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Notes -
It doesn't. It just needs to get more money, by say, buying back stock or paying dividends to themselves.
Forgive me for being a bit skeptical. The only time I came across PE was reading about the fate of US gun makers, where the PE invariably made things worse and their business model was basically exploit the good name of a company they bought by lowering quality and then saddle it with debt and finally let it go bankrupt.
E.g. Remington was bought for $360 million, immediately issued a billion $ worth of debt. 10 years later, 700 millions are written off in a bankruptcy, even though they sold off their buildings to a company owned by the PE group so they could rent them back.
https://archive.is/cotTp
This just isn’t the norm. As a general rule, PE buys an entity with debt. Banks don’t permit cash to leave the banking group.
The only time is when banks lend money to an existing PE owned business with the express intention of repatriation cash (ie a levered recap). Most liquidity events aren’t levered recaps. Moreover, banks aren’t interested in lending to businesses that will go bankrupt (ie banks don’t want to equitize their debt; they want to get paid back on the debt). So generally leveraged recaps will only occur when the risk of bankruptcy is remote.
None of this means all PE companies survive, but in generally PEs cannot successful generate returns by bankrupting companies.
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