Financialised Private Equity Finance and the Debt Gamble: The Case of Toys R Us

Morgan, Jamie; Nasir, Muhammad

doi:10.1080/13563467.2020.1782366

Cited by 18 publications

(7 citation statements)

References 35 publications

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“…Nonetheless, the conventional data above suggest a strong connection between intangibles and especially IPRs and profitability (Orhangazi, 2019). While private equity remains essentially terra incognita in data terms, research suggests similar patterns; the top 10 private equity firms account for 30% of assets under management (Morgan and Nasir, Forthcoming: 4).…”

Section: Discussionmentioning

confidence: 97%

Intellectual property, technorents and the labour share of production

Schwartz

2020

Competition & Change

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How does the capture of explicit monopoly rent via intellectual property rights interact with the capture of additional profit via monopsonistic labour markets, and with what consequences? Most analyses of changes in the labour market focus on the distributional struggle between capital and labour over the wage share. This paper examines how the distributional struggle among firms over shares of aggregate profit has affected the labour market, generating rising income inequality. Over the past 40 years, struggles over shares of the value generated in a given commodity chain have driven de jure but not de facto vertical disintegration of those value chains. Firms vertically disintegrated by outsourcing non-core production and support activities, by in-sourcing contingent labour, and, where possible, by adopting a franchise model of corporate organization. The franchise model enables core firms to exert near total control over firms that are technically separate legal entities, while avoiding legal and social responsibility for the workers (and owners) of those subordinate firms. Vertical disintegration has produced three ideal typical kinds of firms whose differing ability to capture value and thus profit stems from their different forms of control over other firms in the value chain. Vertical disintegration generated labour shedding and employment contingency. Differential value capture has concentrated profit into firms with relatively small headcounts, reducing the degree to which profits are (partially) redistributed among workers.

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Section: Discussionmentioning

confidence: 97%

Intellectual property, technorents and the labour share of production

Schwartz

2020

Competition & Change

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“…This is a key distinction between PE and hedge funds or asset managers, who usually trade in shares, rarely involving themselves in company management. They promise rapid, high returns to investors and aim to divest of the company within 3–5 years (Morgan and Nasir 2021 , 3).…”

Section: Unpacking the Pe Business Modelmentioning

confidence: 99%

“…PE firms often target cash and asset-rich businesses for two reasons. First, to fund their initial LBO, with the purchase paid for, in part, with debt leveraged against the company being purchased, usually amounting to around two-thirds of the total price (Morgan and Nasir 2021 ). The LBO makes the purchase more affordable, but also reduces the tax to be paid by the once wealthy company, by turning taxable income into non-taxable debt servicing.…”

Section: Unpacking the Pe Business Modelmentioning

confidence: 99%

Business Strategy as Human Rights Risk: the Case of Private Equity

Birchall

Bernaz

2023

Hum Rights Rev

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In this article, we apply the UN Guiding Principles on Business and Human Rights to the private equity (PE) business model. PE firms often adopt a controversial, ‘value extractive’, business model based on high debt and extreme cost-cutting to generate investor returns. PE firms own large numbers of companies, including in many rights-related sectors. The model is linked to increased human rights risks to workers, housing tenants, and in privatized health and social care. We map these risks and analyse the human rights responsibilities of PE firms. Our analysis has major implications for understandings of human rights responsibility. We argue that value extractive methods are the root cause of eventual harm to human rights, even though they may not harm rights directly. To respect human rights, PE firms must mitigate the risks of these value extractive methods. We define how human rights due diligence (HRDD) could achieve this and argue that given the extent of harm and the lack of a business case for adopting such a view of human rights responsibility, business strategy level HRDD should be a core component of forthcoming HRDD laws.

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“…State-to-state co-investments are typically set up as limited liability partnerships with a general partner and limited partners. The PE firm provides the general partner, the PE manager, to manage a given fund while the client SWF typically commits an amount of capital (committed capital) as a limited partner with no managerial Figure oversight over the portfolio of invested firms (Morgan & Nasir, 2021). The general partner then sources the portfolio of companies that will draw down the fund.…”

Section: Transnational Mediators: the Infrastructural Power Of Pe Fir...mentioning

confidence: 99%

“…Leveraged buyout enlists the financial and network power of banks, who may provide additional financing, long-term structured debt or even provide securitisation to help secure the investment. Banks may also use their networks to source investors for PE firms (Morgan & Nasir, 2021). The banks provide both direct and indirect access to investment capital, but PE firms are central to the processes that initiate and control PE investment, affording them infrastructural power in the investment chain.…”

Section: Transnational Mediators: the Infrastructural Power Of Pe Fir...mentioning

confidence: 99%

Investing for the state

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Financialised Private Equity Finance and the Debt Gamble: The Case of Toys R Us

Cited by 18 publications

References 35 publications

Intellectual property, technorents and the labour share of production

Intellectual property, technorents and the labour share of production

Business Strategy as Human Rights Risk: the Case of Private Equity

Investing for the state

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