Sunday, September 10, 2017

Petraeus' "Biggest Gig Yet" is Peanuts for PEU Partner

Who knew being a board member of an affiliate beat out being partner of the owning private equity underwriter (PEU)?  That's the line KKR's David Petraeus wants the public to believe.  Reuters reported:

Former United States CIA Director David Petraeus said Thursday he has joined the board of a large cybersecurity company controlled by investment firm Kohlberg Kravis Roberts (KKR & Co. LP), taking his most prominent role in the private sector. 
That statement is blather.  KKR has nearly $150 billion in assets under management.

Petraeus, a KKR partner and head of its global risk assessment, said in an exclusive interview that he was joining Optiv Security because of the increasing importance of hacking threats. 
The private equity group KKR bought a dominant stake in Optiv this February. The company has about $2 billion in annual revenue and more than 1,000 employees.
News reports suggest KKR paid $1.8 to $1.9 billion for Optiv.  They bought the company to grow its government cybersecurity business:

wanting to expand Optiv’s commercial customer base beyond the 67 percent of the Fortune 500 that it currently serves and deeper into the government, where former general Petraeus pledged to help with his understanding of intelligence and military needs.  
KKR isn't the first PEU with such a vision.  The Carlyle Group invested in Coalfire in September 2016, doing so alongside The Chertoff Group.  Months later Coalfire acquired The Veris Group to:

become a major cybersecurity and threat assessment consultancy to federal agencies, businesses and cloud-computing service providers looking to do business with the federal government.
I find it interest private equity underwriters are happy to take government money but they become very concerned when their patriotic duty of paying taxes is raised.  Uncle Sam is to provide incremental revenue so PEUs can profit but that's all.  Billionaire PEUs retained preferred carried interest taxation for the last decade.  

Optiv's press release stated:

Now, with Gen. Petraeus as an advisor, we can step up our efforts and do even more for our country.
More for our country?  KKR could do more for our country by having founders Henry Kravis and George Roberts forego their preferred carried interest taxation.    That's not likely to happen.

Trump has hosted a steady stream of private equity executives since the election. Carlyle Group LP co-CEO David Rubenstein, Blackstone’s real estate head Jon Gray, KKR’s Henry Kravis and Cerberus Capital Management’s Steve Feinberg have been among his visitors.
Politicians Red and Blue love PEU, which is why carried interest lives on.