🍋 Private Equity isn't All Bad

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Short Squeez
May 17, 2022

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"I honestly think it’s negative EV (expected value) for me to cut my hair. I think it’s important for people to think I look crazy." — Sam Bankman-Fried

Good Morning! The friendly skies don't look all that friendly anymore, as JetBlue launches a hostile takeover bid for Spirit. They're offering Spirit shareholders $30 a share in a tender offer and urged investors to vote against Spirit's potential deal with Frontier. Another corporate collision, this time between Elon Musk and Twitter CEO Parag Agrawal. Musk is saying the number of spambots on the platform is far higher than acknowledged. That also led to Musk saying that a viable deal for Twitter at a lower price is not "out of the question," causing shares to fall 8%. Uber Eats is monetizing our laziness and is introducing a new feature at stadiums where we'll be able to order food from concession stands right from our seats. Every day we move a step closer to living like the blobs in the movie Wall-E.

1. Story of the Day: Private Equity isn't All Bad

Private equity firms often get a bad rap for just slapping debt on companies and laying workers off as they try to "optimize businesses." Well KKR is showing that private equity really can effect change, and do some good.

KKR has agreed to sell C.H.I. Overhead Doors, a garage door maker out of Arthur, Illinois for $3 billion to Nucor Corp. Obviously they'll make out as bandits on this deal, and have the transaction as one of the firm's "largest returns in recent history," but C.H.I's laborers get to participate in the pay day as well.

Over 600 factory workers, distribution center workers, and truck drivers will, on average, receive $175,000 through this sale. Some will end up earning more than $400,000, and even fresh hires that started in 2021 and 2022, getting roughly $40k and $20k, respectively.

Josh Ryan, an assembly line supervisor at the factory said, "It is life-altering. I can't explain how much it's going to change - not just people's lives here - it's going to change this entire community." Ryan's brother, his fiancée, and his future mother-in-law also work for C.H.I. In total, the family will make $750k before taxes when the deal is done. (wholesome af)

C.H.I. was one of about 25 KKR portfolio companies where non-salaried, hourly employees, received equity as part of the original buyout. Workers that made more than $100k annually got the option to buy into that play. Pete Stavros, KKR's co-head of Americas private equity, said, "This is a superior way to run a company... not just stock ownership, but creating a real ownership culture. Last Wednesday, we told employees what was happening and got to tell them about what they'd earned. It was the most rewarding moment of my career."

Short Squeez Takeaway: I'm not crying, you're crying. It really is great to see the little guys benefit from transactions like these rather than getting laid off which is, unfortunately, the case a lot of times. On top of that, in expensive times like these, I bet it means that much more to all these hard workers. Now you can feel good about going into PE and getting paid the big bucks. If that doesn't work out for you, maybe try going to work for one of KKR's portfolio companies, and pray that your effort and long hours gets you a windfall that way.

Source: Axios, WSJ

2. Markets Rundown

All markets had a case of the Mondays, and were slightly lower, mainly thanks to lingering growth concerns.

Movers & Shakers

  • (+) Occidental Petroleum ($OXY) +6% as oil prices got a boost on news that the EU is closer to banning crude imports from Russia.

  • (+) Eli Lilly ($LLY) +3% thanks to the FDA approval of the company's tirzepatide treatment for type 2 diabetes in adults.

  • (–) Twitter ($TWTR) -8% after Elon Musk made headlines for putting the completion of the takeover deal in doubt.

Private Dealmaking

  • Inflection AI, a Palo Alto machine learning startup, raised $225 million in new equity funding

  • Postmates founder's new crypto startup, TipTop, raised $23 million in Series A funding, led by Andreessen Horowitz

  • Goldman led a $9.2 million Series A for Mahmee, a maternal care startup

  • BMG, backed by KKR and Warner Music are bidding for Pink Floyd's back catalog

  • Carlyle agreed to buy ManTech International for $4.2 billion

  • Metaverse Acquisition filed for a $150 million IPO

3. Top Reads

  • Carvana, from a Wall Street favorite to meme stock plaything (CNBC)

  • Ex-Goldman banker and billionaire falls in Luna collapse (TS)

  • Try finding some stagflation havens (BB)

  • Baby formula shortage hitting hard (Axios)

  • Wealthy college sports fans are funneling millions to players (BB)

  • FDA declines to authorize fluvoxamine as COVID-19 treatment (MW)

  • Sale of Chelsea FC hits snag (BB)

  • Walmart's new program will put new college grads on the path to a $210k salary (MW)

  • LA County property market soars by $100 billion (BB)

A Message from Daloopa: Update Models with 1-click

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MicroStrategy has been in the news a lot lately due to its huge stockpile of bitcoin (owns 129,218 bitcoins). But will its Bitcoin bet pay off in the long run? Model it out yourself! Download MicroStrategy's model for FREE here.

4. Book of the Day: Build: An Unorthodox Guide to Making Things Worth Making

Written for anyone who wants to grow at work—from young grads navigating their first jobs to CEOs deciding whether to sell their company—Build is full of personal stories, practical advice and fascinating insights into some of the most impactful products and people of the 20th century.

Each quick 5-20 page entry builds on the previous one, charting Tony’s personal journey from a product designer to a leader, from a startup founder to an executive to a mentor. Tony uses examples that are instantly captivating, like the process of building the very first iPod and iPhone. Every chapter is designed to help readers with a problem they’re facing right now—how to get funding for their startup, whether to quit their job or not, or just how to deal with the jerk in the next cubicle.

Tony forged his path to success alongside mentors like Steve Jobs and Bill Campbell, icons of Silicon Valley who succeeded time and time again. But Tony doesn’t follow the Silicon Valley credo that you have to reinvent everything from scratch to make something great. His advice is unorthodox because it’s old school. Because Tony’s learned that human nature doesn’t change. You don’t have to reinvent how you lead and manage—just what you make.

“Traditional schooling trains people to think incorrectly about failure. You’re taught a subject, you take a test, and if you fail, that’s it. You’re done. But once you’re out of school, there is no book, no test, no grade. And if you fail, you learn. In fact, in most cases, it’s the only way to learn—especially if you’re creating something the world has never seen before.”

5. Short Squeez Picks

6. Daily Visual: More WFH

The average amount of days a week employers say they'll allow remote work (monthly survey responses from August 2020 to April 2022)

Source: Axios

7. Daily Acumen: Unsolicited Advice

That thing that made you weird as a kid could make you great as an adult — if you don’t lose it.

Don’t create things to make money; make money so you can create things. The reward for good work is more work.

In all things — except love — start with the exit strategy. Prepare for the ending. Almost anything is easier to get into than out of.

Most overnight successes — in fact any significant successes — take at least 5 years. Budget your life accordingly.

If you think you saw a mouse, you did. And, if there is one, there are more.

Finite games are played to win or lose. Infinite games are played to keep the game going. Seek out infinite games because they yield infinite rewards.

Source: KK.org

8. Crypto Corner

  • Who sold Coinbase before it tanked?

  • Bitcoin: the Microsoft of crypto

  • The TerraUSD rescue plan

  • Another algorithmic stablecoin falls

  • Crypto CEOs courting Brazil's central bank

  • Sam Bankman-Fried criticizes Bitcoin

9. Memes of the Day

 

 

 

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