EQT Chief Predicts Wave of Zombie Firms in Private Capital
Christian Sinding, CEO of EQT (Europe’s largest private equity firm), warns that the next decade will see a surge in “zombie firms” across private markets. These debt-dependent, unprofitable businesses risk destabilizing economies as interest rates climb.
What Are Zombie Firms?
Zombie firms are insolvent companies kept alive by refinancing or lender forbearance. They fail to generate enough profit to cover debts, stifling innovation and competition. While prevalent in public markets, Sinding highlights their spread to private equity and venture capital.
Why the 2020s Will Unleash a Zombie Crisis
The 2010–2021 boom—marked by near-zero interest rates and easy credit—let firms delay profitability. Now, rising rates expose vulnerabilities:
– Debt Squeeze: Refinancing costs soar, pushing overleveraged firms toward collapse.
– Weak Exits: Sluggish IPO and M&A markets trap PE-owned zombies in portfolios.
– Sector Risks: Tech, real estate, and inflated 2020–2021 buyouts face the hardest hits.
How Private Equity Fuels the Problem
PE firms often load acquisitions with debt to boost returns. While some thrive post-restructuring, others become “hidden zombies,” masking risks due to private markets’ opacity. Sinding warns these ticking time bombs will detonate as refinancing costs spike.
Economic Fallout of a Zombie Surge
- Innovation Drain: Zombies hoard capital and talent, sidelining healthy businesses.
- Job Instability: Cost-cutting (e.g., layoffs) becomes their survival tactic.
- Banking Stress: Private credit funds and non-bank lenders face default waves.
Can the Crisis Be Avoided?
Sinding proposes:
– Radical Restructuring: Shut down or revive weak firms—no more life support.
– Smarter Deals: Prioritize sustainable models over leveraged bets.
– Regulatory Reforms: Demand transparency in private markets to flag risks early.
Yet, with global uncertainty, investors should prepare for write-downs and fire sales.
Key Takeaway
The end of easy money spells trouble for private capital. Zombie firms—propped up by debt and hope—face a brutal decade. For markets like India, where PE inflows soared, this is a red flag: overleveraged deals may soon backfire.
Survival hinges on real value creation, not cheap debt. The zombies’ reckoning is coming.
— NextMinuteNews
