The Positive Role of Private Equity and LBOs in Mergers and Acquisitions: A Response to The Negative Opinion

Abstract

In western countries, after nearly 40 years of rapid development, private equity firms have used leveraged buyouts to perfection in M&A activities, yielding unlimited benefits for different subjects. Nevertheless, some people claim that, private equity and LBOs are unfair practices, which is harmful in many spheres. Especially in China, there are many problems behind the immature introduction of private equity. Therefore, to respond to these arguments, this essay aims to explain the positive aspects of private equity and LBOs, illustrate why these benefits can be achieved, and prove those negative views are unreasonable. Supported by some scholars conclusions, statistics, and specific examples, it can be concluded that, private equity and LBOs are helpful to reduce agency costs, improve corporation value in targets, and create tax income for a countrys Treasury. Moreover, they have little effect on unemployment, the insolvency risk caused by leveraged buyouts is manageable, and the transaction process of them becomes safer.