BrightSpring IPO Dulls Market

Brightspring Health Services' IPO priced below the desired range, coming in at $13 per share vs. $15-18.  Sponsor KKR hoped to garner up to $960 million but settled for $633 million.

Brightspring is yet to open this morning on the NASDAQ exchange.

Carlyle Group co-founder David Rubenstein said recently in Davos, Switzerland:

“Now the recession fears are gone, interest rates are coming down almost certainly very soon, so I think you’ll see a lot more M&A activity and a lot more private equity activity.”

The Bloomberg story added:

A pickup would be especially welcome in the private equity business, where sponsors and investors have found themselves stuck in older investments because they couldn’t find buyers or acceptable prices to help them exit.

Fast Company quoted Reuters with:

Although it’s only January, the fact that one of the first high-profile IPOs of the year saw its shares priced below their original range could signal that investors aren’t as excited about the IPO market as they were in earlier years.

It could also signal investors looked at the S-1 and its many amendments.  Brightspring is an assemblage of a mish mash of healthcare companies, ResCare, PharMerica, Abode Hospice and others.

We own or have rights to use various trademarks, tradenames, service marks, and copyrights, which are protected under applicable intellectual property laws, including, for example: BrightSpring, PharMerica, ResCare, All Ways Caring, Amerita, Onco360, Chem Rx, Abode, Adoration, Springhealth, Pharmacy Alternatives, and Rehab Without Walls.

BrightSpring purchased hospice provider Abode Healthcare in April 2021 for $750 million.   Goodwill comprised 95% of the purchase price ($715 million).  Goodwill can quickly evaporate under conditions of financial stress.

Investors may remember the bath they've taken on Aveanna Healthcare, a similar mish mash of healthcare companies (with less total revenue than BrightSpring).  Aveanna's IPO priced at $12 per share in April 2021.  It now trades at $2.40 a share.  IPO investors have an 80% loss.

Potential shareholders may have noticed KKR Capital Markets is the first underwriter listed under Goldman Sachs (the lead underwriter) and considered that a conflict of interest.  

KKR Capital Markets LLC, an affiliate of KKR Stockholder and an underwriter in this offering, acted as an arranger and bookrunner for various financing transactions under the First Lien Facilities and the Second Lien Facility, and received underwriter and transaction fees totaling approximately $5.8 million and $2.5 million for the year ended December 31, 2021 and 2020, respectively

How many ways has KKR made money off this?  Management fees to sponsor totaled $17.5 million since KKR bought BrightSpring in March 2019.  

Under related party transactions the S-1 stated:

KKR has ownership interests in a broad range of portfolio companies, and we may enter into commercial transactions for goods or services in the ordinary course of business with these companies. We do not believe such transactions are material to our business.

Encouraging affiliates to buy goods/services from other affiliates is a time honored PEU tradition.

Investors may remember their experience with Gentiva or Kindred Healthcare, both chronic underperformers.  BrightSpring's Jon Rousseau comes from that lineage.

Rousseau moved from Kindred to ResCare in 2016, the same year Kindred reached a $125 million settlement with the Justice Department for fraudulent rehab billing.

They may recognize Mike McMaude (President of the Home Health Division) as the former President of the Home Health division of Amedisys.  

Investors could recall Amedisys settlement with the Justice Department for fraudulent billing in 2014.

Amedisys Inc. and its affiliates (Amedisys) have agreed to pay $150 million to the federal government to resolve allegations that they violated the False Claims Act by submitting false home healthcare billings to the Medicare program.

The settlement announced today resolves allegations that, between 2008 and 2010, certain Amedisys offices improperly billed Medicare for ineligible patients and services. Amedisys allegedly billed Medicare for nursing and therapy services that were medically unnecessary or provided to patients who were not homebound, and otherwise misrepresented patients’ conditions to increase its Medicare payments. These billing violations were the alleged result of management pressure on nurses and therapists to provide care based on the financial benefits to Amedisys, rather than the needs of patients.

McMaude left Amedisys prior to this period according to his Grant Capital "advisor bio":

Prior to Abode, Mike and the Managing Partner of Grant Avenue Capital partnered together on Voyager HospiceCare, where Mike was the CEO from 2007 until its successful sale to Harden Healthcare in 2010. Following the sale, Mike continued to serve as COO until 2012.

McMaude was the man in charge for this $6.1 million fraudulent Voyager HospiceCare billing settlement with the Justice Department:

(The whistleblower) revealed that the hospice company was submitting false claims over a course of four years to Medicare for beneficiaries that did not have a terminal prognosis of six months or less. Later, the government found out that there were various practices that the company was involved in resulting in the submission of false claims such as implementation of an inadequate compliance program, delaying discharges of patients determined not to have a six month or less prognosis and instructions to staff to document patient conditions in a misleading manner.

IPOScoop.com offered:

Investors pushed back on price due to their concerns about the company's valuation. its debt load and KKR's role.

I would add investors should be very concerned about management ethics, or lack thereof, especially under the greedy hand of KKR.  There's alot more stock to sell.

Update:  BTSG last traded at $11.35, down $1.65 or over 12% with ten minutes left in the session.  Reason for celebration?

BTSG closed at $11.00, down $2 for the day, a decrease of over 15%.   Is BTSG a pothole on the smooth path of PEU montetization?  Will it impact future IPOs or affiliate flips?