The PEC Doth Protest Too Much?
The Private Equity Council last week released a 27-page study addressing the great question of whether private equity destroys value. What do you think the PEC, an advocacy group for private equity firms, concluded? PEC determined that private equity-backed companies are not more likely to default than other companies, which differs from conclusions reached in recent reports from S&P, Moody's and even Bain & Company. The trade group even goes so far as to put the term "overleveraged" in quote marks. As if there isn't such a thing as too much leverage! But really, the PEC does make a few valid points. First, I think the record has been set straight about the BCG report from late 2008, which famously stated half of all PE-backed companies could default based on where their debt was trading, and concluded that 40% of all private equity firms could disappear in a great "shake-out." Although it somehow manages to earn a mention at every conference I've been to since its release, I think I can safely say not many in the industry, peHUB included, took it very seriously. (In fact, I hereby declare this site a BCG-"shake-out"-report-free zone.)
