Leveraged Buyouts and Recession

• After unprecedented levels of deal activity in 2007, the descent into recession in 2008 has presented both challenges and opportunities for the buyout and private equity market. • We will likely see higher failure rates of buyouts as a consequence of highly leveraged transactions running into difficulties. • Private equity-backed and larger buyouts appear less likely to fail than other buyouts. Secured creditors on average recover about 60% of their loans in failed buyouts. • The increase in general business failure associated with recession introduces opportunities for buyouts to rescue and turn around these failing firms, with retail sector deals especially prevalent in recent years. • Private equity firms can take advantage of the increased supply of failing firms provided that they have the necessary means (financial and management skills) to turn the businesses around. • Private equity firms have been less in active in recent years in buying failed firms, though there have been some significant transactions. • Buyouts of failed firms are disproportionately more likely to fail again than buyouts from other vendor sources.