mdf Commerce Inc T.MDF

David Fawcett- Epic Capital

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David Fawcett, MA, CFADavid Fawcett, MA, CFA • 2nd • 2nd Founder of Epic Capital ManagementFounder of Epic Capital Management

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When KKR bid $5.80 for MDF Commerce, we initially thought that while the bid significantly undervalued the company, we would move on given the number of other attractive investments we have lined up. However, after further conversations with key shareholders, we've found discontent, ranging from shareholders who will flat out vote down the bid to shareholders unsure which way they would vote. It is now our understanding that the company had approximately 40 potential buyers, out of which 6 expressed serious interest, with KKR taking the lead through rapid engagement. Going back on our analysis, we again concluded that, in our opinion, MDF's fair value is around $9.00 per share, especially when conservatively benchmarking their e-procurement segment against similar M&A transactions. Long Path Partners, a 12% stakeholder, has publicly endorsed the transaction. However, the swing factor for a potentially higher offer likely lies with the voting direction of FTQ (13%) and Investissement Qubec (12%). We believe the combination of a bid well below the intrinsic value, unhappy shareholders, and significant interest in the bidding process sets the table for the possibility of a higher price from either KKR or from a new bidder yet to emerge.

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