The Private Equity Boom

Tags: Entrepreneurship

Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

The private equity industry has experienced unprecedented growth in recent years. In 2006, for example, private equity firms bought 654 U.S. companies for a record $375 billion: eighteen times the level of investment of just three years earlier.In 2007, it was estimated that 2,700 private equity funds represented 25% of global merger and acquisition activity, 50% of leverage loan volume, 33% of the high yield bond market, and 33% of the initial public offerings market.According to a recent study submitted by Josh Lerner to the World Economic Forum, leveraged buyouts over the past 37 years valued approximately $3.6 trillion, and significantly, $2.7 trillion of those transactions occurred between 2001 and 2007.Further underscoring this growth, when studying the number of buyouts over this same time period, it was found that more than forty percent took place after 2004.

Despite private equity’s record growth, signs of a slow down are surfacing. Moreover, as lawmakers take a closer look at the industry, some are asking the question posed by Robert Samuelson in the Washington Post last year—is private equity “good for the country?” In reviewing the “boom” and questioning its sustainability, some commentators and economists are examining private equity’s role in the American economy. Proponents point to how private equity functions as an important check upon the mismanagement of corporate assets. Meanwhile, others criticize private equity for allegedly enriching itself in ways that sometimes come at the expense of the greater good.

Know What’s Next