News & Insights

Apr 23, 2018

How private-equity owners lean into turnarounds

Key Highlights

• It’s well known that the boards of the best private-equity (PE) firms create value by using financial leverage to increase their returns on equity, by improving the strategy and operations of their target companies, and by exiting at higher multiples. Proponents of PE further argue that management incentives, strong board governance, and a concentrated shareholder base are critical for long-term success.
  


• Struck by recent difficulties in sectors such as oil and gas (not to mention mining) in the wake of collapsing commodity prices, we decided to find out whether more disciplined PE practices can make a difference during troubled economic times. To that end, we compared the performance of 659 PE-backed and publicly owned enterprises across different sectors over the last nine years. Our finding: PE-backed companies outperformed their public peers when recovering from business distress, even taking into account a higher risk of bankruptcy.