H.I.G. Capital, which manages $64b from its headquarters in sunny-yet-hot-as-hell Miami, at some point in ā21 thought it would be a good idea to invest in analytics solutions for telecoms, given the increasing complexity of networks.
Or some sh*t.
So in late January of ā22, H.I.G. Technology Partners (āH.I.G.ā) acquired a majority stake in Cupertino, CA-based Mobileum Inc. from Boston-based Audax Management Company, LLC (āAudaxā) in a deal valued at $915mm, financing the deal with $285mm cash and the rest in debt. Audax retained a minority stake. But in a suit filed against Audax on March 22, 2023 in Delaware Superior Court (Judge Meghan A. Adams), H.I.G. alleges that the price was waaaaaay too high ā inflated by a āfraudulent schemeā to overstate the growth of bookings and revenue.
As H.I.G. tells it, Audax acquired Mobileum in ā16. Audax supported Mobileumās acquisition of six competitors. In late ā20, Audax decided it was time to exit, and retained Jefferies LLC ($JEF, āJefferiesā) to run a sale. Jefferies, for its part, provided H.I.G. with the usual confidential information memorandum (āCIMā). This document indicated Mobileum was ā...financially sound and steadily growing. Most pertinent to this case, the CIM projected that Mobileumās 2021 EBITDA would reach $84 million, its revenue would grow at a rate of 15%, and its bookings would grow at a rate of 18%.āĀ
All a fraud, H.I.G. wails. Mobileum: ā...(1) improperly accelerated its revenue recognition by acting as if it had performed more work than it had; (2) covered up its improper revenue acceleration by creating, but not sending, invoices for work that had not been done; and (3) recorded āshamā bookings from artificial entities, knowing that the bookings would not lead to revenue.ā
Audax, for its part, dismisses H.I.G.ās allegations with contempt (and launched a countersuit). Mobileum, Audax asserts, was a āsmashing successā until H.I.G. waddled in with a boatload of āhorrendousā decisions that will be painfully familiar to most anyone who has been on the receiving end of PE dollars. āWithout input from Audax or the Board on crucial decisions, and contrary to recommendations from the seasoned executives who had successfully built Mobileum,ā H.I.G. pissed off customers by boosting prices, placed unqualified people into executive roles, appointed a CFO who āā¦had no accounting or operational finance background,ā ā¦ š ā¦ and āā¦forced senior management to fire the personnel needed to engineer or service Mobileumās products and created a toxic work environment that led to an exodus of critical executives and engineers.ā Customers fled. H.I.G. looked for scapegoats. It undertook an investigation into Mobileumās revenue recognition practices: āLike a Stalinist show trial, the result of H.I.G.ās investigation was decided before it began, and all to the benefit of H.I.G. and the detriment of Mobileumās other stakeholders.āĀ In case itās unclear from the foregoing, Audax vehemently rejects H.I.G.ās allegations and for its part seeks to recover some $100mm in damages it ā...has suffered as a natural result of H.I.G.ās bad faith and serial contract breaches.ā
We have to admit: weāre enjoying the break away from creditor on creditor violence in bankruptcy so that we can revel in some PE on PE violence out of bankruptcy. On June 27, 2024, Judge Adams decided that most of H.I.G.ās claims against Audax could proceed, denying Audaxās motion to dismiss and setting the stage for an actual fraud trial.*
Color us very, very excited.Ā šæš„
*It wasnāt a complete victory for H.I.G. Judge Adams dismissed claims H.I.G. made against three individual Audax executives.Ā
ā© One To Watch: Conn's Inc ($CONN)ā©
Yes we know, another big box retailer, š“. But we canāt cover an EV sh*tco every day.
Connās Inc. ($CONN) sells home appliances, furniture, consumer electronics and office supplies. You mightāve seen some of its stores around the southern US:
The stores look something like this ā¦
ā¦ which means they look like most other third-rate department stores whose operators seem not to have noticed that many decades have passed since 1987.
Soooo how do you differentiate yourself in an industry rife with competition while selling undifferentiated goods? Payday loans! Or as the company puts it, āin-house consumer credit programs.ā