Are private buyouts good for the economy?

But skeptics, including some within the investment community, voice a number of concerns.

They say the deals are doing much more for the acquirers than for the economy at large, or even for the traditional shareholders who are forced to sell when the deals happen.

Indeed, the latest buyout wave may raise questions about both the virtue of private equity funds (are they really helping the companies that much?) and about the performance of traditional, publicly traded companies (why can't they do as well for their investors?).

"There is now little question that chief executives across America are increasingly content to allow private equity firms to somehow 'magically' deliver sparkling returns to their shareholders, which they themselves were incapable of producing during their time at the helm," write Henry McVey and David McNellis in a recent market strategy report for the investment bank Morgan Stanley in New York.

They argue that US corporations have essentially become too cautious about investing in new ideas to grow their business. The result is a buildup of cash, and a decline in debt.

That's one reason some of these public companies become tempting targets for private equity funds. The private buyers will plan to do some things that improve the business, so it can be resold later at a higher price. But they will also, often, tap free cash or borrow to provide dividends and fees that guarantee a high rate of return even before they sell.

Burger King is a case in point. In 2002, a group of private equity funds bought the restaurant brand for $1.5 billion from its parent company, Diageo.

The private owners went through several CEOs, but finally got the hamburger chain sizzling again, with sales boosted by a value menu and new products. In the process, they made sure to get an early slice of the profits, with the $367 million dividend and other fees.

Clearly, the rich are getting richer here. But arguably the economy is also somewhat better off. Analysts see a larger, healthier company than in 2002. Burger King's market value is now more than $2 billion.

If the private equity had merely hollowed out the company with its cash extraction, it wouldn't be worth that much today, some experts point out.

But if private equity is helping corporate America be more productive, the returns may diminish at some point – partly because it's harder to find lucrative deals.

"I definitely think the returns [to private equity] are not going to be as robust as they've been," says Colin Blaydon, an expert on private equity at Dartmouth College's Tuck School of Business in Hanover, N.H.

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