RE:RE:RE:RAVEN Q3
I agree with your take KerBer, there is not nearly as compelling a reason for TRMB or RAVN to take AJX over as there would be for another international player, or even perhaps even a name such as Agrium which may be intersted in increasing their retail vertical integration. I do think however that the list of potential suitors is much longer now than it has been in the past, largely due to AJX now being a pure play + the growth anticipated in precision farming.
Regarding takeover premium, a 30% to 40% range is applicable for a low/modest EPS growth company with some synergies. We're coming off a low base so I see a high potential multiple being ascribed to the AJX business (something that would normalize the PEG ratio for an acquiror). I also think this is why RAVN and TRMB trade at such high valuations (~25x to 30x+ earnings). Basically investors pay a premium today with a view that earnings will ramp quickly over the next few years. I believe in AJX's case a 70%+ premium is very doable in today's world and even 100% may not be out of the question. Sure it's on the high side of precedents, but again you have to take growth potential into consideration to give it context (thats why acquisition premiums vary so much from company to company).
At $75mm - $85mm in sales AJX is doing somewhere between $0.15 to $0.22 in FD EPS. Again given the growth of the business, somewhere between a 15x (on the low side) and 20x multiple should be viable WITHOUT an acquisition, meaning at those sales levels the company should trade organically up to the $2.50 to $3.00. If that's the target price investors have in mind then they could sell the company much sooner, probably next year IMO and achieve that (assuming the company has a decent start to the year / 4Q13). I fully expect that sometime in 2014 is when we'll see a sale of the company, but I think it would be in 2H14. Of course this is all just speculation, but interesting discussion nonetheless.
As an aside, its interesting to see what AJX would have been like YTD had the cost rationalization been in place all year + if the company did not have the STX delay which cost them $3mm in Q1 sales. Adjusting for those then AJX would have achieved EPS of $0.08 YTD. Not too shabby. Instutional investors will take note of that as the "base" operating model heading into 2014 (adding Q4 of course which could potentially add another ~$0.01). Of course Q4 and Q1 would be heavily scrutinized to validate that belief but if the next two quarters prove to be strong than we may see a run-up in the share price well north of that elusive $2.00 range.