The Carlyle Group recently took two healthcare affiliates public, OneMedical and PPD. PPD's S1 described their PEU owners:
Carlyle is one of the leading private equity investors in the healthcare sector, having completed 65 total healthcare transactions representing approximately $12.3 billion in equity invested since inception. Recent transactions include Sedgwick Inc., One Medical (a technology-enabled primary care organization), Millicent Pharma Limited (a pharmaceutical company), MedRisk Holdco, LLC (a physical therapy-focused workers’ compensation solutions company), Albany Molecular Research, Inc. (a contract research and drug manufacturing organization), WellDyneRx, LLC (an independent pharmacy benefit manager), Rede D’Or São Luiz S.A. (a hospital provider in Brazil), Ortho-Clinical Diagnostics (a global provider of in vitro diagnostic solutions for screening, diagnosing, monitoring and confirming diseases), Healthscope Limited (a hospital in Australia) and PPD.Carlyle and company bought PPD in December 2011 with equity financing up to $1.76 billion. PPD had no long term debt prior to the 2011 buyout. PPD had $1.2 billion in stockholders equity. At the time PEUReport asked:
How long before Carlyle conducts a debt offering for dividends, adding to an exploding health care pie?Not long. PPD's PEU owners used the company as an ATM, pulling out billions. The first debt for dividend play came in October 2012. Moody's reported PPD's holding company issues new $500 million of unsecured notes to fund a dividend to the equity sponsors, The Carlyle Group and Hellman & Friedman. Standard and Poor's referred to the move as a "drive-by."
In August 2016 Standard and Poor's indicated PPD paid more than $1.0 billion to shareholders over the last year.
They sampled PPD for more in November 2016 and then stuck the firm twice in 2019.
For an initial $1.76 billion equity investment PEU shareholders took over $4.2 billion in debt funded dividends.
PPD issued 60 million new shares in its IPO. Carlyle owns 66,454,994 shares of PPD which closed at nearly $31 per share. Carlyle's current PPD shares are worth over $2 billion.
Carlyle and company added over $5.6 billion in debt to the company, which had zero long term debt before PEU sponsorship. This PEU debt burden cost PPD over $1.5 billion in net interest expenses through the third quarter of 2019.
PPD also paid over $20 million in Sponsor fees since 2014. PEUs take a cut of deal/transaction fees and PPD was active in this arena, paying over $50 million since 2014.
PPD joins KKR's HCA in not bringing down healthcare costs under PEU ownership. Carlyle's ownership of ManorCare came with quality concerns and an eventual bankruptcy. Is that the future for healthcare users as PEUs roll the dice for grand returns?
Update 2-9-20: Ohio retirees will have their healthcare benefits cut as there is no money for healthcare OPERS. OPERS invested $150 million in Carlyle Partners V in 2007. Carlyle Partners V is currently harvesting its investments, which include healthcare. Did OPERS not make enough money in healthcare to maintain healthcare benefits for retirees? Carlyle claims it doubled investor money through CP V. Also, Carlyle's CEO said he expects a pickup in realizations in 2020. It's cash in time for the PEU boys.
