Guns (Long Civil Division…and Professional Fees)

The Parkland situation is nothing short of heart-breaking: it has had us depressed all week. Looking for a positive, here, we’re as impressed by the composure of the Parkland students in the wake of that travesty as we are in the ability of parents to restrain themselves from tarring and feathering Marco Rubio during that CNN town hall. Were we in Westeros, homie would have gotten sh*t hurled at his face and his arms ripped out. Not that we’re advocating that. Just saying: it could’ve gotten ugly. The fact that we’re thrilled that this WASN’T the result just goes to show how low the bar is for civil discourse these days.

Other positives, Blackrock, the leader in the massive ETF space, is now saying that it wants to reach out to gun manufacturers “to understand their response” to the shootings. To quote Lester Freeman in the Wire, “follow the money.” Indexes, however, are complicated: Blackrock may be subject to index-oriented limitations that hinders its ability to take action against gun manufacturers. Still, any pressure is a positive development. Especially when coupled with the corporate response to the NRA.

All of which brings us back to Remington Outdoor Company. As we previously snarked in our mock First Day Declaration, well…f*ck them. Note that the lenders are putting $145mm of fresh capital into the thing. The term lenders will own the majority of the company and the third lien lenders will own the rest (plus warrants for upside…you know, in case more people die, regulators threaten to curb gun access, and 2nd Amendment fanatics need to run out and stock their 16-deep arsenal with another AR). Who are these lenders? According to Felix Salmon, they include Franklin Templeton and JPMorgan Asset Management. Marinate on that. Can’t imagine that all of the fine folks at Alvarez & Marsal and Milbank Tweed feel great about making fees on the mandate either…?

Warrant Buffett's Latest Investment Letter (Long Inflated Asset Values)

The Oracle of Omaha released his investment letter yesterday and, as always, its replete with wisdom for anyone interested in fundamental value investing. And the prospects for M&A. In Warren Buffett’s words:

“In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.

That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high. Indeed, price seemed almost irrelevant to an army of optimistic purchasers.

Why the purchasing frenzy? In part, it’s because the CEO job self-selects for “can-do” types. If Wall Street analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening teenager to be sure to have a normal sex life.”

Interesting analogy but, ok, sure. Buffett continues with thoughts that ought to resonate with pros in the distressed space who, far too often, see leveraged acquisitions premised on synergies that never come to pass:

“Once a CEO hungers for a deal, he or she will never lack for forecasts that justify the purchase. Subordinates will be cheering, envisioning enlarged domains and the compensation levels that typically increase with corporate size. Investment bankers, smelling huge fees, will be applauding as well. (Don’t ask the barber whether you need a haircut.) If the historical performance of the target falls short of validating its acquisition, large “synergies” will be forecast. Spreadsheets never disappoint.

The ample availability of extraordinarily cheap debt in 2017 further fueled purchase activity. After all, even a high-priced deal will usually boost per-share earnings if it is debt-financed. At Berkshire, in contrast, we evaluate acquisitions on an all-equity basis, knowing that our taste for overall debt is very low and that to assign a large portion of our debt to any individual business would generally be fallacious (leaving aside certain exceptions, such as debt dedicated to Clayton’s lending portfolio or to the fixed-asset commitments at our regulated utilities). We also never factor in, nor do we often find, synergies.”

So, affirmation of a number of macro themes that ought to portend well for distressed players in a few years: (i) excess capital supply, (ii) resultant inflated asset values, (iii) lack of discipline, and (iv) over-leverage.

Distressed Healthcare (Long Assists to Assisted Living)

Distressed Healthcare (Long Assists to Assisted Living). Nursing home and assisted living operator, Genesis HealthCare ($GEN), announced this week that it secured (i) a new $555mm asset-backed lending facility to pay down its existing $525mm facility and (ii) a new $40mm term loan extension - a $70mm enhancement to the company’s liquidity profile. As restructuring professionals circle around healthcare looking for some big action (and not really finding any), this was pretty big news. Meanwhile, Signature HealthCARE is looking to restructure its situation - a sitch that includes missed rent payments to landlords Omega Healthcare ($OHI) and Sabra Health Care REIT ($SBRA). Bankruptcy remains a possibility. Assisted living chain, HCR Manorcare ($HCR), won’t be so lucky; sources indicate that it is likely to file a prepackaged bankruptcy in the next week.

