ABSTRACT
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 and failure among their portfolio firms. It discusses whether companies acquired through PE buyouts are more likely to default on their debt obligations or enter legal insolvency processes than other firms. Of particular interest are the "recovery rates" for investors, how much typically PE sponsors are able to recover from the process of company liquidation or administration procedures, and how this compares to the recovery rates for shareholders of other companies. The chapter examines the evidence on financial distress among PE portfolio companies, evidence on the drivers of post-buyout performance. Researchers point to the PE investors' active involvement in strategic and operational management post-buyout as an important determinant of success and to the actions that the PE sponsors take to adding value through investments in technology and management practices.
