A Theory of Private Equity Turnarounds
35 Pages Posted: 16 Jan 2006
Date Written: January 2006
This paper explores the advantage of private equity in turnaround situations. Since the analysis and recovery plan of floundering businesses is typically carried out by an external turnaround specialist, it is not clear what causes a breakdown in the ownership-management separation. The paper explores scenarios under which the transfer of ownership to private equity prior to implementing an operational turnaround can emerge as an optimal solution. Also considered is the possibility of investment syndication by which it the potential buyer can share the transaction with other private equity firms. Various alternatives are considered to approach the turnaround process, in particular, ones that allow for management replacement and others that do not.
Keywords: Private Equity, Turnaround
JEL Classification: G32, G34
Suggested Citation: Suggested Citation