Critics of private equity firms have long accused them of behaving like vultures, who strip the assets off the bones of the businesses they acquire and leave little behind. The sector’s proponents would argue that leveraged buyouts can help jump-start chronically underperforming companies. Depending on the situation, both statements can be true.
Tip style
Value
Risk rating
Medium
Timescale
Medium Term
Bull points
- Beatable management forecasts
- Dependable sales demand
- Premium FCF generation
- Steady organic growth
Bear points
- Cost inflation pressure
- R&D strategy needs to deliver
However, there are plenty of reasons for retail investors to be wary of businesses spun out of private equity ownership. The recent history of medical technology group ConvaTec (CTEC) is a case in point.