Tag Archives: M&A

Money & Sex on the Exchange

19 Jan

*All links are to investor related materials.

Life is a Cabaret! Most men know how much to pay for a lap dance, but do investors know how much to pay for the companies that provide the facilities for the shapely young entrepreneurs? People often point out that it pays to own “Sin Stocks” like alcohol and tobacco producers. However, few mention “adult nightclub” owners.

 

The industry is highly fragmented with most owners having only one nightclub. There are several publicly traded nightclub owners, Rick’s Cabaret International Inc. (Nasdaq: RICK) and VCG Holding Corporation (Nasdaq: VCGH) are the largest. In fact, RICK was in talks to purchase VCGH. Perhaps, these stocks don’t get much attention because, unlike smoking and drinking, patronizing a strip club is not something most people talk about openly. Let’s be honest, most of us have attended a bachelor party (or three), wouldn’t you feel better knowing that the money being spent was helping your bottom line?

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21st Century Holding Company – Time for Investors to Let Go?

11 Jan

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I have been asked several times to discuss 21st Century Holding Company (Nasdaq: TCHC) and why it trades at a such a big discount to its STATED book value. Currently, that discount stands north of 50%. Let me start by saying that TCHC is not the same company that can be seen in flashy television commercials marketing car insurance – that would be 21st Century Insurance the auto insurer which was formerly owned by AIG and sold to Farmers Insurance, a unit of Zurich Financial Services. AIG sold the business for $1.9 billion or 1.00x Tangible equity and 0.85x its stated equity. TCHC is the Florida insurance holding company which has a current market capitalization of approximately $27 million.

Promises, Promises

It has been said before: “insurance is a promise.” You and I pay insurance premiums in the expectation that, should some unwanted event occur, our insurer will be there to cover the costs. Well, what if they can’t? I often like to tell people that in the financial sector, earnings are what management says they are, until proven otherwise. The question for holders of TCHC stock is twofold: 1) does the company have enough reserves to pay current and future claimants and, if so, 2) how much, if any, equity will the company have left for shareholders? Based on the market cap of the company’s publicly traded shares, the answer is: 1) yes and 2) half of what is presented in the company’s latest Form 10Q. Continue reading

Fremont Michigan – Steak & Shakes’ Bad Romance?

4 Jan

Who says persistency doesn’t pay off? After being poked and prodded by Anal_yst for the past two years, I have capitulated. Below, I humbly submit my first foray into the blogosphere. Insurance – aside from the trials and tribulations of AIG/Chartis/AIG – is an often overlooked subsector of the Financial Industry. As such, I will attempt to provide periodic topics for my enjoyment and your edification.

Why does the owner of fast food chains want to buy a middling insurance company domiciled in an unfriendly state? Continue reading

On Google’s Reported Groupon Acquisition $GOOG

30 Nov

So Groupon is likely the fastest-growing company, by market cap at least, of all time (so far), and now we hear that Google is apparently in talks to acquire the company for somewhere between $3 and $6 billion.  First things first:

At Groupon’s last funding round, about 7 months ago, their valuation was about $1.35 billion, about 17 months after their real commercial launch.  If the price talk on the Google deal is to be believed, that’s a pretty impressive what, almost 500% annualized growth rate?  Not too shabby, eh?

The point is (and this may not be an entirely accurate measure) that the odds of Groupon continuing that tremendous growth – as a stand alone company or rolled-up into a larger, more established firm with synergistic opportunities – are slim, especially considering measurement firm Quantcast shows that the firm’s popularity peaked around the end of summer and has since dropped-off substantially.

Many other people in my twitter stream have also voiced concerns that Google is overpaying for Groupon and that this may be a sign of a major tech/web 2.0 bubble.  I’m not going to go so far as to make such prognostications, however I will say that there is certainly some stupid and self-defeating competition going on between Google/Facebook/everyone else for not only talented employees but for hot new(-ish) startups that compliment the established firms’ own growth strategies.

Google is hot on local, this much is hardly news, but pursuing a company whose only barrier to entry (if it can even be considered one) is its early-mover advantage/”critical mass,” is likely not going to be recorded in the annals of history as a very smart move.  Google could easily spend $100 million (ballpark, even if its 5x+ that the point remains) developing its own Groupon-killer and another few hundred million (if any) marketing it et voila! 1 year, Google wins, Groupon loses or at least suffers a serious loss due to Google’s existing penetration in everything from search to local.  Hell, Yahoo, Yelp, and everyone else could do the same thing and leverage their existing popularity and likely, they already are (or have plans to).

$6 billion?  Ceteris paribus, methinks that’s a bit rich considering we haven’t heard (unless I’ve missed it) about anyone else paying nearly that amount/multiple.  $3 billion?  Maybe, but still seems a tad rich depending on deal structure/consideration/etc.