Saturday, September 22, 2018

Popeulism Bono Style

Columnist Fareed Zakaria wrote:

I wanted to understand Europe’s populism. So I talked to Bono. 
Economist Andy Xie wrote:

The world needs a new generation of policymakers who don’t hobnob with billionaire speculators and who understand workers’ concerns. Unfortunately, the change will not come smoothly. Political turmoil in the West is very much about this. A heavy price has to be paid to bring about the change
In 2008, Beijing and Washington pumped in massive amounts of money to bail out speculators in the name of saving the economy and helping workers. The reality is that they used workers’ money to enrich parasites. 
Parasites include private equity underwriters (PEU) who buy companies, load them with debt, milk them for cash and flip them for huge returns.  Bono is a PEU with Elevation Partners, co-founding the firm in 2005.  Bono hobnobs with fellow rich speculators at the World Economic Forum in Davos, Switzerland.

Private equity underwrites get preferred carried interest taxation.  Loading up affiliates with debt reduces their tax burden as do various tax avoidance schemes.

Irish Bono may be familiar with this one.

The double Irish with a Dutch sandwich is a tax avoidance technique employed by certain large corporations, involving the use of a combination of Irish and Dutch subsidiary companies to shift profits to low or no tax jurisdictions. The scheme involves sending profits first through one Irish company, then to a Dutch company, and finally to a second Irish company headquartered in a tax haven. This technique has made it possible for certain corporations to reduce their overall corporate tax rates dramatically.

The double Irish with a Dutch sandwich is generally considered to be a very aggressive tax planning strategy. It is, however, famously used by some of the world's largest corporations, such as Google, Apple and Microsoft. In 2014, it came under heavy scrutiny, especially from the United States and the European Union, when it was discovered that this technique facilitated the transfer of several billion dollars annually tax-free to tax havens.
Workers with stagnant wages are tired of executives and boards getting outsized compensation off their backs.  How do workers at Elevation Partners affiliates feel about their PEU owners? 

Elevation made huge returns on its Facebook stake when the company went public in 2012.  April 2015 found Bono with a new private equity appointment:

U2 frontman Bono has accepted the role of special adviser to a new $3 billion growth fund currently raised by equity fund investor David Bonderman's TPG Capital.
Fareed Zacharia lobbed softball questions at Carlyle Group co-founder David Rubenstein.  Fareed is part of system that maintains the current political and power structure.   He should talk to real Europeans/Americans and ask why seven times to get at root causes of citizen dismay.  He might arrive in the same place as Andy Xie.

Update 9-24-18:  Elevation narrowly missed out on Pandora which announced a $3.5 billion sale to Sirius-XM

Friday, September 21, 2018

Carlyle Group Sniffing Airplane Parts Maker Esterline

Dealreporter stated The Carlyle Group is one potential buyer for Esterline.  Esterline supplies airline parts.  It's 2017 Annual Report noted:

Our products are used on the majority of active and in-production U.S. military aircraft and on every Boeing commercial aircraft platform manufactured in the past 75 years.
Do Carlyle's politically connected founders know war is in our future?  If so, Esterline could be a wise investment.

Boeing may not be thrilled about Carlyle buying a key supplier after affiliate Vought Aircraft Industries' South Carolina operation gunked up 787 Dreamliner production as Conde Nast reported in 2009.

But Boeing didn’t realize that the Carlyle Group, which had acquired Vought in 2000, was starving it of resources while making a few cosmetic improvements to attract potential buyers—a once-common private equity tactic. By early 2006, Vought was facing a severe “liquidity crisis” and nearly went bankrupt, chief executive Elmer Doty told analysts. It couldn’t afford the new plants, employee training, and fuselage design and assembly and had to “reconstitute” its engineering department. “We are among the riskiest, if not the riskiest” of the Dreamliner suppliers, Doty acknowledged.
Mr. Elmer L. Doty remains with Carlyle and could advise Esterline on how much cash Carlyle plans to bleed from the company if it is the successful bidder.

