What's Wrong with Private Equity Firms: Ask Mervyns
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Code :BSM0047
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Region : US
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Evolution of Private Equity Firms Decades back, investors used to invest only in publicly traded companies and fixed income assets of the financial market, which generated nominal returns with minimum risk. However, with the changing trends and increasing greediness, to make quick and large returns, various alternative investment options have been derived. One such segment was the PE market. The evolution and acceptability of PE as an institutional asset can be traced back to the late 1970s, when changes were made by the US regulatory and tax law bodies. The changes enabled pension funds to invest in the PE asset class. The recognition of PE as asset class has also broadened the investment options for investors... Failures of PE Turnarounds: The Case of Mervyns Departmental Stores Mervin Morris (Morris) established a departmental store, Mervyns in 1949 in San Lorenzo, California with $25,000 and two employees. Soon it became a dominant player in the retail segment by offering branded and private labelled products atmoderate prices. The company's operations were diversified into men's and women's wear, kids and infant wear, clothing accessories and department stores. The chain attracted large number of customers and satisfied them by delivering superior value... PE Industry: Time for a New Business Model? The business model of PE firms is to take advantage of the highly leveraged debt to generate high returns, but the model seems to be in jeopardy with the recent financial crisis. Due to the credit crunch blow in 2008, the PE market was severely affected as the lenders (investors) not only withdrew their investments but also froze further deals. As a result, portfolio companies backed by PE firms are defaulting on their debts and are filing for bankruptcy. Though the recent mayhem has its share in the collapse of the PE market, excessive dependence on leveraged debt and faster expansion of PE firms have also contributed to the poor performance of the market... |
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