Who's left standing?

“These were great companies and the buyout would have worked if you were going to continue having EBITDA grow at 10 percent a year, and the markets remaining where they were. The assumptions that were made were ridiculous.” Marc Lasry, head of distressed investment specialist Avenue Capital, has strident views such as these on LBO excesses (turn to Christopher Witkowsky's interview with him to find out more on p.26). As one of the private equity world's more astute proponents of special situation investing, Lasry finds himself in the happy position of benefitting from others' folly. Amid the carnage, the good news is that there are evidently profits to be made for some.

In the go-go days, as we are often reminded, eye-watering multiples were paid for businesses that were then stuffed to the gills with debt. No surprise that, when the market turned, these same businesses would find themselves too bloated to manoeuvre themselves out of trouble. It qualifies as heretical these days to even consider the proposition that some of the most highly leveraged portfolio companies might experience a happy ending. And yet, as our cover story looking at the largest deals from the boom period shows, it's not right to assume that all of these leviathans will become extinct (see p. 32). Yes, some are looking less than healthy (in one or two cases, that's putting it mildly) – others, however, appear to have plenty of life left in them yet.

As we report throughout these pages, much of the turmoil currently being experienced in the private equity world is less to do with deal blow-outs than GP management team implosions. In his In Europe column on p. 20, Toby Mitchenall considers some of the reasons why a number of senior professionals have contemplated their futures within certain firms and decided that now is the time to head for the door marked ‘Exit’. It is clear that there will be a renewed focus on the credibility or otherwise of GPs' succession plans. There has been much talk over the years of securing the future of franchises by making sure that the next generation of industry leaders is well motivated and incentivised. Now is the time to discover whether these plans have been wisely planned and executed – or not.

Enjoy the issue,

Andy Thomson