Malls Part II (Short "A" Hot Mess?)

Much like Macerich Co., GGP Inc. ($GGP) reported earnings late last week. The results, however, were quite different. GGP reported a 49% decrease in net income YOY and a slight EPS beat, a 3.4% EBITDA increase, an incremental $53mm FFO gain, and 97% occupancy. 

While pointing out that 7000 stores closed nationwide in 2017 - and 21 household names filed for bankruptcy - he claims that the state of the mall is strong. Indeed, if you ever want to see entrepreneurial spin in action look no farther than this comment sprinkled with the fancy "platform" descriptor: 

  • "Layer on the embedded opportunities to recapture space in department stores and you have a platform of growth. We have 100 acres of real estate in nearly every desirable MSA in the United States. Where others see vast parking fields, we see multi-family homes, medical office, entertainment venues, transportation hubs with our existing retail offerings serving as the focal point of a vibrant community. Our portfolio now contains over 52 cinemas, 42 entertainment venues, three co-working spaces, 14 fitness centers, and 21 supermarkets." 

Is now a good time to mention that AMC Entertainment ($AMC) got downgraded by Moody's recently (paywall)? Anyway, we digress. 

Interestingly, total sales were down, dragged primarily by apparel. When asked, then, why GGP had leased 40% of its available space in 2017 to apparel, the response was basically that (i) fast fashion sucked and has been replaced (citing Charming Charlie as a particular drag), (ii) apparel sales were actually up in November and December, and (iii) 40% actually represents a decrease in allocation to apparel. That's probably a good thing given that Bloomberg recently decried "the Death of Clothing." See below.

We're not biting. 

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Restaurant Numbers Show Strength in Q4

According to the Technomic Chain Restaurant Index, sales at the country's largest restaurant chains were solid in Q4 '17. Of the 200 chains the Index tracks, 113 had a stronger fourth quarter relative to the full year with chains like Applebee's and Red Lobster turning positive in the quarter. Casual dining chains, however, continued to show weakness: casual dining traffic was down by 4.9% for the year. 

Convenience Stores (Short Hostess Twinkies)

As the food space evolves considerably, there is an increasing chorus of concern for c-stores. According to Bloomberg, the $550b c-store industry saw its slowest growth in 2017 in four years. Now they are losing share to dollar stores and fast food outlets. Interestingly, "[c]onvenience stores with gas stations have enjoyed a major advantage in the past. While gas typically makes up 60% of sales, the items bought inside provide two-thirds of a c-store's profit...." So, what happens if consumers no longer stop at gas stations for gas? (Not where you thought we were going with this, was it?)

Last week, Yoshi, a San Francisco-based subscription-based provider of on-site car maintenance and gas delivery, raised $13.7mm in Series A funding from Y Combinator, Arab Angel, Kevin Durant, General Motors Ventures ($GM) and ExxonMobil ($XOM). The company makes money off of deliveries or, alternatively, monthly subscription fees (probably better for those who rip through gas) and other services. We'd bet there's margin on the gas, too, of course. The service is only available in select cities but with the new funding, it will seek to expand to other areas (good luck making this work in Manhattan). While this business is nowhere near scale, we can't help but to think about the convenience of such a service and how many people would probably opt to save themselves the time and worry of filling up if the price seemed trivial in relation to the convenience. The negative effect on concession sales - in that hypothetical - could be meaningful. Similar to Amazon Go cutting out impulse checkout buys, gas delivery would eliminate impulse purchases of Twinkies while you wait to fill up the tank. In other words, if this sort of business catches on, that aforementioned 2/3 profit could be very much at risk. 

