Leading bankers predict that an increasing number of private equity groups will abandon loss-making assets, following last month’s collapse of Scott’s Refrigerated Logistics, writes Karen Maley.
The country’s biggest banks are bracing for more highly geared, private equity backed businesses to collapse as operating conditions continue to deteriorate amid surging borrowing costs.
Bankers expect Scotts won’t be an isolated case, and that an increasing number of private equity firms will decide to jettison loss-making businesses, rather than continue to provide financial support.The long-established game plan of PE firms is to acquire poorly performing companies, load them up with debt and then undertake a major restructuring of the business before offloading them at a profit – often through an initial public offering .
Bankers also point out that this is a challenging environment for PE firms that specialise in turnarounds because operating conditions will get even tougher. “They’re not going to be able to resolve the situation by passing the parcel to someone else,” comments one.Even before the latest crisis in US regional banks, the sharp rise in interest rates had already caused activity in the IPO market to brake sharply.
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