The Private Equity Myth

Journal of Business Valuation and Economic Loss Analysis, Vol. 4, No. 1, Article 7, 2008

22 Pages Posted: 25 May 2009 Last revised: 5 Dec 2012

See all articles by Harlan D. Platt

Harlan D. Platt

Northeastern University - Finance and Insurance Area

Date Written: May 25, 2009

Abstract

The first wave of highly leveraged transactions (HLTs) also known as leveraged buyouts (LBOs) began in the late 1980s. Fewer transactions occurred in the 1990’s after a number of companies in the first wave failed when the economy slowed down. More recently, the driving force behind levered deals has been the private equity business. Private equity has grown exponentially in the past decade, see Kaplan and Schoar (2005). Nationally, an unprecedented takeover binge occurred between 2005-2007 as private equity firms used leveraged loans (at the same time that subprime borrowers used No Income No Assets loans to buy houses) to finance numerous transactions. This paper analyzes the purported impact of WACC on value and discusses how the Modigliani/Miller I proposition may have greater long term importance for private equity players.

Keywords: private equity, bankruptcy, WACC, value, Modigliani and Miller

JEL Classification: G10, G12, G31, G33

Suggested Citation

Platt, Harlan D., The Private Equity Myth (May 25, 2009). Journal of Business Valuation and Economic Loss Analysis, Vol. 4, No. 1, Article 7, 2008, Available at SSRN: https://ssrn.com/abstract=1409699

Harlan D. Platt (Contact Author)

Northeastern University - Finance and Insurance Area ( email )

Boston, MA 02115
United States
617-373-4740 (Phone)
617-373-8798 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
660
Abstract Views
2,514
rank
47,220
PlumX Metrics