Leveraged buyouts and financial distress

Ayash, Brian; Rastad, Mahdi

doi:10.1016/j.frl.2020.101452

Cited by 28 publications

(8 citation statements)

References 11 publications

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“…In contrast, the OPEG itself is directly responsible for servicing the debt incurred by the PE firm. Holding large debt loads, particularly during periods of economic contraction, can place additional financial stress on OPEGs to service interest payments and can put practices at risk for cost-cutting, restructuring, or even bankruptcy [ 16 ]. The inherently distorted incentive structure in debt acquisition and payoff between practices and a PE firm often creates conflicts in practice management strategy.…”

Section: Discussionmentioning

confidence: 99%

Financial Health of Private Equity-Backed Groups: Perspectives From Eye Care

Desai¹,

Memon²,

Chen³

et al. 2023

Cureus

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Background: In private equity (PE) buyouts of medical practices, it is common for the PE firm to raise significant levels of debt in order to finance the purchase. This debt is subsequently shouldered by the acquired practice(s). There remains a scarcity of literature quantifying the effect of PE acquisition on the subsequent financial performance of eye care practices. We aim to identify and characterize debt valuations of ophthalmology and optometry private equity-backed group (OPEG) practices, which serve as an indicator of practice financial performance. Methods: A cross-sectional study from March 2017 to March 2022 was conducted using business development company (BDC) quarterly/annual filings to the Securities and Exchange Commission (SEC). The 2021 BDC Report was used to identify all BDCs actively filing annual reports (Form 10-Ks) and quarterly reports (Form 10-Qs) in the United States in 2021. The public filings of BDCs lending to OPEGs were searched from the inception of the OPEG’s debt instrument in a BDC’s portfolio and the amortized cost and fair value of each debt instrument were tabulated. A panel linear regression was used to evaluate temporal changes in OPEG valuations. Results: A total of 2,997 practice locations affiliated with 14 unique OPEGs and 17 BDCs were identified over the study period. Debt valuations of OPEGs decreased by 0.46% per quarter over the study period (95% CI: -0.88 to -0.03, P = 0.036). In the COVID-19 pre-vaccine period (March 2020 to December 2020), there was an excess (additional) 4.93% decrease in debt valuations (95% CI: -8.63 to -1.24, P = 0.010) when compared to pre-pandemic debt valuations (March 2017 to December 2019). Effects of COVID-19 on valuations stabilized during the pandemic post-vaccine period (February 2021 to March 2022), with no change in excess debt valuation compared to pre-pandemic baseline (0.60, 95% CI: -4.59 to 5.78, P = 0.822). There was an increase in practices that reported average discounted debt valuations from 20 practices (1.6%) associated with one OPEG to 1,213 practices (40.5%) associated with nine OPEGs (including 100% of newly acquired practices), despite the stabilization of COVID-19-related excess (additional) debt. Conclusions: Debt valuations of eye care practices have declined significantly post-PE investment from March 2017 to March 2022, suggesting that the financial health of these groups is volatile and vulnerable to economic contractions such as the COVID-19 pandemic. Eye care practice owners must consider long-term financial risks and impacts of subsequent patient care when selling their practice to a private equity group. Future research should assess the impact of secondary transactions of OPEGs on the financial health of practices, practitioner lifestyle, and patient outcomes.

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Section: Discussionmentioning

confidence: 99%

Financial Health of Private Equity-Backed Groups: Perspectives From Eye Care

Desai¹,

Memon²,

Chen³

et al. 2023

Cureus

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“…Most of the debt from leveraged buyouts is tied to the acquired entity, minimizing long-term risk for the private equity firm. In contrast, companies acquired through leveraged buyout (including those outside of health care) are 10 times as likely to go bankrupt, 5 exemplified by Hahnemann Hospital in Philadelphia, Pennsylvania.…”

Section: What Is Unique About Private Equity?mentioning

confidence: 99%

A Policy Framework for the Growing Influence of Private Equity in Health Care Delivery

Cai

Song

2023

JAMA

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“…Konsentrasi kepemilikan merupakan elemen penting dalam menambah kinerja suatu perusahaan. Pemegang saham terbesar memiliki hak untuk mengawasi operasi manajemen dan meminimalkan konflik dengan pihak manajemen sehingga menambah kinerja perusahaan sehingga tidak berakibat financial distress [16]. Dewan direksi diperlukan untuk mengurangi agency problem antara pemilik dan manajer sehingga keselarasan kepentingan tercapai [17].…”

Section: Pendahuluanunclassified

Pengaruh Good Corporate Governance dan Enterprise Risk Management Diskclosure terhadap Financial Distress

Fitri

Taswan

2023

INFEB

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This study examines the effect of good corporate governance and enterprise risk management disclosure on financial distress, when managerial ownership, concentration of ownership, and the board of directors are included in good corporate governance. Using the purposive sampling method, the sample for this research is 162 data from 54 manufacturing companies listed on the Indonesia Stock Exchange for the 2019-2021 period. Descriptive statistical test, classical assumption test, logistic regression test, model feasibility test, hypothesis test are used as analytical tools. The results of this study indicate that managerial ownership has no significant positive effect on financial distress, ownership concentration has no significant negative effect on financial distress, and the board of directors has a significant positive effect on financial distress and enterprise risk management disclosure has a significant negative effect on financial distress.

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Leveraged buyouts and financial distress

Cited by 28 publications

References 11 publications

Financial Health of Private Equity-Backed Groups: Perspectives From Eye Care

Financial Health of Private Equity-Backed Groups: Perspectives From Eye Care

A Policy Framework for the Growing Influence of Private Equity in Health Care Delivery

Pengaruh Good Corporate Governance dan Enterprise Risk Management Diskclosure terhadap Financial Distress

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