L.L.Bean (Long Scum)

Maine's fifth-largest employer, the outdoor goods retailer started buying out 500 of its 5000 employees and stopped contributing to its pension plan. The company also announced that it would limit its return policy to one year, saying that returned items have cost it $250mm over the last 5 years. Customers have apparently become bigger scumbags over the years, making the policy untenable; they would scour discount racks, thrift stores and trash cans with the hope of making returns and capitalizing on the company's generously lenient policy. 

Music (Long Continued Cash Burn)

A few weeks ago, we wrote about the effect Spotify was having on the music industryand suggested that Spotify's (allegedly) imminent direct listing might be an opportunity for creatives such as Liam Gallagher to, in the words of Josh Brown, "own the damn robots". Subsequently, The Wall Street Journal reported that Apple Music ($AAPL) is on pace to overtake Spotify in U.S. subscribers. It's a dog eat dog world out there. 

One reader reacted to our post: 

"Further to Spotify….
 
I was listening to a spot on an NPR show a year or two ago, when Dean Wareham, a singer whose career started with the iconic indie band Galaxie 500 in the 90’s, came on the air as part of whatever broadcast I was tuned into. As a longtime fan, I listened attentively.  He was commenting on receiving his first Spotify royalty check. It was for the one hit they had that broke into the charts, Tugboat Captain.  (It might have been 40 on the charts.) He was saying that it had gotten 100,000 plays on Spotify, which triggered a payment. The royalty he received for this was exceeded by the royalty on the sale of a single ’45 at the time. That’s right, the royalty on the sale of one little piece of vinyl was more than the band  got for all it plays on Spotify.
 
He was mildly bitter about that. He was more bitter about the fact that Spotify wasn’t making money either. Which begged the question, if the musicians aren’t making any money off their ouevre, and neither were the Spotifys of the world, then who was? I hope Dean finds a way to own the robots…."

Here here. And not to add insult to injury but Spotify now has to deal with bigger streaming royalties after a recent Copyright Royalty Board decision. And Pandora Media Inc. ($P) is laying off 5% of its workforce with the hope of shaving $45mm in costs.

Meanwhile, Best Buy ($BBY) announced this week that, as of July 1, it will no longer sell compact discs. Yes, they STILL sold compact discs. In 2017, 89mm CDs were sold in the US - down from 800mm back in 2001. And Target ($TGT) is getting coercive; it demanded that suppliers change from 60-day payment terms to scan-based payment terms, whereby Target only pays when a CD is actually sold and scanned. This is glorified consignment. Choice quote in Billboard, "So far, music manufacturers are not sure what they are going to do, but sources within the various camps say that at least one major is leaning no, while the other two majors are undecided. If the majors don't play ball and give in to the new sale terms, it could considerably hasten the phase down of the CD format." Recall that BMG Columbia House filed for bankruptcy in August 2015. There may still be more players to fall as a result of the slow death of cds. 

Media (Short Old Business Models, Long New Models?)

Media Continues to Struggle

A few weeks ago, we cautioned readers not to sleep on digital media distress. Since then things have only gotten uglier. 

This past week Bay Area News Group, the Digital First Media chain that subsumes Mercury News and various other community newspapers let two dozen journalists and support staff go in what sanjoseinside.com called a "push to maintain profits with little regard for the product, the people who make it or the customers who consume it." Why the vitriol? Well, Digital First Media is owned by private equity fund, Alden Global Capital. Choice quote, "Union officials say Digital First cutbacks have far exceeded those at other news organizations and have less to do with the industry’s revenue trends than Alden’s brutal investment tactics." The hatred for PE is so fierce that Apollo got dragged into this even though they have absolutely nothing to do with it. 

But the problems extend far beyond just digital media. The media model, generally, is broken. And because of that, local media properties all across the country are failing. Like the Pulitzer Price winning The Charleston Gazette-Mail in West Virginia - now in bankruptcy - and the East Bay Times (Oakland), which announced senior staff buyouts recently. 

