ToffCap's Monday Monitor #40

Interesting event-driven and special situations

Jan 06, 2025

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ToffCap’s Monday Monitor is our weekly overview of interesting event-driven trades and special situations.

Disclaimer. ToffCap’s Monday Monitor is provided for informative purposes only. No due diligence has (yet) been performed on the names on this list. The list might change strongly on a regular basis. This overview does not constitute advice; always do your own due diligence. The list is dynamic; it continues to grow and change. If you have interesting additions to the list, feel free to contact us at contact@toffcap.com or on Twitter.

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This week’s additions and highlights

1. SPIN-OFFS

CompoSecure (CMPO US). CMPO announced that it is panning to spin its Resolute Holdings unit. Resolute will be responsible for providing CMPO’s business with certain services, including providing oversight of its capital allocation strategy, operational practices, as well as M&A sourcing and execution. CMPO will enter into an agreement where it will pay Resolute a quarterly cash management fee of 2.5% of CMPO’s latest 12 months’ adj ebitda. Spin targeted to be completed in Q1 25.

2. STRATEGIC ALTERNATIVES & REVIEWS

(Potential take-outs, asset sales, M&A, etc.)

Atea Pharma (AVIR US). Net cash, negative EV, busted biotech Avir, recently announced that it had engaged Evercore to review strategic opportunities to enhance shareholder value / exploring strategic partnerships. Atea has still research ongoing (Hep. C). At roughly the same time, JEC Cap (~3%) is pushing for a new Director to oversee the review, as it believes that while 'it is the appropriate time to sell the Company... we are concerned that Mr. Berger is not qualified to represent Atea shareholders', and BML Partners (~8%) is also pushing for change.
Limoneira (LMNR US). Launched a strategic review. Options include full sale of the company. Management believes that the current market value is not reflective of the company's inherent value.
UPDATE (January 6, 2025) Recently mentioned that the strategic review process 'continues to progress'.

3. NOTICEABLE LARGE BUYBACKS

Clarivate (CLVT US). Recently announced a $500m buyback, roughly 14% of the current market cap. This is up from the last buyback of $200m. Clarivate's growth slowed down, and the share price corrected, but continues to be very FCF generative. Seems a good candidate to become a cannibal.
ATI Physical Therapy (ATIP US). Initiated a tender offer for 1.65m shares at $2.85, ~11% higher than the current share price. That's a lot of shares (c. 37%).
MRC Global (MRC US). Announced a $125m buyback, ~11% of the current market cap.
SiriusPoint (SPNT US). Repurchased all of its shares and warrants held by CM Bermuda for $733m. Payment will be made in two tranches, with the first payment of $250 million effective immediately and the second for $483 million by Feb. 28. The company said it has financed the transaction using its existing capital. The transaction seems to be pretty accretive.

4. INTERESTING INSIDER PURCHASES

Tidewater (TDW US). Insiders timed it perfectly back in June with a ton of insider selling. Now they are back in the open market. Very interesting given the correction and strong LT fundamentals for this market.
OneWater Marine (ONEW US). A flurry of insider purchases in August after a long period with little activity. OneWater is experiencing some market headwinds, but insiders seem confident this will not last. UPDATE (November 25, 2024) Insiders (ao the CEO) are back at it again, in size. UPDATE (December 16, 2024) Insiders continue to back up the truck on shares in the open market. Again, we feel that something is going on here…
UPDATE (January 6, 2025) Yet another month with strong buying by insiders on the open market.
MasterCraft (MCFT US). Coliseum Cap (~21%) continues to scoop up shares in the open market. Cyclical but very interesting industry. We're keeping an eye on this one.
Progyny (PGNY US). Both the Chairman and the CEO stepped up in the open market recently for a total of over $5m. Interesting as this was the first in a long time after the plethora of open market sales, which stopped at ~$30 roughly six months ago. The stock has corrected strongly since. C. 6.5x ev/ebitda on FY24e for little growth but strong FCF generation.
Avadel Pharma (AVDL US). Avadel is a biotech company which seems on the verge of a very strong period of growth. Avadel is trading at ~14x ev/ebitda on FY25e based on the guesstimates of the few analysts covering it. Of course we must be careful with these estimates, but if they are anywhere near correct, 2025 could be a very interesting year. Insiders seem to be of the same opinion, given quite strong purchases in the open market after the recent correction.
Lakeland Ind. (LAKE US). As often mentioned, once of the things we like to see is insiders buying after a long period of little/no action or when share prices reach new (52w) highs. At Lakeland we have both. ~15x ev/ebitda on FY25e (Jan '25), for almost 100% ebitda growth projected over the coming year (based on a few analysts).

5. LIQUIDATIONS

European Residential REIT (ERE-U Canada). Company is winding down operations. Assets are being actively sold, with the company recently selling c. 50% of its assets at a very decent pricing (above NAV). If the latter is an indication for the rest of the portfolio, there could be an interesting upside. Current share price (CAD 3.2, October 4) is below IFRS NAV (at c. CAD 4.30). Should play our over next 12 months (probably sooner) (though keep an eye on potential taxes.)
UPDATE (January 6, 2025) So far so good in this liquidation. Eres continues to sell assets at decent prices (closed on previously announced dispositions for €739m + another €84m) which have been used to make a large special distribution and will further be used to reduce debt. Eres has now a significantly improved balance sheet.

