probably not be around any more had it not been for Private Equity investors taking a risk and trying to turn the ship around. The only way you can do this is with drastic changes since, obviously, continuing the old path will eventually lead to bankruptcy. Yes, that may feel like Predator drones coming in, but without them, you'd have nuclear wasteland, to stick with the metaphor.
- Deals in the past were overleveraged and leverage will play a much smaller role in the future. That is bad for returns but good for the quality of deals. A lot of deals got done in the past that should not have gotten done.
It is a shame that none of the Private Equity houses was willing to comment. It may have not yet settled in with them that times are changing and that they have to change, too. But saying that Private Equity destroys jobs and pensions is simply not correct. The opposite is true.
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