(Talk about the mattress industry in here.)
Private equity firms buy undervalued or underappreciated companies, impose short-term improvements and sell them for a fast profit. Some of the companies they’ve bought include Hertz, La Quinta, Dunkin Donuts, and Toys R Us. Josh Kosman, a private equity expert, says that the way the firms have been able to buy these businesses — through leveraged buyouts — means the majority of the money for the buyout has come from loans that the firms dump on the company they’re supposedly fixing.
Now burdened with debt, many of those companies owned by private equity firms are in danger of defaulting. In a new book, Kosman writes that it’s likely half of the 3,188 American companies bought by private equity firms between 2000 and 2008 could collapse. His book is called The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis.