The private equity business model: On terra firma or shifting sands?

► The private equity business model (PEBM) depends on leveraging returns on equity with debt finance. ► The current financial crisis is testing the viability of the PEBM. It is no longer on 'terra firma' but on 'shifting sands.' ► The case of EMI acquired by the private equity firm 'Terra Firma' reveals the difficulty in transforming an acquired firm's financials. ► The PEBM is not delivering spectacular returns to investors because funds drawn down generally exceed cash repayments.