The answer: dividend recaps. You see, you may think that when private-equity firms buy troubled companies, their plan is to fix them up and resell them. But often, the real plan is to load the companies up with debt, suck huge sums out of them, and stick the next set of investors with the bill.
After seeing interest from potential buyers, children's clothing retailer Gymboree has hired Goldman Sachs to auction itself off, and more private-equity firms have already stepped in to say they want to play. Gymboree executives are reportedly looking for price of $55 to $60 a share.
Now that private equity is no longer producing monster returns, it's time to assess its value. By using debt, buyout shops have taken over struggling companies and enriched investors. But critics say the practice leads to more layoffs and the "flipping" of companies.