Wednesday, September 12, 2018

Greedy Carlyle to Buy Compassionate Sedgwick

The Carlyle Group will buy Sedgwick for $6.7 billion from fellow private equity underwriter KKR,  KKR bought Sedgwick for $2.4 billion in 2014.  The deal will close later this year.  Sedgwick's website lists the following claims management services:

workers’ compensation, liability, property, disability and absence management
KKR referred to Sedgwick's "delivering high quality technology-driven insurance solutions to clients and consumers around the globe."  I'm pretty sure high quality technology-driven claims management service is not compassionate, especially under the ownership of Carlyle.

Update 9-16-18:  Moody's indicated in December 2017 Sedgwick was highly levered, almost 8x debt to EBITDA, under KKR.  Carlyle has hundreds of companies that can send new business to Sedgwick. 

Monday, September 3, 2018

DeParle's Consonance Capital Sold KEPRO

While Americans struggled to pay for healthcare or went without White House Health Reformer Nancy Ann DeParle grew her wealth substantially.  She serves on HCA and CVS's board of directors and holds 14,662 HCA and 11,051.CVS shares.  Her holdings are worth $2.8 million at Friday's market close.  However DeParle also makes big money from privately held companies.

Nancy-Ann DeParle is a Partner and Co-Founder of Consonance Capital Partners. Prior to CCP, she was Assistant to the President and Deputy Chief of Staff for Policy in the Obama White House from 2011-2013, and served as Counselor to the President and Director of the White House Office of Health Reform from 2009-2011.
In 2014 Consonance Capital bought KEPRO which has Pennsylvania Medical Society Peer Review Organization roots.

KEPRO works under contract to the Centers for Medicare & Medicaid Services (CMS), an agency of the U.S. Department of Health and Human Services. KEPRO is committed to continuous quality improvement by providing medical case review.
Consonance Capital flipped the company last year.

New York, NY, May 30, 2017 – Consonance Capital Partners, a leading healthcare-focused private equity firm, announced today that it has completed the sale of KEPRO. Terms of the transaction were not disclosed.
However Moody's rated the deal's debt and reported $520 million in financing:

Proceeds from the $205 million first lien term loan, $100 million second lien term loan and about $215 million in common equity will fund the leveraged buyout of the company, refinance existing debt, and pay transaction fees and expenses.
KEPRO's news section never mentioned the sale.  It had two stories in May 2017 but neither addressed Consonance Capital's sale to Apax Partners, a UK based private equity underwriter (PEU),

Apax Partners offered strong support to Sir David Walker in his review of the private equity industry in 2007.  In light of the review's findings, which identified a need for enhanced transparency and accountability within the industry, we are keen to increase the understanding of Apax Partners in particular and the private equity industry in general.
For all Apax Partners' talk of transparency advisor Cain Brothers reported:

May 30, 2017 –Consonance Capital Partners has sold KEPRO, a medical management and cost containment solutions for government and private sector clients in the healthcare sector. The buyer was not identified. No financial terms were disclosed. Leerink Partners LLC and Cain Brothers & Company LLC advised Consonance and KEPRO on the transaction.
Also in 2007 Apax Partners had an unusual Chairman resignation:

Lord John Browne, the BP chief executive who was forced to resign under a cloud over a lie he told about his private life, has quit his new role as chairman of private equity group Apax Partners.
Prior to appointing him Chairman Apax knew Lord John Browne drastically cut maintenance expenses at the Texas City Refinery which resulted in a horrific explosion that killed 15 people and injured 180,

The greed and leverage PEU boys will not save America's absurd healthcare system.  The are expressly not the tonic and anathema to continuous quality improvement, according to founder Dr. W. Edwards Deming..
The world's quality guru, Dr. W. Edwards Deming, spoke in 1984 about an economy without takeovers, without leveraged buyouts (LBO firms).  LBO morphed into private equity before exploding the last few decades.  Greed is their constancy of purpose.
Deming died in 1993 before KKR's takeover of HCA added over $15 billion in costs to America's healthcare system.  He would be horrified to learn of private equity's greed-based assault on all elements of our healthcare system. 

