Remember when everyone was obsessed with data centers? You know, those massive buildings that keep your Netflix running and your Instagram photos backed up? Well, there’s this company called Vertiv that makes the power and cooling gear for these digital fortresses, and boy, do they have some explaining to do.
Here’s the thing about Vertiv (NYSE: VRT) – it’s like that friend who keeps promising they’ll pay you back but somehow always has a new excuse. Except instead of owing you $20, they’ve managed to burn through almost half a billion dollars in cash this year alone. Yikes.
The “We’re Totally Fine” Narrative Falls Apart
Picture this: Throughout 2021, Vertiv’s management kept telling investors they had everything under control. Inflation? No problem, they were raising prices. Supply chain issues? Handled with “sophisticated AI-driven” systems. They even bragged about their massive $2 billion backlog like it was a good thing.
Plot twist: It wasn’t.
Turns out, that backlog was stuffed with unprofitable contracts they couldn’t raise prices on. Those “sophisticated” pricing tools? Former employees say they were a “disaster” that basically “stopped commerce.” The AI algorithms management kept talking about? They didn’t exist in any practical sense.
When reality hit in February 2022, the stock cratered 37% in a single day. One analyst who’d been covering industrials for 17 years said he’d never seen a miss this bad. Ouch.
The Private Equity Playbook Gone Wrong
Here’s where it gets spicy. Vertiv was owned by private equity firm Platinum Equity, who did what PE firms do: loaded it with debt, sold off the profitable bits, and tried to flip it for a massive profit.
They sold Vertiv’s most profitable division (ASCO) to fund a $1 billion dividend to themselves, then discontinued key software products that customers actually wanted. It’s like buying a restaurant, selling the kitchen, and wondering why the food quality went downhill.
The kicker? Platinum has already pulled out $2.4 billion from their original $1.2 billion investment, while the company struggles with basic operations.
The Fraud Allegations Are… Concerning
A class-action lawsuit filed in September 2022 includes some pretty damning testimony from former executives. They claim management knowingly pushed unprofitable business while publicly claiming they were taking “pricing actions” that never actually happened.
One former employee testified that the CEO “agreed to these deals without price increases” and that the recent quarterly miss was “all self-inflicted.” Another said the backlog was “off the charts unprofitable.”
The Bottom Line
Vertiv is basically a case study in how not to run a business. They’re cash-strapped (burning $400+ million this year), overleveraged (8.3x debt-to-EBITDA), and facing credible fraud allegations. Even their vendors have put them on “credit hold” for not paying bills.
The company keeps promising a miraculous turnaround, but at this point, it’s like watching someone try to fix a sinking ship with duct tape. Sure, it might work temporarily, but you probably don’t want to be on board when it doesn’t.
Sometimes the best investment advice is knowing what to avoid. Vertiv might just be one of those times.