Vampire Investing
Over the past decade, private equity firms have invested heavily in retail. These firms generally acquire companies through leveraged buyouts with the goal of holding the company for a number of years, increasing its value and then selling it to other investors, securing profits and a return on invested capital. However, a trend toward some private equity firms loading their acquisitions with heavy debts and extracting large fees and cash dividends, has contributed to a wave of bankruptcies in the retail sector – a sector which was already tottering due to the rise of e-commerce and other factors.
According to a July 2019 report from the Center for Popular Democracy, 10 of the 14 largest retail chain bankruptcies since 2012 involved companies that private equity firms had acquired. A 2017 Newsday report found that of the 43 large retail or supermarket companies (with 10 or more locations) that filed for bankruptcy in the U.S. since January 2015, 18 were owned by private equity firms. According to The Atlantic (citing data from FTI Consulting), two-thirds of the retailers that filed for Chapter 11 in 2016 and 2017 were backed by private equity.
Last Updated on May 20, 2020 by Ramin Seddiq