Private Equity Shakedown #2: HD Supply (HDS)
Bain Capital, Carlyle Group (CG) and Clayton, Dubilier & Rice acquired HD Supply (HDS) in 2007 for $8.5 billion ($2.3 billion cash and debt for the rest), with Home Depot (HD) retaining a 12.5% stake in its former subsidiary. That’s about average in terms of private equity leverage, so there’s nothing unusual about the transaction itself.
However, HDS did agree to a sponsor management fee which paid the trio of private equity firms a combined $5 million annually to watch over their own investment through 2017. That’s approximately $30 million in fees over the past six years.
In June 2013, as part of its IPO, the company paid an additional $11 million to the private equity sponsors for a transaction fee and $18 million to terminate their management fee four years early. In total, the trio of firms received $59 million over six years simply to play babysitter over their own investment.
I have no idea whether any of these funds got to investors or not, but once again you’re looking at private equity firms playing both sides of the street. It’s not illegal, but it certainly smacks of greed.