Private Equity Mergers & Acquisitions
The mainstream news media love to beat up on private equity. Silly stereotypes craft “Gordon Gecko-like” images of greedy financiers whose sole objective is to bleed the financial soul from hapless companies and cast desperate employees to a hungry, cold fate of fending for survival.
I think that the temptation to tear down others who experience what appears to be a huge windfall profit is hard to resist, as if to say “how can they possibly have ‘earned‘ that much money?” Also, I don’t think that many in the mainstream news media really understand what those who manage private equity funds do and how they do it.
When a private equity investment firm acquires or invests in a company, they do so with the intention of improving that company’s operation, profitability and earnings. Doing so is in their economic interest, obviously resulting in greater rewards to the owners along with growth and job stability for employees. All too often in today’s economy, improving the company’s operation involves finding ways to stabilize shaky companies (thus preserving many jobs that would cease to exist if the company went under).
At a future date, often targeting 5-7 years later, the private equity investor will sell the company, and make a windfall — hopefully, or at least a decent profit! — from the sale of a much stronger company than they bought originally.
Over time, I have been collecting articles that show private equity-owned companies are typically better run and more successful than peer companies. While there are many innings left in the game of this recession, this story indicates that at least so far companies owned by private equity firms are less likely to have defaulted on their debt than peer companies.
