Bigtime Buyouts On The Rise...Good Or Bad For The Economy?

By: Zachary Pienkowski

During the 1980's many leveraged buyout firms jumped on the opportunity to scoop up troubled companies, restructure them, and then sell them back to the public for often an enormous profit. This trend has been carried on by private equity funds that have been formed for this very purpose. While these large buyouts have been somewhat on the downswing over the last 12 months, they are back on the rise and have recorded the second highest volume since July of 2008. The question that is raised is whether or not these large buyouts are a good thing for the economy? Large investors have made it so the stock market is no longer the place to go to make money. Private equity is longer simply a part of the financial market, it has quickly become a centerpiece which does not appear to be going anywhere. One possible threat is that an increasing number of large firms will be taken over by these pools of investors that run the company privately and have no one to answer to. The sole purpose for them is to make a return on their own investment, with little interest of others. Investors make the argument that the U.S. economy is better off when companies are operating well, but it is also difficult how much good it is actually doing for the economy, but not so hard to see how much money it makes for the investors. A result of this may be that returns on these investments may start to come down a little as these deals become harder and harder to find.

Sources:

http://blogs.wsj.com/privateequity/2009/11/30/big-buyouts-are-back-sort-of/
http://www.csmonitor.com/2006/1113/p01s01-usec.html
http://www.behindthebuyouts.org/hertz-so-good/