🐻The Bear Cave #40🐻
New Activist Reports, More Problems at Vista, and Tweets of the Week
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New Activist Reports
Quintessential Capital Management published on Penumbra (NYSE: PEN — $9.54 billion), a medical device company. Quintessential highlighted that Penumbra’s catheters have been linked to at least seventeen deaths and management has not been forthcoming about the safety issues. Quintessential also posted a YouTube video outlining its thesis and released additional information on Zeroes Tv. Independent journalist Roddy Boyd previously published on Penumbra’s safety issues as well.
Muddy Waters published on Multiplan Corp (NYSE: MPLN — $4.47 billion), a healthcare company. Muddy Waters highlighted that the company’s largest customer, UnitedHealthcare, is building a competing product and noted Multiplan has been previously owned by four different private equity groups. Multiplan stock is down 30% since going public via SPAC in July of this year.
Spruce Point Capital issued a “strong sell opinion” on Avery Dennison Corp (NYSE: AVY — $12.7 billion), a manufacturing company that makes product labels.
An anonymous report criticized Spanish drug developer Pharma Mar (BME: PHM — EUR1.74 billion).
Bonitas Research published on Harmony Auto (HKEX: 3836 — HK$5.83 billion), a Chinese car dealership company. Bonitas alleged the company has repeatedly conducted fake economic transactions and highlighted that two auditors have resigned in the last two years.
White Diamond Research posted a YouTube clip criticizing eXp World Holdings (NASDAQ: EXPI — $3.08 billion), a cloud-based real estate brokerage agency. White Diamond argued the company is more like a multi-level-marketer for brokers with poor economics for those who join the company. EXPI stock is up over 5,000% this year.
Citron Research published on Chinese electric car company Nio (NYSE: NIO — $61.0 billion). Citron highlighted competition from Tesla as well as Nio’s 18x sales multiple. Citron wrote,
“Anyone buying NIO stock now is not buying a company or its prospects, rather you are buying 3 letters that move on a screen.”
Nio stock is up over 2,300% over the past twelve months.
Potential Conflicts at Vista Equity Partners
At least four portfolio companies of Vista Equity Partners rented office space from a landlord closely tied to Vista’s founder, Robert Smith. Mr. Smith recently signed a widely reported nine-figure non-prosecution agreement with the IRS over tax fraud, but less covered are his ties to questionable real estate investor Nate Paul.
In a 2017 Forbes profile, Smith praised Paul as a phenomenal investor and said “his returns have been spectacular.” The profile also mentioned that Smith “has invested tens of millions in five of Paul's deals.”
In 2019, Paul’s home and office building at 717 N. Harwood (Austin, Texas) were both raided by the FBI. This year some of Paul’s companies have filed for bankruptcy and Paul has become a major figure in a corruption scandal with Texas Attorney General Ken Paxton.
The 717 N. Harwood building in Austin has been the landlord for at least four Vista portfolio companies: Omnitracs, Active Network, Kibo Software, and Lanyon Solutions.
Two of Vista’s portfolio companies, Omnitracs and Active Network, moved into the building in July 2014, about four months after it was purchased by Nate Paul. According to a Dallas City Hall presentation those two Vista companies occupied about 40% of the building’s rentable space.
In addition, Omnitracs received a $3.4 million check from the Texas government as part of an incentive fund for moving its headquarters into Texas. A year later, after Texas governor Rick Perry left office, he was named as a keynote speaker at an Omnitracs event. In total, Vista companies have received at least $17 million from the Texas Enterprise Fund program.
Below is an undated photo of Nate Paul with Robert Smith.
Beyond its portfolio companies, Vista Equity Partners and Nate Paul both had office space in the Frost Bank Tower (401 Congress Avenue, Austin, TX). Paul’s offices there were also reportedly raided by the FBI in 2019.
According to a Business Insider article, Vista’s co-founder Brian Sheth is planning to leave the private equity firm. The article also says one of the reasons for Sheth’s departure is he feels Smith “misled him and others at Vista about the seriousness” of his tax problems.
Since signing his non-prosecution agreement last month Smith has spent $48 million on two Palm Beach mansions and is scheduled to speak at the DealBook conference this Wednesday.
The Bear Cave’s previous coverage on Vista:
Potential valuation issues at portfolio companies (link)
Potential related party dealings (link)
Paid Subscriber Report Coming Thursday
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What to Read
Hayden Capital Q3 Investor Letter (Hayden Capital)
Hayden Capital is up 164% this year and up 368% over the last six years. Read their letter.
“The Tiny Hedge Fund That’s Loved on Twitter — And Now Backed by Greenlight” (Institutional Investor)
“The long-short hedge fund has been in business for six years, started by McMurtie and senior analyst Alex Draime. It has handily beaten the stock market after an initial loss in year one, returning 32 percent in 2019 and about 6 percent for the year to date.”
“Ackman places new bet against corporate credit” (FT)
“What’s fascinating is the same bet we put on eight months ago is available on the same terms as if there had never been a fire and on the probability that the world is going to be fine.”
Tweets of the Week
Until next week,
The Bear Cave