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< Back to question Is private equity good for the economy? Show more Show less

Private equity firms have been called "locusts" by the German chancellor Angela Merkel but proponents argue that private equity investors make companies more efficient, create economic growth and provide good economic returns to investors.

Private equity leads to higher default rates and more bankruptcies and worse outcomes for customers and workers Show more Show less

Private equity is a misnomer and should properly be called leveraged buyouts. Leveraged buyouts, by definition, increase borrowing and raise the probability of bankruptcy.
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Private equity is a debt driven model

Private equity is debt-driven and leads to defaults. It should properly be referred to as Leveraged Buyouts (LBO) due to high debt.
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The Argument

The term private equity is highly misleading. There is very little equity involved in most deals, and companies are generally loaded with debt. In the 1980s, the industry was more appropriately called the Leveraged Buyout (LBO) industry, due to the high degree of debt (leverage) involved in deals. When a wave of LBOs went bankrupt in the late 1980s and early 1990s, the industry rebranded and became known as “private equity.” Pirate equity is more appropriate. It is an extractive industry that takes as much as possible from the companies it buys through endless fees and special dividends. Acquired companies are loaded with debt, which they can only pay down by hiking prices on customers and cutting costs. There is no new equity added in almost all acquired companies. Every time the term private equity is used, it obscures the true nature of the beast. Unlike venture capital, which injects equity into companies and funds new ventures, or initial public offerings, which raise actual equity, private equity is purely extractive.

Counter arguments


Rejecting the premises


    This page was last edited on Monday, 20 Apr 2020 at 06:56 UTC

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