All of this has, naturally, sparked the need for someone...something...to blame. Advertising seems like a good place to start. Per Farhad Manjoo in the New York Times, 

  • "Ads are the lifeblood of the internet, the source of funding for just about everything you read, watch and hear online. The digital ad business is in many ways a miracle machine — it corrals and transforms latent attention into real money that pays for many truly useful inventions, from search to instant translation to video hosting to global mapping. But the online ad machine is also a vast, opaque and dizzyingly complex contraption with underappreciated capacity for misuse — one that collects and constantly profiles data about our behavior, creates incentives to monetize our most private desires and frequently unleashes loopholes that the shadiest of people are only too happy to exploit. And for all its power, the digital ad business has long been under-regulated and under-policed, both by the companies that run it and by the world’s governments. In the United States, the industry has been almost untouched by oversight, even though it forms the primary revenue stream of two of the planet’s most valuable companies, Google and Facebook."  

Which is precisely why there is a growing movement away from the ad-based model and towards the subscription model. Even better if you can leverage both revenue streams...

This week The New York Times Co. ($NYT) announced profit and revenue beats as digital subscriptions multiplied (#MAGA!!) and the company's stock jumped meaningfully higher. Digital-only product revenue increased 51.2%, with 157k new subscribers in Q4 '17. Meanwhile, print advertising revenue fell 8.4%, somewhat offsetting a 8.5% rise in digital advertising revenue. 

Still, local media sources like those in West Virginia and Oakland don't have the size or scale of The New York Times. There is no way they can compete for ad dollars. So, what should local news - or niche news organizations for that matter - do? Back to Farhod Manjoo: "Shun advertising. Instead, ask readers to pay for it with real money — $5 or $10 a month, or perhaps even more. It will take time, but if you build it right, you just might create the next great metropolitan news organization." 

PETITION NOTE WITH BLATANT FORESHADOWING: We wonder whether paid subscriptions would work for a niche newsletter on disruption/restructuring?

Toys R Us Fallout Part 2

In "Toys R Us is a Dumpster Fire," we cast shade on Hasbro Inc. ($HAS) and Mattel Inc.($MAT). And then Mattel reported numbers that indicated that we were on point. Hasbro, however, served up a solid slice of humble pie and - reminder: we don't offer investment advice - surprised to the upside, beating EPS estimates by $0.50 (despite lower revenue). In an overall bloody weak for the equity markets, the stock was up. Noting that its partner-brand business slowed in November/December, Hasbro's CEO pinned the results on disappointing Star Wars toy sales, Brexit and, wait for it...Toys R Us. Regarding Toys R Us,

  • "Third, our outlook for the fourth quarter reflected a higher level of uncertainty due to the September Toys“R”Us bankruptcy. This uncertainty materialized and our business with Toys“R”Us was impacted in the quarter about as we expected. We continue to partner with Toys“R”Us to support their turnaround, while managing our risk and inventory. We estimate less than half the stores in their announced closures directly affect our initial plans, but we also expect Toys“R”Us to streamline inventory at remaining stores. Much of this impact will be felt in the first two quarters of the year. We anticipate during 2018 that we will right size our business with Toys“R”Us, while leveraging our omni-channel model to ensure product is available throughout our retailer network to meet consumer demand."

More specifically, Toys R Us closures in the UK impacted Hasbro. Goldner added,

  • "We continue to be supportive of them but most importantly we continue to manage our risk and inventory as they streamline the amount of inventory they can take. And we are prepared for any eventuality." 

Query: including liquidation?

Investment Banking Restructuring Advisory (Short 2018, Long 2019?)

