Future may crash down on private equity-owned firms in the US
While still small in SA, the growth in private equity funds internationally means more than 8,000 US companies are now controlled by private equity firms
Perhaps the most aggressive proponents of efficiency in the corporate world are private equity funds. When they acquire a company, their model boosts near-term free cash flows by aggressively cutting costs and capital expenditures (operational efficiency) and leverages return on investment by using the target company’s own balance sheet to help fund the deal (“capital efficiency”).
While this model has successfully transformed some businesses, applying it on a much broader scale and more aggressively carries significant risk. In 2018, about 65% of buyouts in the US were leveraged at six times earnings before interest, tax, depreciation and amortisation (ebitda) or greater, and about 40% at seven times or greater, according to data from LPC...
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