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- In an interview with the Financial Times, Jonathan Lavine, managing partner of Bain Capital, warned that huge piles of debt in the private equity industry increased the risk of an accident.
- Lavine said some parts of the private equity space were "more and more aggressive" in their calculations.
- Higher transaction prices lead companies to take on more debt to pay for their transactions.
Jonathan Lavine, co-managing partner at Bain Capital, warns that the huge debt debts in the private equity sector increase the risk of a crash.
In an interview with the Financial Times, Lavine said some industry players were "increasingly aggressive" calculating their calculations of future sales growth when badyzing customer transactions. . This means that debt levels are based on increasingly exaggerated financial projections.
He used the following badogy colorfully:
"I'm 5 feet 8 inches tall, but I'm scaling up and taking 6 feet 2 inches on a proforma basis," said Bain's boss at the Financial Times. "I'm not really 6 feet 2 inches on a pro-forma basis, but I can make adjustments like staying on a box, maybe trying to stretch myself."
According to the FT, private equity firms are paying "record prices" for transactions and investors are hoarding money in the funds, which could have created a bubble that could signal an economic slowdown according to Lavine.
The sector is plagued by overestimated estimates, a worrying sign that in some cases credit as a percentage of the transaction has risen to more than 30 percent, Lavine told the FT.
"If you start seeing people who do not generate cash and do not deleverage, especially during their first two years, I would start to worry," he said, according to the report. newspaper.
"Even in the absence of recession, if growth slows a lot, people will treat it as a recession and this could have some of the negative self-fulfilling effects of a real recession," he said. at the FT.
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