Private Equity or Pirate Equity?

Private equity made headlines recently due to its bid for a share of NZ Rugby and the All Blacks. High profile failures like Toys R Us in the USA and Dick Smith in Australasia have highlighted problems caused by Private Equity.

This article in Vox by Emily Stewart is a scathing indictment of private equity firms. The usual pattern is buying companies, many facing problems, saddle them with even more debt, make a quick profit, and sell them. Even when they bankrupt the company, they walk away with substantial profits, while everyone else loses their shirts or, as Emily puts it, Heads I win, Tails you lose!

Failures are exceptionally high with the larger private equity firms. As per Binyamin Appelbaum of the New York Times; “The big private equity firms that have no idea about the particular industries in which they are investing, they think they can have this cookie-cutter model and make money. That’s where we’re seeing these terrible models happen”.

Statistics cited by Emily is fascinating reading. 20 per cent of public companies that go private through leveraged buyouts go bankrupt within 10 years, compared to a control group’s 2 per cent bankruptcy rate.  Employment shrinks by 4.4 per cent two years after companies are bought by private equity, and worker wages fall by 1.7 per cent. Everyone else loses!

Full article at Private equity, explained – Vox