What's Wrong with Private Equity Firms: Ask Mervyns
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Code :BSM0047
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Region : US
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Introduction:In the 1990s, the Private Equity (PE) market flourished and made a mark in the global financial sector. Though the ideologies of PE firms are based on risky propositions, institutional investors have bestowed their investments in these firms in lure of high returns. The business of these firms is to acquire companies with the support of leveraged debt and dispose them of at profitable figures. In recent times, the acquisitions of PE firms have skyrocketed creeping into every sector. One of the acquisitions in the retail sector was that of Mervyns California (Mervyns), a departmental chain established in 1949. Three PE firms - Cerberus Capital Management (Cerberus), Sun Capital Partners (Sun) and Lubert-Adler - which acquired Mervyns promised to restructure the company's operations, but instead pushed the company into bankruptcy. Mervyns is not the only company to have been pushed into bankruptcy. The year 2008 saw the failure of a string of companies acquired by PE firms. Considering the decline in the success rate of companies owned by PE firms, is it time to reframe the business model of PE firms? In what possible ways can these firms remodel their business operations to address the challenges? What is the affect of the current financial crisis and the consequent tightened access to debt on these companies? |
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