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DISTRESS, FAILURE, AND RECOVERY IN PRIVATE EQUITY BUYOUTS

Nick Wilson

Introduction

This chapter examines the evidence in relation to private equity (PE) involvement in buyout activity and the influence of PE ownership on the risks and severity of financial distress (debt default) and failure (insolvency, bankruptcy) among their portfolio firms. We discuss whether companies acquired through PE buyouts are more likely to default on their debt obligations or enter legal insolvency processes than other firms.

Early work on modeling financial health in the corporate sector (Altman, 1968) confirmed that relatively high leverage in firms is associated with an increased risk of financial distress and the likelihood of bankruptcy. This is the case ...

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