Greenhill & Co. Inc. and PJT Partners Inc. Both Report Numbers

Greenhill & Co. Inc. ($GHL) reported numbers this week that fulfilled the expectations of at least one cohort: short-sellers. The company reported EPS that missed by $0.58 and revenue down 34% YOY. On the company conference call, executives were asked about key hires and one bit about restructuring caught our eye:

  • "Look, I think there are – certainly are some talented people out there and there are always people who are interested in moving for a variety of different reasons. So I think, we expanded the group a little bit last year with particularly one senior recruit from the outside, and I think we’ll find ways to do it further this year. And I certainly agree with you, it’s not, because we think there is a kind of an imminent boom in restructuring, but we do think there is one coming. Obviously, there has been a lot of dislocation in equity markets in recent days and interest rates starting to move up. And so at some point clearly, credit markets are going to turn and there will be a lot of restructuring to be done. But I would view the big opportunity there is probably in 2019 and beyond, whereas right now, the bigger opportunity is pretty fully on the M&A side."

Hmmm. Expect someone big to announce their arrival there in due time.

Elsewhere in banking, PJT Partners Inc. ($PJT) reported numbers that beat by $0.13 and revenue up 9.9% YOY. Notably, its commentary about engagements seems to reflect the larger macro transition out of '16 hot spot, energy, towards a more diverse array of distressed sectors. To point, Paul Taubman stated,

  • "In restructuring, we maintained our position as a leading restructuring franchise. In 2017, we were able to largely offset the slower pace of energy related activity with strength in several industries including retail, healthcare, power and TMT. In addition, we saw significant strength in restructuring outside the U.S. Our global restructuring backlog is comparable to year-ago levels."  (PETITION NOTE: already in 2018, PJT is advising Exco Resources Inc., Philadelphia Energy Solutions LLC and The Bon-Ton Stores Inc.).

Later in the call he added,

  • "If you look at 2015 to 2017, I think we’ve seen a meaningful increase in our restructuring revenues. But it spiked and hit a -- an intermediate high in 2016 and that sugar high was largely driven by all the activity which was commodity-based as we -- we’re working round-the-clock to restructure many energy and energy-related companies. I think you saw some of that spill over into 2017, we had more difficult comparisons. And I think as we enter 2018 virtually all of the remnants of that sugar high are kind of behind us and we're now looking at an overall subdued marketplace for restructuring. So if you think about this in a long-term context and just look at where default rates are, just look at the strength of credit, look at where interest rates are today, this is amongst the most benign overall credit environments that one would see. So as we think out longer-term, I think it's inevitable that, that worm will turn and restructuring activity will pick up."

If restructuring activity does eventually pick up, advisory banks may want to have a better sales pitch than RBS: "our restructuring business did not turn around the 'vast majority' of small businesses it worked with." 

Retail (Stream of Consciousness)

Some of you commented that we've been spending too much time on retail. Gee...wonder why that might be. ICYMI, here is this week's carnage: 

  • Busted Narratives. H&M, the world's second largest clothing group, reported earnings earlier this week and the stock took a solid tumble. Why? Declining sales at its brick-and-mortar spots. Shocking. Profit fell by 33% and disappointing sales meant massive discounting and guidance was that discounting will persist through Q1 '18. The company intends to shut 170 underperforming stores but, given its aggressive expansion plans, that translates to a net addition of 220 stores, down from 388. Choice bit, "H&M finished the year with net debt on its balance sheet rather than net cash for the first time in more than 20 years." Hmmm. There goes that "fast fashion" is killing apparel retails narrative.
  • Music. Gibson Brands paid a $16.6mm coupon payment to holders of its $375mm 8.875% senior secured noted due 2018. They must be feeling pretty good about those holiday numbers. 
  • Regis Corporation ($RGS). The large owner, operator and franchisor of hair salons (i.e., Supercuts) reported that it (i) decided to sell and subsequently franchise substantially all of its mall-based salon business in North America, representing 858 salons, and (ii) committed to close 597 salons. The company CEO is Hugh Sawyerof Huron Consulting Group and an experienced player in operational restructurings, having been involved in Energy Future Competitive Holdings Company LLC and Edison Mission Energy.

Malls (Short "A" Hot Mess?)

