Carlyle Gives Up on Prezzo

The Carlyle Group failed in its attempt to takeover UK dining chain Prezzo.  Carlyle purchased discounted debt in Prezzo with the hopes of converting the debt into a majority equity position.  Prezzo's owner TPG Capital threatened a lawsuit and Carlyle backed away.

Carlyle used a similar strategy to takeover British carpet maker Brintons and Mrs. Fields.  The Carlyle Group lost ManorCare to creditors. 

Disruptions ahead mean opportunities for the PEU boys, at least those with cash.

Wall Street's Big Data Flat Wrong on World Cup

The Guardian reported:

Goldman Sachs continued its unsuccessful tradition of picking Brazil as the winner (it has done so for the last three World Cups). Goldman Sachs didn’t arrive at this conclusion through instinct, but through “hours of number crunching, 200,000 probability trees, and 1 million simulations”. 

Goldman Sachs’ artificial intelligence-powered algorithms led them to conclude that “England meets Germany in the quarters, where Germany wins; and Germany meets Brazil in the final, and Brazil prevails.” What’s more, the banks stated: “For the doubters out there, this final result was cross-checked in excruciating detail by our (German) Chief Economist Jan Hatzius!”

Economics may be the softest science.  Weather modeling is only mostly right in a several day window.

In recent years technology evangelists have been touting the power of data to predict the future and make important decisions about everything from the economy to employee performance. However, time and time again – from polls being wrong about Donald Trump to Brexit forecasting errors – we are reminded that data analytics has its limits. Seeing how wrong big banks were about the World Cup is a sobering reminder of how fallible even the most sophisticated statistical models are. 

Our world is over-weighted by the greed and leverage boys.  It's no wonder their toys filtered into corporate board rooms where executives place the highest priority on finance/capital and deride what was once human resources.  At many companies virtually all HR functions are contracted out. 

"Every theory is correct in its own world, but the problem is that the theory may not make contact with this world." - Dr. W. Edwards Deming 

Goldman Sachs and the clients they serve are directly responsible for workers going decades without reward/pay increases.  Have the big money boys created a model for another decade of the spoils going to top executives/board members while employees get increased responsibility for health care and retirement?

Update 7-15-18:  France beat Croatia 4-2 to win the World Cup. Nomura Bank predicted a France-Spain final, so it came the closest.  ING predicted France as the runner up, so it too was in the ballpark.

Roots of Immoral PEU

The 1980.s saw the formation of many private equity underwriters.  Photographer Lauren Greenfield spent decades photographing the super wealthy.  She observed that more money is never enough for greed addicts.

“No matter how much people had, they still wanted more,” Greenfield says of her (wealthy) subjects. 

One of her subjects spoke to America's shift that produced widespread greed.

We meet Florian Homm, a hedge fund manager living in self-imposed exile in Germany to avoid extradition to the US where he has been sentenced to 225 years in jail. Smoking cigars and dripping in gold, Homm, who became known as “the antichrist of finance” for ripping off his investors for hundreds of millions of dollars, tells Greenfield that morality changed in the 80s. “The value system changed completely. It wasn’t about who you are, but about what you are worth…

Morals are completely non-productive in that value system.”

The greed and leverage boys arose from this immoral swamp and their greed has been self serving.

The richest 0.1% of the world’s population has increased their combined wealth by as much as the poorest 50% – or 3.8 billion people – since 1980.

UBS published research showing that the super-rich hold the greatest concentration of wealth since the time of the Carnegies, Rockefellers and Vanderbilts at the turn of the 20th century. There are now 1,542 billionaires across the world, more than ever before. The richest 500 people alive increased their wealth by 23% last year, taking their combined fortunes to $5.3tn – more than twice the gross domestic product of the UK 

How many workers got a raise from their PEU sponsor in the last year?   While employees struggle under a low to no raise workplace

The pursuit of more money has costs and consequences to society, but also to families..  A 13 year old boy from a wealthy family told the photographer:  “Money ruins kids, money has ruined me”

Greed addicts uses their super wealth to buy inordinate influence from America's Red and Blue political parties.  Both Democratic and Republican White Houses catered to the PEU boys for nearly three decades.  PEU friendly Bill Clinton, George W. Bush and Barack Obama oversaw the growth of inequality from 1600 Pennsylvania Avenue. 

President Donald Trump looks to ramp up the wealth gap as he uses the unitary executive to help his fellow billionaires.  A presidential pardon may be on the table for junk bond king Michael Milken.  With the swipe of a pen Trump could remove the legal blemish from leveraged buyouts, which morphed into private equity.

When morals are nonproductive the legal system has little work to do.  Greed remains the prime objective, closely followed by image management.

Tom Scully's WCAS Saddles KAH with Debt, Lightens Load for Kindred Healthcare

Kindred Healthcare is no longer be a publicly traded company as of Monday morning July 2nd.  The company has been divided between two private equity underwriters (PEU), Welsh, Carson, Anderson and Stowe (WCAS) and TPG Capital.  The pair will own Kindred's long term acute care and rehab hospitals, as well as its outpatient rehab services.  This division had $3.4 billion in revenue in 2017.  The two PEUs will share Kindred at Home, the home health, hospice and community care division with Humana, a minority 40% owner.  Kindred at Home had nearly $2.6 billion in revenue in 2017. 

The PEU boys paid $810 million to purchase Kindred's equity.  Humana ponied up $800 million for 40% of the Kindred at Home (KAH).  KAH comprised 42.5% of Kindred's 2017 revenues.  That means Humana paid 98.8% of the cash purchase price for the whole company for  a mere 17% of the company's 2017 revenues. 

Why would Humana CEO Bruce Broussard be so generous with Humana's ample cash resources?   Broussard worked for WCAS affiliate U.S. Oncology for six years, serving the last two as CEO.   WCAS got Broussard his first fortune and the Humana CEO is in position to return the favor.

