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+ MODEL ARTICLE IN PRESS CORFIN-00317; No of Pages 18 Journal of Corporate Finance xx (2007) xxx – xxx /locate/jcorpfin ☆ A theory of private equity turnarounds Charles J. Cuny a,⁎, Eli Talmor b,1 a Olin School of Business, Washington University in St. Louis, Campus Box 1133, One Brookings Drive, St. Louis, MO 63130-4899, United States b London Business School, Regents Park, London NW1 4SA, UK Abstract This paper explores the advantage of private equity in fixing turnaround situations. Meaningful corporate value creation may require addressing operational problems, replacing management, or changing the incentive structure. Change may be implemented under either without change of ownership or through a buyout. The paper derives scenarios under which transferring ownership to private equity prior to implementing a turnaround can emerge as an optimal solution, even when current ownership can conceivably implement the same operational changes as private equity. Also considered is the possibility of investment syndication in which the private equity buyer shares the transaction with other private equity firms. Various alternatives are considered for implementing turnarounds; in particular, ones that allow for management replacement and others that are effectively management buyouts. © 2007 Elsevier B.V. All rights reserved. JEL classification: G23; G32; G34 Keywords: Private equity; Takeovers; Leverage buyouts; Corporate governance 1