Macerich Co. Reports Earnings

Macerich Co. ($MAC) reported earnings earlier this week with some very mixed-to-negative results. The company reported decreases in revenue (-$63.4mm YOY), net income (-$370mm YOY), Funds From Operation (-$25mm vs. Q4 last year), and occupancy (-40 bps YOY). Lease termination fees increased by $3.6mm for Q4 vs. a year prior. Lease duration fell a bit for the under-10ksqft segment, averaging five years rather than 5.4 in Q3. But average rent for leases signed during the TTM was 4.6% higher. And releasing spreads were sound, both of which seem to indicate that the company is able, for the most part, to replace bankrupt tenants with higher paying (yet shorter duration) tenants. Some other highlights, 

  • "Bankruptcies in 2017, totaled 850,000 square feet, including 160,000 square feet in the fourth quarter. This was an increase from the previous year level of 500,000 square feet." 

Interestingly, the Macerich folks took as a sign of strength that the beginning part of '17 saw a lot of retail liquidations but the latter part saw more reorganizations. While this is true, it may not hold. See "Chapter 22 (Retail)" in "Fast Forward" below. More from the company,

  • "Our outlook for 2018, I would say at this point as you can tell from our guidance is cautiously optimistic. I am much more positive as I look into 2019 and 2020. The reason I am cautiously optimistic for 2018 is that when you get hit with unexpected bankruptcies like we did in 2017, and you do business in high barrier-to-entry cities, many of which are hard to get entitlements in even for the tenants that are replacing existing tenants and you own assets where the rents are extremely high, so you are talking major commitments. You don't go ahead and just turn on the switch and replace that vacancy overnight. It takes six to 24 months; especially when someone is thoughtful about curating a tenant mix with the replacement tenants that will complement the balance of the center." 

So, where does Macerich execs' '19 and '20 optimism come from? As the share of direct-to-consumer digitally-native-vertical-brands piece of digital e-commerce increases from 12% to 22%, they'll presumably need physical space - albeit it on shorter term leases. In other words, that old WarbyParker/Bonobos narrative. Also, co-working, AR/VR and, abstractly, experiential retail. 

But, wait, what about 2018? It appears that - despite quarter after quarter of assurances from the A mall types that bankruptcies lead to released space at higher rents - a tipping point can be reached. The company notes, 

  • "I’m cautiously optimistic about 2018 for all the reasons that we've talked about today. Look if this was late I would say we're in choppy waters from an incident that happened in 2017, which was a tremendous amount of store closures. It takes six to 24 months to intelligently re-curate and re-merchandise these spaces and great centers like we know. And I'm cautiously optimistic so we'll see."

Yes. We will. In the meantime, this healthy "A" mall is cutting overhead and making headcount reductions. Cautious, for sure. 

Oklahoma (Long Earthquakes)

Back in October '16, we wrote about Oklahoma's issues in the wake of the exploration and production downturn, citing the rise of earthquakes in the area. Well, "A new study finds that a major trigger of man-made earthquakes rattling Oklahoma is how deep — not just how much — fracking wastewater is injected into the ground." Awesome. Meanwhile, in New Jersey, Governor Murphy intends to vote to ban fracking in the Delaware river basin.