WCAS General Partner Tom Scully lobbies for Alston and Bird's healthcare clients.  He lobbied for U.S. Oncology and other WCAS affiliates over the years.  Former Medicare Chief and for-profit hospital point man  Tom Scully once said "health investing is as safe as it comes."   

The PEU way is to buy distressed companies, influence Uncle Sam's wallet (in this case Medicare payment for home health/hospice), conduct sponsor repackaging (by adding Curo Healthcare) and flip to a generous buyer, cash rich Humana.

Majority PEU owned Kindred at Home will soon close on the $1.4 billion Curo acquistion.  KAH/Curo will be saddled with $3 billion in debt courtesy of its new PEU owners.  Oddly, the LTAC/Rehab hospital side will have its debt load lightened by nearly 2x EBITDA.  The home care-hospice side will see leverage increase to "very high" levels.

Shouldn't Humana's $800 million in cash enable less leverage for Kindred at Home?   That's not the way this PEU ball is bouncing.  Mr. Scully will do his PEU lobbying best to ensure Kindred's various post acute care pieces make huge returns for its private equity owners.  That generally bodes ill for employees and patients.

Kindred employees in both divisions:  Prepare to be scullied by your new owners.  Greed is ugly.

Update 7-5-18:  Kindred isn't the only healthcare firm going PEU

Update 7-9-18:   ModernHealthcare reported on the PEU healthcare pattern.

Pardon Michael Milken for Redemption of PEU Class

Convicted financial manipulator Michael Milken hosts the American version of Davos, thus he rubs elbows with insiders of the American branded Government-Corporate Monstrosity.  As a thought leader of our "greed is great" economy where the spoils go to a select few, Milken is missing but one thing.  It's the right to return to his former playground, which morphed from leveraged buyouts to private equity.

Those close to President Donald Trump are reportedly pushing the idea of pardoning Michael Milken, the junk-bond king who personified the 1980s buy-and-destroy era.

Bloomberg News reports that support for pardoning Milken is coming from Trump confidants including Treasury Secretary Steven Mnuchin, former White House spokesman Anthony Scaramucci, son-in-law Jared Kushner and attorney Rudy Giuliani, who prosecuted Milken when he was U.S. attorney in the late 1980s.

Sponsors of Milken's 2018 conference include Apollo (Leon Black), Ares Capital, Bain Capital, Blue Mountain Capital, Citadel, CVC Partners, Generation Investment Management (Al Gore), Leonard Green Partners, Moelis, and TCW (Carlyle Group affiliate).  The conference underwriter was WorldQuant.

The buy, bleed and flip era is here thanks to private equity underwriters.  They would love to have their founder rehabilitated.

President Trump is just the man to rewrite Milken's history of harm.   Trump is the great salesman, the P. T. Barnum for the greed and leverage boys. 

He rehabbed the Kushner name with its interesting history. 

Jared’s father, Charles, spent 14 months in federal prison for tax evasion and witness tampering connected to a blackmail scheme against his sister’s husband. Jared’s sister, Nicole Meyer, is under federal investigation after promoting her family’s connections to the White House while soliciting Chinese investors for a pair of luxury apartment towers Kushner Cos. is building in Jersey City.

Jared and Ivanka spoke at a Milken Institute event on December 8, 2014.  The event was billed as a conversation with the couple, who are now key White House advisors.

 
I suggest a huge statue of Michael Milken be erected on the Washington Mall.  He is that foundational to our current leadership in business, the White House and Congress.

Healthcare Ground Zero for PEU Flippers

America's absurdly expensive healthcare system is the latest target for private equity underwriters (PEU).  The greed and leverage boys  have doctors offices, hospices, home health agencies and specialty hospitals in their sites.  With each buyout private equity underwriters saddle healthcare companies with greater levels of debt. 

Their management practices focus on maximizing revenues to pay higher interest costs, management fees and pass cash to the PEU sponsor. 

Take KKR with its recent $10 billion deal for Envision Healthcare, a provider of emergency medicine physicians.  This comes on top of KKR's 2017 buyout of WebMD, an online provider of medical information, and a stake in PharMerica Corporation.

TPG Capital and Welsh, Carson, Anderson & Stowe will partner with Humana to buy Kindred Healthcare's home health, hospice and community care division, formerly known as Gentiva.  The two private equity firms will buy Kindred's specialty hospital division with its long term acute care hospitals and rehabilitation assets, both inpatient and outpatient.  Kindred had $3.2 billion in debt before the buyout.  It remains to be seen how much additional debt will be added after deal close.  

Ex Medicare Chief Tom Scully is a partner with WCAS and knows the healthcare tea leaves, especially under a Republican administration.  He has insights into reimbursement for all of Kindred's post acute care portfolio and WCAS plans to make big money off Kindred's pieces/parts.  

PEU greed will not solve the ills of America's dysfunctional healthcare system.  It is the plague that will cause widespread harm to countless citizens, through suboptimization of care and pirating of resources in an attempt to fill an insatiable desire for money.

Employees to Leave Shuttered Toys R Us with No Severance

The PEU boys reneged on employee severance pay mostly because they don't care about the little people.  Cash goes to sponsor via management fees, deal fees and dividend bleeding.  None is left for the hardworking people who've spent their career at Toys R. Us.  However, just before declaring bankruptcy Toys R Us paid executives $8 million in bonuses.

Employees reached out to Robert Menendez and Cory Booker for help.  That pair may toss Toys R Us employees an anchor.  Blue Team corporacrats work for the sponsors of the world, not the common man.. 

Update 6-19-18:  The Atlantic weighed in on the PEU stain left by the Toys R' Us bankruptcy.