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.

Update 9-29-18:  The greed and leverage boys hate to be caught in their mendacious acts.  They have no compassion for whistleblowers.   As President Barack Obama made life very difficult for whistleblowers.

Sunday, July 29, 2018

Carlyle Group Sued Again

FT reported:

Carlyle, the buyout group, has been accused of inducing a senior businessman to purloin secret documents from one of France’s biggest industrial companies.
Carlyle recruited the executive from the company it was trying to buy.  The lawsuit:

"accuses him (executive Carlyle hired) of downloading “a trove of competitively sensitive information” on to two USB thumb drives before he left the building. Carlyle provided “a direct financial incentive” for him to breach his duties as an employee."
It took years but Carlyle lost the condemnation lawsuit over Mountain Water.   Now the City of Missoula wants Carlyle to pay for its PEU practices:

An alleged betrayal included Carlyle infrastructure executives getting incentives to maximize the water company’s short-term profit at the expense of the city of Missoula, and to extract $11 million for shareholders by maximizing rates and minimizing maintenance.
In all, Schneider laid out a laundry list of facts produced in two trials that showed bad faith including false promises, unjust enrichment, deceit, corporate raiding and what he termed legal thuggery.
Carlyle provided incentives that caused its representatives to act in unethical ways.  It happened before with Synagro, Semgroup, Church Street Health Management, ARINC, China Fishery and Cobalt Energy.

Yet, Carlyle's co-founders meet regularly with U.S. Presidents regardless of political party.  Greed lives and unfortunately it has bipartisan support. 

Update 6-16-20:   Missoula's bad faith lawsuit against Carlyle has been delayed due to the coronavirus pandemic.  The city's attorneys say they have evidence of Carlyle Grouo fraud and malice.  If so, Carlyle will not want a public trial.  

Saturday, July 21, 2018

Carlyle's Rubenstein Says Let Good Times Roll

Billionaire Carlyle Group co-founder David Rubenstein said on CNBC on 7-18-18:

And when the economy's in good shape, people tend to be happier. Now, obviously people at the bottom of the economic totem pole are not happy. But unemployment is at a record low, and therefore you've got a lot of people working, a lot of people are making money...
CNBC Reporter Becky Quick kindly gave Mr. Rubenstein time to promote private equity underwriters (PEU) and The Carlyle Group.

Carlyle raised $17 billion for Carlyle Partners VII with an $18.5 billion hard cap in sightPitchbook reported:

Carlyle's largest-ever effort, Carlyle Partners V, brought in $13.7 billion in 2007.
Carlyle's website pegs the close in 2008.

Carlyle's $13.7 billion Carlyle Partners V closed at the end of 2008 
The bulk of PEU fundraising occurred before the September 2008 financial meltdown. What does this mean for investors today?

Rubenstein spun history with Becky Quick:

"During the Great Recession, which happened after 2006, around 2007, 2008, the industry went down, as most of the economy around the world went down. And a lot of buyout fields didn't work out as well as people thought. It was a complicated industry at the time, complicated for the economy about whether we could do the things we said we were going to do for our investors."-Rubenstein
The PEU model did not get less complicated since then.  Becky Quick commented on high prices PEUs are paying to buy companies:

"I think if you go back and you look over the last year, you see about seven times EBITDA. Now, it's closer to 12 to 13 times. So almost doubling over the last year."-Quick
Froth has returned.  Rubenstein reinforced Quick's observation:

"Deals are getting done at higher prices than they were in 2006 or '07. But because investors are willing to accept somewhat lower rates of return, it works."-Rubenstein
Carlyle investors don't take kindly to a 100% investment loss as experienced with Carlyle Capital Corporation's bankruptcy in March 2008.  

Financial crisis arrive when the big money boys no longer trust one another to pay their debts and investors fear losing principal.  That may be near.  It may be far, but it will return again.  The question is when?

Until then, totem pole toppers enjoy!

Update 7-22-18:  Institutional Investor issued a warning on PEU froth.

Update 7-31-18:  Carlyle hit the $18.5 billion hard cap, it's largest ever.  Great PEU times!

Monday, July 16, 2018

Carlyle Buys Skin Stimulation Tech Company

Private Equity News reported:

Carlyle Group LP has agreed to buy a majority stake in LPG Systems SA, a maker of skin-stimulation devices for non-surgical cosmetic and medical treatments.

LPG is positioned to take advantage of the rising demand for non-surgical, natural treatments for fat reduction, burn treatment and neuro-physical training.
The French company was founded in 1986, one year before The Carlyle Group was formed.

Private equity underwriters played a key role in the last two decades in enriching the wealthiest and keeping down worker pay/benefits.

After helping fatten up the super rich a new Carlyle affiliate can help them slim down with a HUBER 360.

Sunday, July 15, 2018

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.

Saturday, July 14, 2018

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.

Sunday, July 8, 2018

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.

Update 9-28-21:  Milken got mention as a bad guy in 2010 for rumor mongering and naked short selling. 

Update 3-1-22:   Young workers understand how they are judged on their productivity and the never ending drive to squeeze more out of them.  For executives and the PEU boys it is never enough.

Monday, July 2, 2018

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.