Alliance Boots as an Illustration of the Dynamics of Private Equity: Issues of Entitlement, Governance and the Values of Value

Abstract

The buyout of Alliance Boots by KKR in conjunction with one of the board members created a great deal of publicity regarding private equity finance. The buyout provides a useful contemporary case study and illustration of the kind of themes I have been developing in the previous chapters. It was a buyout of a large publicly listed company undertaken by a prominent PEF firm. The buyout was undertaken using the new large funds available to PEF and was undertaken at the height of the last liquidity surge. It involved the creation of a debt structure that was large in absolute terms and also comparatively highly leveraged. As a buyout it illustrates how PEF captures the rights to the returns on large assets based on a proportionately small equity commitment. It illustrates how equity is concentrated and power distributed. As such it raises the basic question of entitlement: should PEF firms and funds have the right to do this, particularly at larger scales and focused on publicly listed companies? This is not simply an empirical question it is fundamentally a moral philosophy question because the implicit ‘right’ of PEF is founded on a particular understanding of the right to property. That understanding combines the idea that property is a basic human right, that the state should be minimal and that the freedom of markets should be maximised.