Fast Forward: What's Ahead in Distress

  • Chapter 22 (Retail). Payless Inc. earned itself an S&P Global Ratings downgrade this week to CCC after "operating performance...continued to deteriorate meaningfully in the third quarter of fiscal 2017, following its emergence from bankruptcy in August 2017, a trend we expect to persist in fiscal 2018." S&P also assessed the shoe retailer's liquidity down to "weak" from "adequate." Yikes. Shoe retailers just can't seem to catch a break. Formerly-bankrupt rue21 Inc. also doesn't seem to be recovering well despite its recent emergence from bankruptcy with a wildly trimmed down balance sheet. Reuters reported this week that the company is in need of financing after an underwhelming holiday season. As we stated previously, Kirkland & Ellis LLP may want to hold off on celebrating their awards. 
  • Energy. Jones Energy Inc. ($JONE) is facing opposition from bondholders over its proposed $450mm first-lien deal. Davis Polk & Wardwell LLP has been retained to advise the bondholders.
  • Pharma. After adjusting guidance, Teva Pharmaceutical Industries Ltd. ($TEVA) was downgraded this week by S&P Global Ratings to BB due to a "series of lower-than-expected operating results." The company is facing increased competition, drug price regulation and negative effects from tax reform; it also carries $32.5b of acquisition-related debt. Both the company's stock and bonds took a dive this week. Meanwhile, Purdue Pharma LP announced that it will cut its sales force by more than half to 200 and stop promoting opioid drugs to doctors in the US. PETITION Reminder: time to dig in on which companies have real exposure to opioid-related risk. 
  • Retail (CPG). Claire's Stores Inc. has adopted a key employee retention program that pays certain executives $2.55mm in the aggregate presumably so that their expertise doesn't jump ship prior to the company's seemingly inevitable bankruptcy filing. You'll recall that Toys R Us executives received similar bonuses prior to that bankruptcy filing - a point that proved contentious in the context of post-bankruptcy incentive plan. In the context of an upgrade of Tempur Sealy International Inc's stock ($TPX), Wedbush analyst Seth Basham had some choice commentary about Mattress Firm's future (see image below).
  • Retail (Grocery). Southeastern Grocers LLC, owner of Bi-Lo and Winn-Dixie supermarket chains, has an interest payment due on 2/15/18 on two tranches of notes. It will almost certainly NOT make the payment. 
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Private Equity and Sun Capital Partners (Long Selective Marketing)

The private equity shop sent around its "2017 Highlights" touting, among other things, the realization of "over $1 billion of gross proceeds across the portfolio, driven by four successful exits, numerous dividends and divestitures, bringing distributions to our investors to $4.8 billion over the past five years." Conveniently missing from the firm's "Select Current Portfolio" list are Shopko, Vince and Paperworks, all of which have been on distressed radars for some time (and the latter of which will presumably file for bankruptcy any day now). Furthermore, there is, of course, zero mention of some of 2017's Greatest Bankruptcy Hits: Gordmans Stores Inc., Limited Stores Company LLC, and Marsh Supermarkets Holding LLC. If you'd like to see the marketing piece, email us and we'll send it to you.

Meanwhile, this Bloomberg piece celebrates Apax Partners for their transparency and frankness about bad bets like rue21.

And, finally, The Carlyle Groupcrushes it.

Restaurants (Short Kitchens, Long Bikes)

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Options abound for food these days - particularly if you live in an urban area. You can get your food sent to you in kits (Hello Fresh and Blue Apron), as groceries (Amazon Fresh, Fresh Direct) or from restaurants via the gazillion delivery services that are duking it out with one another AND capitalizing upon the rise in co-cooking kitchens (Caviar, Postmates, Grubhub and UberEats). We could fill 6 minutes of a$$-kicking reading just by continuing the list.

Here's the thing: much like the consumer products e-commerce space - where shipping is cutting into retail margins bigly - food delivery is killing your favorite restaurant. Why? Well, Captain Obvious, there are too many hands in the pot. As The New Yorker highlights (must read), "over-all profit margin has shrunk by a third, and that the only obvious contributing factor is the shift toward delivery." Ruh roh.

The piece is shocking in how ignorant every seems to be about the effect of delivery services on restaurant margins. This bit also struck us, "It’s worth noting that, even while charging restaurants steep rates, most delivery platforms are not yet profitable, either. Their hope is that order volumes will one day become high enough—and couriers will deliver enough orders per hour—to push them into the black." The alleged answer? A kitchen within a kitchen. Uber "is nudging restaurants to embed “virtual restaurants” inside their kitchens—picture a burger joint housing, at Uber Eats’s behest, a cookie company that exists only as a menu on the delivery provider’s site. DoorDash, an Uber Eats competitor, has started to experiment with leasing remote kitchen space to restaurants so that they can expand their delivery radii. If such practices catch on, it’s easy to imagine a segment of the restaurant economy that looks a lot like, well, Uber, with an army of individual restaurants designed to serve the needs of middle-man platforms but struggling to make a living themselves." This is "progress" folks.