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.

Update 9-24-18:  Christopher Hedges wrote "economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence.  Irish born Bono has far more influence on U.S. government policy than American citizens.  "Elites, who sacrifice nothing for society and are not held accountable for their criminal behavior, live in a “stateless archipelago.” They are empowered to pillage the nation, amass obscene wealth and wield unchecked political and legal control.  Bono is an elite and Zacharia an enabler.

Update 9-26-18:   The Guardian noted the outsized influence of the super rich, i.e. the greed and leverage boys.  Some researchers have concluded that wealthy people and business interests have 15 times the political efficacy of the rest of the population. Most people are unhappy with the status quo, and do not think it’s fair that wealthier people have disproportionate political influence.

Update 9-28-18:  Billionaire David Rubenstein recently lobbed softball questions to Jeff Bezos, the world's richest man. 

Update 9-6-23:  Elevation Partners website states:

 In 2015, Bono (an Elevation Co-Founder and Managing Director) joined TPG Growth as a Special Partner. In 2016 Bono co-founded The Rise Fund, a global social impact fund which invests in seven sectors aligned with the UN Sustainable Development Goals.

Update 10-25-23:  A Bono, Bezos, Gates company intended to revolutionize trucking may be going under.  Convoy will "shut down core business operations immediately while some staff would be retained to wind down operations and for potential future strategic options."

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.  

Update 6-9-24:  Carlyle will once again try to flip 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.

Update 2-19-21:  Nancy Ann Deparle had a banner payday after Consonance Capital sold Enclara Healthcare to Humana in 2020.  Enclara is "one of the nation's largest hospice and benefit management providers."  Yet, Humana intends to spin off Kindred Hospice as it prefers a partnership model for end of life care. 

Update 11-29-22:  The Carlyle Group is merging affiliate CNSI and Kepro.  Apax Partners will exit Kepro in the deal.  They claim the combined firm will improve healthcare quality.  That remains to be seen.

Update 9-5-23:  Accentra Health CEO Todd Stottlemyer garnered a spot on Virginia Business 2023 Power List.  Carlyle can do that for their PEUple.  It helps that Governor Glenn Youngkin is a former Carlyle co-CEO and counts on Stottlemyer, who contributed $25,000 to the Youngkin campaign.  It's the PEU way.

Update 1-9-24:  Carlyle's Acentra bought  EAP Consultants, LLC (“Espyr”), a leader in workplace mental health and well-being programs.  Will they be able to undo the harms done to employee mental health by PEU ownership?