Crony Capitalists Back a Top Stock to Buy in 2015
Mon, Feb 24, 2014
Stock Strategy From Carlyle Group
As a result, Insiders get rich, everyone else is on their own.
This has been happening for decades. It will continue.
One of the most successful Washington Insiders to perfectly execute this strategy is the Carlyle Group (CG).
Carlyle has reportedly hired or been closely linked to Al Gore, Colin Powell, George H.W. Bush, Rudy Giuliani, and a slew of other politicians.
The mission: make money.
Normally, that mission has been tied to government contracts, regulations, and everything you think is happening in the swampland.
Carlyle’s deals have focused mainly on defense, government contractors, and highly regulated industries like communication, utilities and power generation.
Not surprisingly, the only major investment bank based in Washington D.C. has had a number of big successes with so many sweetheart deals and other government-backed companies.
One of the most recent Carlyle-associated success stories is still in the relatively early stages of playing out and it’s something you can go along for the ride.
Naturally, there are a lot of degrees of separation.
First, you have to go back to 2010. Carlyle acquired Commscope (COMM), a telecommunications equipment-maker, for a total of $4.3 billion.
Carlyle investors had to put $1.6 billion of equity and the rest in debt to acquire Commscope.
Over the next three years Carlyle would do what all private equity companies do when they take over a company – run up the tab. The private equity group which owns the company charges absurd sums of money for “consulting” and other services while it owns the company. There’s nothing that can be done. They own the company. Are they going to turn away their own bills?
Well, over that time Carlyle reported recouped half its initial investor (or about $800 million) in fees, dividends, and any other way they could get the money out of the treasury.
Jump ahead to October 2013. Commscope IPO’s, has a market cap of $3.5 billion currently, and Carlyle still owned about 75% of the now publicly-traded company.
During that time period while it was privately held by Carlyle, it surely made a number of investments.
One of those we’re going to look at today is Hydrogenics (HYGS).
Hydrogenics is basically a hydrogen power company. It makes storage products and hydrogen fuel cells that have all sorts of uses. They can be used to power remote industrial operations to emergency backup power sources for cell phone towers.
It’s currently valued at $220 million and still has a lot of growth potential.
The current shareholder base is a who’s who of government related businesses. According to the company’s investor presentation from September 2013, Commscope holds 25%, General Motors (GM) owns 5%, and Enbridge Energy Partners (EEP) owns 13%.
Enbridge is the key here. It is one of the major players in the energy storage business which fits perfectly to Hydrogenics’ growing energy storage business.
Just look at the contracts Hydrogenics has been getting lately.
On January 29, Hydrogenics won the installation contracts for two hydrogen refueling station projects in the United Kingdom.
On January 16, the company was awarded the contract on an energy storage contract in Canada.
The press release said Hydrogenics was to “supply a micro-grid energy storage application in Canada. This energy storage project will store surplus wind energy as hydrogen…”
That’s corporate-speak for alternative energy. Which, whether in the U.K., U.S., or any other country, universally means plenty of government subsidies and help.
Last December they were awarded a research contract on fuel cell and vehicle development project by the Department of Energy.
There are many, many more deals just like those.
Either Hydrogenics has great connections or a great product.
Either way, it’s a potentially a big win for investors.
Although the easy money has been made…
Commscope invested $8.5 million in 2010 that’s now worth $55 million. A great 547% return in three and a half years.
There still could be plenty of room to run for this well-connected energy development firm with a promising technological and/or political advantage.
The Group of Big Investors in United States.
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