Avante Corp V.XX

Trading way too low

[hevin]

The merger vote will most likely pass so the SP should be around 1.71 if my math correct. The low SP is likely the result of arbitrage, and another buying opp to make money twice.

[Froggy1]

Are you paid to say this stuff - sounds smart but it's make believe .

[knicksman]

No, he actually makes sense.  You get .4155 shares of SECU and $0.52.  Assuming SECU at $2.60... For every share of XX at $1.44...you stand to make $0.52 in cash and $1.07 in SECU shares...or $1.59...

[Stonksonlyup90]

In addition to the ~10% arbitrage, if you believe the takeover price is too low, you have exposure to the upside in the event another bidder arrives on scene.. with the volume the past couple days, perhaps someone is building a position 

[knicksman]

Yes. And, SECU looks cheap on a pro forma basis as well.  Pro forma LTM EBITDA is about $9.5 million. That includes three good quarters and one horrible quarter. Let's call it $8 million. There are at least $2 million of cost synergies...given the heavy cost base on the Avante side (and listing fees). SECU has about $60 million of net assets (including cash) that they can liquidate. 

[Stonksonlyup90]

Hmmm interesting @knicksman - thanks for the #s. My preference is to look at it on an EV/EBITDA basis - so would add the $28M in net debt to the market cap - total of $88M. So, more conservatively 8.8x EV/EBITDA. Although, certainly generating FCF and reducing debt at a pretty fast clip (10% EBITDA conversion on $100M of revenue = $10M per year).  I do think there will be additional

[knicksman]

That isn't right. And, I wouldn't discount SECU's assets that they will liquidate to fund M&A. EV/EBITDA is sub-5x on conservative numbers. Ask why did SECU issue stock when its book value is close to $4/share. Both stocks are cheap...

[Stonksonlyup90]

What is your interpretation of being wrong? Used your #s to imply EV. Do you calculate differently?

[knicksman]

SECU has about 20 million shares and $60 million of net assets.  These net assets are all associated with their legacy business.  I am calculating SECU's EV as 2.60 x 20m - $60m.  As the legacy net assets will be liquidated -- I am actually calculating that SECU has a NEGATIVE EV of $10 million.  That is why you are getting the security business for free. Now. They are

[knicksman]

Nice to see Fairfax convert its convertibles into equity.  They are forgoing the 7% coupon and taking stock at a conversion price of $1.56...which is below the current stock price. I see that as a vote of confidence in the deal.  Last night, SECU also reported sequential revenue growth in the security business as well as strong conversion of its legacy assets and repayment of debt. 

[deleuze68]

Fairfax didn't convert to support the deal; they converted to block the deal. Converting gives them 19.9% of the shares to vote against the transaction. If they wanted the deal to go through they could have converted anytime after the closing.  Why block the deal? It makes no sense that Avante will contribute 75% of the revenue only to have 30% ownership. SECU only exists because a sham

[hevin]

You've just made a serious allegation. (Sham) Do you have evidence? Or are you engaging in slander?

[deleuze68]

The evidence is the buyer had no proof of fundng and had a history of SEC violations. Input failed to disclose this when they announced the agreement. And obviously the transaction never closed. Maybe it wasn't a sham, maybe Input just failed to perform the slightet due diligence before announcing the agreement. Either way it does not look good on management. 

[Froggy1]

He in you should be a cop!

[Froggy1]

Hevin should be a cop, or a paralegal.

[Froggy1]

I'm your opinion is the deal going to fall apart?