London Business School Coller Institute of Private Equity

By Cuny C J, Talmor E
Articles and Presentations

Date Released: 04/09/2007
PDF Document

This paper explores the advantage of private equity in fixing turnaround situations.Meaningful corporate value creationmay require addressing operational problems, replacing management, or changing the incentive structure. Change may be implemented under either without change of ownership or through a buyout. The paper derives scenarios under which transferring ownership to private equity prior to implementing a turnaround can emerge as an optimal solution, even when current ownership can conceivably implement the same operational changes as private equity.Also considered is the possibility of investment syndication inwhich the private equity buyer shares the transaction with other private equity firms. Various alternatives are considered for implementing turnarounds; in particular, ones that allow for management replacement and others that are effectively management buyouts.