Friday, June 08, 2007

Reality begins to intrude

A lead article in today's Wall Street Journal raises the specter of some private equity deals not being the sure road to riches that one would expect from the recent media hype. The article discusses four deals that look as though they are going sour.

While four potential losses does not seem to be a bad record, the article also noted that the interest coverage in private equity deals as a whole has gone down from 3.4 in 2004 to 1.7. Sooner or later debt must be paid if you wish to stay in business. The market for debt is finite. How many private equity failures will it take to squelch the boom?

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