As the article says, leveraged buyouts of retail end in bankruptcy only 41% of the time, and most of those bankruptcies are presumably not a total loss for the banks. So it's just a matter of pricing the loans to ensure the successes cover the losses.
(Why do private equity firms want to be in this business? Because the 59% that don't fail often generate very good returns.)
> (Why do private equity firms want to be in this business? Because the 59% that don't fail often generate very good returns.)
The way they limit their own exposure to risk seems to increase the odds of the targeted business completely failing, though. I think that's the part people have a problem with.
Agreed. I'm sure there's edge cases I don't know about, but in general I think it would be better to simply not allow leveraged buyouts and let businesses that would fail without the buyout fail.
I tried to look into this, and as far as I can tell the terms of LBOs are just so opaque there's no good way to tell. Maybe patio11 will do an article on it some day.
(Why do private equity firms want to be in this business? Because the 59% that don't fail often generate very good returns.)