#privateequity

Taylor rants about toxic masculinity and private equity

Poor old Taylor Swift. As she took her Billboard Woman of the Decade award, she went on a typical celebrity rant about toxic masculinity and all the other oppression she has faced which still allowed her to cream millions.

Yet the most striking part of her speech (from the 11 minute mark) was to get upset at the sale of her works to a private equity firm and not being consulted about how she feels.

Boo hoo.

Taylor, when you sign with a record label and that company is bought out, it is merely a transfer of rights which you signed over. If your works mean so much to you by all means approach the PE consortium and ask to buy it back so you can control it. The true value of your worth will be what sticker price they put on it.

Either you’ll be outraged at the low price they put on it which you’ll say undervalues your worth or be disgusted at how expensive it is because they are mercenaries who seek to extract maximum returns, you know. The very capitalist system you despise.

Put simply, shut up and stop telling the world how tough your life is from your ivory tower behind a gated security wall.

How to clean up in the adult diaper boom

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Zerohedge is reporting on the large market scope for adult diapers.  One-fifth of the world’s population will be of retirement age by 2070. The beauty for the diaper manufacturers is that adult diapers have 4x the margins of infant diapers despite exactly the same ingredients and production techniques. Asia is ageing fast, especially China and Japan. Incontinence affects 40% of people over 65yo so the market dynamics have rock solid foundations, even if wearers don’t.

Unicharm and P&G are two monsters in the diaper game. But who makes the equipment that makes them?

In a former life as an equity analyst, CM covered a business called Zuiko Corp (6279 JP) which made the machines that make the diapers. It is a captive business. All machines are built to spec. 50 metres long and weighing 20 tonnes. 850 diapers per minute.

The company has the largest share of the market in Asia. It used to be around 80% when CM covered the company and supply chains are very sticky. Zuiko is owned c.10% by Unicharm in Japan.

Zuiko has had quite patchy performance, despite the wonderful structural backdrop. Private equity must look to a buyout. The company has pretty poor investor relations and shareholder communications. The shares are in the dumps, at 7-year lows. It is quite hard to find a business that has such favourable, defensive growth characteristics which is in need of proper leadership.

Zuiko has effectively no debt, ¥10bn  (c. US$90million) in cash which represents around 48% of its market cap. Looks like one for the SMSF.

Was Tesla/Maxwell deal smart?

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Tesla (TSLA) has bought Maxwell (MXWL) for an all-stock transaction at US$288m notional value. The question is why any company would accept an all share transaction from a chronic loss-making company to buy its supposedly “amazing” futuristic dry capacitor technology? Are shareholders of MXWL as hooked into the EV cult as those at Tesla? Clearly not all of them. A group of MXWL investors launched a class action to block the deal. Sadly they failed.

If the management of Maxwell truly believed this deal was a winner and the technology was game-changing, why not demand cash? Why didn’t Tesla invite Panasonic’s battery boffins to assess whether the technology had merit? One must question how good is Maxwell’s IP to only find one buyer and for an all share deal? Where were the private equity (PE) vultures circling? How little confidence in one’s product or how much faith in Musk’s cult-like status to fall for such terms?

Maxwell at the 9 month FY2018 stage reported US$91.6mn (-8%YoY) in revenue and a net loss of $30.2mn. Cash halved from $50.122m in 9M 2017 to $23.561mn 9M 2018. The company did sell its high voltage product line to Renaissance Investment Foundation for $55mn with a 2-year $15mn earn out. That involved an upfront payment of $48m making pro-forma cash as at Sep 30, 2018, total $69mn. The company has an accumulated deficit of $277mn.

While the two companies had been in conversation for several years, Musk seemed to get serious in December 2018.

Forget the technological merits of Maxwell. It is easy to work out the quality of the deal based on the structure and the lack of appetite from the mega battery makers or PE firms to validate it. There is no way that MXWL didn’t show its wares to the majors. Given the deal was announced in February 2019, the EV battery and PE world would have at the very least done some back of the envelope calculations to value the business.

All that Musk has done has absorbed another loss-making business into the same cult and give himself another “dream” to add to the smoke and mirrors story.

Maxwell’s management must have channeled Don Adams, “good thinking, 99” but will undoubtedly end up saying, “sorry about that, Chief!”