AutoInfo has announced a sale to Comvest Partners at a price of $1.05 per share. The transaction is expected to close by the end of the end of June.
While I applaud the decision to sell, I am extremely disappointed by the price. $1.05 represents a trailing P/E of 8.5 and a trailing EV/EBITDA of 6.2. In reality, the valuation is likely lower. AutoInfo’s last financial statement was for the quarter ended September 30, 2012 and the company has very likely grown and generated cash since then.
An 8.5 P/E is a price you pay for a no-growth, medium-quality business, or a cyclical business more than halfway through its growth phase. 8.5 times earnings is not what you pay for a business that averaged 24% sales growth over the past five years through the a vicious recession.
Why not sell to a competitor rather than a private equity firm? While Comvest Partners will likely find ways to increase efficiency, a competing transportation services firm could find far more. AutoInfo’s legal, IT, finance and marketing functions could all be managed by an acquiring transportation services firm’s existing departments, greatly increasing operating margins.
In the last four quarters, AutoInfo had $41.8 million in operating costs. Reducing these by just 10% would create additional after tax-income of $2.7 million, increasing net income to $7.2 million. The same 8.5 P/E multiple on the post-synergies net income would be $1.70 per share. Was it really impossible to find a larger competitor willing to pay a very conservative multiple of easily achievable post-synergies earnings?
I’d like to know what AutoInfo’s fund investors, Kinderhook Partners, Baker Street Capital and Khrom Capital Management think of the deal. Or what James T. Martin, the company’s largest non-insider shareholder thinks. Together, these shareholders own 48.3% of shares outstanding, enough to exercise de facto control. If these investors haven’t already affirmed the deal, perhaps they’ll make some waves when the time comes for the shareholder vote.
I own shares in AutoInfo and I plan on keeping them at least through the shareholder vote, on the off chance of a higher bid.