The Buyout of America
How Private Equity Will Cause the Next Great Credit Crisis
By: Josh Kosman
Published: November 12, 2009
Format: Hardcover, 288 pages
ISBN: 9781591842859
Publisher: Portfolio/Penguin Group (USA)
"Private-equity firms buy businesses through leveraged buyouts, which means the majority of the money for the buyout comes from loading the company down with debt". writes financial industry journalist Josh Kosman, in his explosive and compelling book The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis. The author describes how private-equity owned firms are collapsing under heavy, unsustainable debt loads created for their acquisition, and that the current economic downturn will force many of these companies into bankruptcy.
Josh Kosman has been studying the the private-equity industry for over a decade, following the leveraged buyouts of companies, and their increasing debt loads. He describes private-equity owned businesses as being operated with only short term profits in mind. He provides many examples of how private-equity takeovers have resulted in massive layoffs to lower, higher consumer prices to increase short term revenues, and lower levels of customer service with little regard for the the future of the acquired companies. Josh Kosman points out that the time horizon for private-equity owners is less than five years, from purchase to sale. As a result, short term profit generation is given priority over the long term health of the company. The author views this very short term strategy to be detrimental, and even destructive for the heavily indebted businesses.
Josh Kosman (photo left) recognizes the danger of massive company debt loads, especially in times of economic recession, and tightened credit markets. The heavy and often increased debt loads placed on the companies, according to the author, is a ticking time bomb that will explode into widespread corporate bankruptcies within the next few years, putting perhaps ten percent of the entire American labor force out of work. He considers the prospects for private-equity owned firms in the United Kingdom and Europe to be equally dire. For Josh Kosman, the danger of massive private-equity owned business failures is very real, and poses a potential economic disaster for the economy. Since leveraged buyouts were enabled through tax loopholes that allowed interest on the acquisition loans to be tax deductible, and that the major private-equity firms are very well connected politically, Josh Kosman doesn't forecast a legislative solution.
For me, the power of the book is how Josh Kosman explains how and why many private-equity owned firms may be forced into bankruptcy between now and 2012. He also describes, in detail the business management practices of the private-equity firms, and how their short term corporate strategic thinking has contributed to this growing crisis. The author forecasts that half of all private-equity controlled firms face collapse under their heavy debt loads by 2012. As a result, Josh Kosman does see one possibility to prevent this financial meltdown. The turnaround help many arrive in the form of additional capital from the cash rich private-equity firms themselves. Facing huge numbers of bankruptcies, of their controlled firms, the private-equity companies may choose to provide cash infusions and longer term management strategies for their holdings. With the credit markets tightening up, and the possibility of sale of the debt laden companies dismal, a new form of management remains one way out of the impending financial disaster.
I highly recommend the very important and must read book The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis by Josh Kosman, to anyone seeking a deeper understanding of the operations and management practices of private-equity companies. Whether you agree with the author's analysis or not, the book provides a warning of an economically devastating collapse of private-equity owned firms, unless there is a change in policy by their parent companies. The economic consequences of half of the private-equity owned businesses in the United States would be a disaster for the economy as a whole, and the employees and families of the collapsed companies in particular.
Read the landmark and controversial book The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis by Josh Kosman, and learn about private-equity capital, and its effect on the companies acquired in debt funded leveraged buyouts. This book will help build a greater understanding of the problems created by corporate debt loads, and provide impetus for ideas to solve this looming economic disaster, before it becomes the next great credit crisis.
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