10 Pages Posted: 16 Jan 2008 Last revised: 24 Jan 2008
This article reviews the recent trends (2001-2006) in private equity and leveraged buyouts (LBOs), focusing on changes in valuations, amount of leverage, and the institutional nature of leveraged financing. It compares these recent trends to the private equity boom and bust cycle of the 1980s, suggesting that there might have been a boom in recent times as well, and examines the likely consequences of a bust. It presents a case that the dispersed and opaque nature of recent LBO debt could transform few, large LBO defaults into a systemic event, akin to the sub-prime crisis. It concludes with policy recommendations concerning the disclosure of institutional ownership of LBO debt and the ability of bankruptcy codes to deal with large LBO defaults.
Keywords: leveraged buyouts, hedge funds, securitization, credit risk transfer, financial crisis, bankruptcy
JEL Classification: G20, G30
Suggested Citation: Suggested Citation
Acharya, Viral V. and Franks, Julian R. and Servaes, Henri, Private Equity: Boom and Bust?. Journal of Applied Corporate Finance, Vol. 19, No. 4, 2007. Available at SSRN: https://ssrn.com/abstract=1083142