◼ FINANCE Bloomberg Businessweek October 7, 201929private from 1980 to 2006. It followed both the LBOs
and a similar number of companies that stayed public
for a period of 10 years. They found about 20% of the
PE-owned companies filed for bankruptcy—10 times
the rate of those that stayed public. Pile on debt, and
employees lose, Ayash says. “The community loses.
The government loses because it has to support the
employees.” Who wins? “The funds do.”
Research by Eileen Appelbaum, co-director of
the Center for Economic and Policy Research, says
the problem isn’t leverage per se but too much of it.
She points to guidance issued by the Federal Deposit
Insurance Corp. in 2013 saying debt levels of more
than six times earnings before interest, taxes, depre-
ciation, and amortization, or Ebitda, “raises con-
cerns for most industries.” If that’s the case, plenty
of upheaval lies ahead. A 2018 McKinsey report shows
that multiples for median private equity Ebitda ticked
up to more than 10 in 2017, from 9.2 the previous year.
Of course, by the time private equity acquires someof these companies, they’re already in deep trouble.
Defenders say PE fills a crucial role in the market.
The firms have the resources and expertise to turn
companies around and an incentive to invest in them
to make sure there’s a healthy gain when they sell or
take them public, says Derek Pitts, head of restruc-
turing at investment bank PJ Solomon. “You have to
make investments to grow a smaller company,” he
says, and some require the kind of check that only
a major PE shop can write. Being shielded from the
quarter-by-quarter glare of public reporting require-
ments may allow PE companies to experiment and
focus on more than short-term results.
The retail industry was long a prime target for buy-
outs because of its reliable cash flow and the value of
the real estate it owned. But the sector is no longer
as suited to PE ownership amid ever-changing cus-
tomer whims and the massive upheaval brought by
Amazon, says Perry Mandarino, head of restructur-
ing and co-head of investment banking at B.Riley2011 2014 2018st
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Pacific National HoldingsQlik TechnologiesExamWorks Group
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ClubCorp HoldingsMonogram Residential TrustNetsToshiba MemoryCalpineHusky Injection Molding SystemsTMF GroupRefresco Group
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Warren Buffett teamed with
3G to nab H.J. Heinz, which
later merged with KraftKKR acquired Envision, which
owns a national doctors’
practice, for almost $10 billionDATA: COMPILED BY BLOOMBERG. COMPANIES MAY LATER HAVE BEEN SOLD OR TAKEN PUBLIC; NAMES MAY HAVE BEEN DIFFERENT AT THE TIME OF THE DEAL