Monday, August 12, 2019

PEU Ownership Leads to Affiliate Bankruptcies

An academic study found private equity underwriter (PEU) ownership carries financial risk:

Tracking a sample of 484 public to private LBOs for 10 years after going private, we find a bankruptcy rate of approximately 20%, an order of magnitude greater than the 2% bankruptcy rate for the control sample

Deal fees, management fees, dividend bleeding, debt bloating and asset stripping are signature PEU moves that drain valuable capital from affiliates and place them in a precarious financial position in any downturn.