Nancy Ann DeParle will continue to enrich herself from the buying and selling of healthcare and healthcare companies.  The rest of us will be much worse off.

Sunday, August 26, 2018

Carlyle to PEU Primary Care

The Carlyle Group announced:

Global alternative asset manager The Carlyle Group (NASDAQ: CG) today announced that it is making a significant minority investment of up to $350 million into 1Life Healthcare, the technology and management company behind One Medical, to support the company’s growth. One Medical is the largest independently held primary care practice in the U.S. The company is working to transform health care by making high-quality primary care personal, accessible and affordable.
OneMedical's CEO told CNBC his company could save the U.S. healthcare system 10%.   His statement is likely sales talk, puffery.  Private equity ownership can add significant capital, management fees and special dividend burdens.

The Carlyle Group chose to omit ManorCare and LifeCare Holdings, both bankrupted by Carlyle, from its healthcare track record in its press release:

Carlyle’s significant experience investing in the healthcare space includes MedRisk, Albany Molecular Research, PPD, WellDyneRx, Ortho Clinical Diagnostics, Rede D'Or São Luiz, Healthscope, Qualicorp, MultiPlan, and most recently, Millicent Pharma.
Carlyle announced the formation of Millicent Pharma in May 2018 with its acquistion of Femring from Allergan. states:

Femring® (estradiol acetate vaginal ring) is an off-white, soft, flexible ring with a central core containing estradiol acetate. described its use:

Femring (estradiol) is a member of the estrogens drug class and is commonly used for Atrophic Urethritis, Atrophic Vaginitis and Postmenopausal Symptoms.
Femring's price history can be seen below:

The drug price rose 145% from 2012 until today.  It's not clear how much of the increase came as a result of Carlyle Group ownership.

Hospital giant HCA's ownership by private equity underwriters (PEU) added $15 billion in costs

PPACA's founders projected healthcare costs would rise less than 1% per year between 2010-2019.  Many of those people now work for private equity underwriters. 

The greed and leverage boys will not decrease healthcare costs, whether they be hospitals, home health agencies, hospices or physician practices.

One Medical, offers concierge-style primary care, charging patients an annual fee of $149 to $199.
PEUs will distort the system to feed their insatiable need for grand returns, lying all along the way.  When challenged puffery has been their core defense     

Monday, August 13, 2018

Carlyle CEO Owns Chunk of New Professional Fighters League

The Washingtonian reported:

Love the Caps but wish hockey were even more violent? A group of DC businessmen has just the thing for you: a new national mixed-martial-arts fighting league. Dubbed the Professional Fighters League, it debuted in June.

Davis came up with the idea for the MMA league after he saw that the hugely popular Ultimate Fighting Championship sold for $4 billion last year.  Davis approached a group of business leaders—including Wizards and Capitals owner Ted Leonsis, financier Russ Ramsey, and Carlyle Group co-CEO Glenn Youngkin—with the intent of building their own operation to capture some of the sport’s 300 million fans.
Carlyle has streetwear brand Supreme to dress its new league of street fighters.  It may get to cross sell Carlyle investments to other PFL investors.  

Monday, July 30, 2018

Obama Offers Compassion for Bribers

President Obama defended titans of industry in a South Africa speech honoring Nelson Mandela.  He said:

".... their decision to pay a bribe- are often done without malice...
These words were stated by a constitutional lawyer.  He went on:

"it’s just a rational response, they consider, to the demands of their balance sheets...."
I've read many balance sheets and not one ever made a demand.  Obama furthered the PEU class during his eight years in office.  He protected Wall Street executives from accountability for their fraudulent acts that caused the 2008 financial crisis.  For his service he has been and will be richly rewarded.