Friday, April 2, 2010

30% Annual Returns Still the Target for PEU Rubenstein

Carlyle Group co-founder David Rubenstein believes health care reform will be a profit-a-pallooza for private equity underwriters (PEU's). CNN Money reported:

Rubenstein, 60, travels the world raising money from investors and looking for the next promising deal, striving to maintain Carlyle's amazing average return of 30% a year since its launch in 1987.

The Carlyle Group isn't alone in hearing the siren song of for-profit health care. Mitt Romney's Bain Capital and a plethora of PEU's have health care in their sites. Reuters reported:

Private equity firms expect to pay higher prices for assets in competitive sectors such as healthcare, as they see a pick up in deal activity after a torrid year for the industry in 2009, a survey said on Thursday.

Prices for quality businesses have bounced back in the first quarter, prompting some to believe a "mini-bubble" is brewing as deal-hungry private equity firms race to deploy some $500 billion in so-called "dry powder"

Mr. Rubenstein addressed the impact of health reform.

You're going to see more and more of our GDP going into health care, and I think any health-care legislation that passes Congress will just exacerbate the situation.
What does Rubenstein have to sell Uncle Sam that will reverse this trend? It has PPO affiliate MultiPlan, which recently closed its acquisition of Viant from fellow PEU Welsh, Carson, Anderson & Stowe. Modern Healthcare reported:

Healthcare cost management provider MultiPlan said it has completed its acquisition of Naperville, Ill.-based Viant, which provides cost-control strategies to healthcare payers
How might Carlyle's 30% annualized returns, atop the interest on debt loads from "a tad less leveraged" buyouts, contribute to the growth of health care costs in America? Be wary when the greed and leverage boys show up with major plans for your industry.