Here are five questions I like to ask whenever a take-private offer shows up:
- What’s the controller trying to do? A good setup is one where the controller either wants the asset badly enough to pay up or is open to selling if someone else pays more.
- How credible are the actors who’ll shape the process? That includes the board, the independent directors, and the advisors around them. A strong group will insist on a real process, push for majority-of-the-minority protections, and, when appropriate, run a go-shop to bring in competing interest.
- Is there credible third-party interest? A good take-private setup includes the possibility, even if small, that someone else might step into the ring. An actively consolidating industry helps.
- Are there activists involved? Activists can dramatically change the payoff of a take-private by publicly pressuring insiders, threatening litigation, and coordinating minority opposition. If the cap table is all passive, the odds of a controller steamrolling the process go up.
- Is there a margin of safety? This is the most important. If the stock is trading meaningfully below a reasonable estimate of intrinsic value (and ideally below the take-private bid as well), your downside is cushioned even if the deal fails, and the upside is amplified if the bid is raised or a competing bidder appears.
I believe our stock today checks the right boxes across most of these questions.
Controller-led take-privates, or MBOs, are attractive because in the event that the initial bid is lowballed enough, there’s immediate upside in a potential revised bid or a third party stepping into the ring. And even if the proposal fails, you still own a stock at a price below what a sophisticated buyer with complete inside knowledge was just willing the buy the whole shop for, with a rerating catalyzed by the offer being put on the table in the first place. In other words, if you get into a take-private situation cheap enough, the margin of safety and risk/reward proposition can be highly favorable.
This situation hit my inbox via Google Alerts last week, and I immediately wrote the name down to get to work. My inbox has been busy this year, because this company isn’t the only publicly listed US company facing a take-private attempt. Other examples include, but certainly aren’t limited to, KNOT, Forian, and Golden Entertainment. There’s been a clear pickup in these situations lately, and several forces seem to be driving it. Deep pools of private equity dry powder are still sitting on the sidelines. The stock market has become increasingly bifurcated, with anything outside AI, quantum, or a megacap narrative getting left behind. And the growing burden and volatility of being public has made the private route more appealing for a number of companies.
So every so often, a take-private attempt worth a closer look shows up, and I’ve zeroed in on the one we’ll talk about today for good reason.
The spread implied by the take-private at today’s share price is ~6%. But that, of course, isn’t why this stock is interesting. This was the piece of news that grabbed my attention: