Should Leveraged Buyouts Be Regulated?

Nov. 10, 2018 6:34 AM ETAPO, BX, CG, KKR15 Comments
Elliott R. Morss profile picture
Elliott R. Morss


  • Toys "R" Us collapsed.
  • Leveraged buyouts are back.
  • The question: are more government regulations needed?


Leveraged buyouts are back. Is pension pressure enough to limit what they do? Or are new regulations needed? Private equity funds (PEFs) are growing and flush with cash. Leveraged buyouts remain attractive, allowing them to use borrowed funds to increase their investments several times over. The latest deals are big, though not yet on the scale of the first buyout boom, which was capped by the legendary $31 billion takeover of RJR Nabisco by Kohlberg Kravis Roberts in the late 1980s.

Some leveraged buyouts (LB) involve the buyer loading up the company being bought with the debt it took to make the purchase. And after some time, the indebted company is sold via an IPO or some other mechanism. If markets are working properly, the selling price will be lower to reflect the added debt burden. However, recent events recall the 1960s when LBs were used and abused. But times have changed. Most notable today, workers who lose their jobs when LBs go under are speaking up.

More accurately, their pension funds are pressing their cases. And their targets are the PEFs that bought them. And there is reason for concern. In April 2017, an analysis by Newsday found that of the 43 large retail or supermarket companies that had filed for bankruptcy since the start of 2015, more than 40 percent were owned by PEFs. Since that analysis was done, a number of others have joined the list, including Nine West, Claire's, and Gymboree.

Toys "R" Us

Consider the recent collapse of Toys "R" Us. In 2005, the Toys "R" Us Board sold the company for $6.6 billion to the private equity firms Bain Capital and KKR and the real estate investment firm Vornado. The firms put up about 20 percent of the total and borrowed the rest. Toys "R" Us had a debt load of $1.86 billion before it

This article was written by

Elliott R. Morss profile picture
Elliott Morss has spent most of his career teaching and working as an economic consultant to developing countries on issues of trade, finance, and environmental preservation. Dr. Morss received a B.A. from Williams College in 1960 and a Ph.D. in political economy from The Johns Hopkins University in 1963. He has taught at the University of Michigan, Harvard, Boston University, Brandeis, and most recently at the University of Palermo in Buenos Aires. For several years, he worked in the Fiscal Affairs Department of the International Monetary Fund. He later helped establish Development Alternatives, Inc. (, a firm that became the largest contractor to the U.S. foreign assistance program (AID). Since his first IMF assignment in Ghana in 1966, he has worked in 45 countries. He has been the President of the Asia-Pacific Group, a British Virgin Islands for profit company with investments in Cambodia, China, and Myanmar. With Dr. Zhu Jia-Ming, he established Green China, an American NGO with the mission to increase the dialogue in China on the trade-offs between economic growth and environmental preservation. Dr. Morss has co-authored six books and published more than 50 articles in professional journals. He is currently available for consulting assignments.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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