Are PE-Backed Companies More Likely To Go Bankrupt? It’s Complicated.

The oft-cited fact stems from a study of pre-GFC data – in recent years, the opposite was true. But post-Covid, things have started to backslide… especially in two key sectors.

Most anti-private equity activists will cite a famous 2019 study by California State Polytechnic University researchers Rastad and Ayash that finds that private equity-owned companies are 10x more likely than their non-private equity-owned counterparts to go bankrupt.

The study uses data from LBOs that occurred between 1980 and 2006, pre-Global Financial Crisis. These were the days of private equity deals like Nabisco and Toys R Us – deals that quite publicly played out in a bad light. And their findings were accurate for deals of that era.

Post-GFC, however, bankruptcy has been used by private equity owners in a much different way.