6. NOTABLE 'RUMORS' AND REPORTED INTEREST

Vivid Seats (SEAT US). Vivid is reported to be exploring a sale with 'deliberations ongoing'. Vivid has grown very decently over the past few years (incl acquisitions) but growth is projected to slow. But with the shares trading <8x ev/ebitda and strong cash flow generation, the stock doesn't seem expensive even after the recent move. This is a game of scale, and we believe it would make sense for this company to be taken private.
Vera Bradley (VRA US). Fund 1 (10% holder) is pushing Vera to start a strategic options process. "We believe that a strategic or financial buyer would be able to complete a transaction at an attractive premium for shareholders”, given the underlying value of the brand. The shares are down >30% over the past month as Vera struggles to return to profitability. This looks like one that could indeed be taken out at these levels.
Altus Power (AMPS US). Announced that it is reviewing strategic alternatives. "The ongoing disconnect between the share price and our view of intrinsic value gives the Board and management confidence that exploring alternative ownership structures is a prudent course to maximize value...". Altus is an interesting, rapidly growing busted de-SPAC with nice operating earnings and strong secular tailwinds. Though cash flow generation has been hampered by large debt burden (ao a consequence of acquisitions).
UPDATE (January 6, 2025) TPG was mentioned to be in talks to acquire Altus. A deal could be announced over the next few weeks. A take-private would make sense in our opinion. Despite the share price move of the news, the shares have been roughly flat for the past 9 months.
Playa Hotels & Resorts (PLYA US). Playa owns resorts in Jamaica, Mexico and the Dominican Republic. Management has regularly stated that it considers its portfolio severely undervalued by the markets compared to peers and has been focussing on reducing the discount, mostly with disposals of lower quality assets and share buybacks. We can expect this to continue, and perhaps even result in a full sale of the company.
UPDATE (January 6, 2025) A sale is (already) on the table, with Hyatt in talks over strategic options. Meanwhile Playa continues to dispose assets. This one seems to be playing out quite nicely.
Getty Images (GETY US). Busted SPAC Getty is said to be exploring a combination with Shutterstock. While the share price moved strongly initially, it came down given worries of drawing significant antitrust scrutiny. Trading at ~7.5x ev/ebitda and significantly cash flow positive, the question remains what will happen here given AI.\
Paycor (PYCR US). Rumored to be in advanced talks to be acquired by Paychex (PAYX). Deal could be already announced this week.

7. M&A / MERGER ARB

WM Technology (MAPS US). A reminder that the CEO and another co-founder have offered to acquire all the WM shares they don't yet own for $1.70 per share. The spread is still ~16.5%.
Spirent Communications (SPT UK). Significant steps have been made in this deal, with both parties agreeing on conditions. Also, several regulators already gave to go-ahead. Spread still 12.4%. Deal expected to close in April 2025.
Ikena Oncology (IKNA US). New addition in the busted biotech bucket. Big net cash position, negative EV, reviewing strategic alternatives. Opex strongly down, very much reduced cash burn. Seems like this one might move rapidly at some point.
UPDATE (January 6, 2025) Ikena announced a merger deal with Inmagene as well as a private placement. The $75m PP is at $2.5 per share, roughly 48% higher than the current share price.
American Creek (AMK Canada). American Creek recently updated the markets on the progress the of the acquisition by Cunningham. The deal seems to be moving along well and on time. Spread still ~59%. UPDATE (December 9, 2024) Shareholders voted and approved the deal with Cunningham. Spread has been narrowing but is still ~36%.
UPDATE (January 6, 2025) Merger date moved to Jan 31. Spread widened to over 65% again.

8. ACTIVIST ACTION

Alto Ingredients (ALTO US). Kaufman Kapital (~4.9%) is pushing for a breakup of the company, arguing that it is their view 'that the collective value of Alto's ethanol plants, Magic Valley, Columbia, and its Pekin Campus could exceed $550m, which net of debt, equates to approximately $6 per share in value compared to its current stock price of' $1.75.
Virtu (VIRT US). Activist investor Pulte is pushing for Virtu to be sold. "We strongly encourage the Board of Directors of Virtu Financial to pursue strategic alternatives, including but not limited to selling themselves to an owner who can unlock the true potential of Virtu," said William Pulte, Chairman of The Pulte Family Office. "If the company does not elect to explore a sale, we may be forced to bring forth a proxy contest or other actions as appropriate, legal, and necessary." Apollo is rumored to be interested.
Aadi Biosciences (AADI US). Net cash, negative EV busted biotech, currently assessing strategic alternatives. BUT there is some interesting action going on. Already two big funds in it after their announcement. They have a marketed product which itself could be worth as much as the company, but is to small to engage a whole sales team. In addition to the net cash they might have residual pipeline value.
UPDATE (January 6, 2025) Aadi signed a licence agreement. BML Partners (~9.9%) filed a 13D opposing the transaction and prefers a sale of the company, returning cash to shareholders.

9. INTERESTING SITUATIONS

…but not exactly event-driven or special sit

Dowlais (DWL UK). Dowlais has not exactly been a success since its spin-off from Melrose (MRO). But while the stock is down almost 40% since, the shares seem to have found a bottom and are rebounding. The company is very active in the market with its GBP50m buyback. Operating earnings rebounded this year, and if margins continue to creep up FCF generation could strongly increase. Roughly 3.5x ev/ebitda on FY24e; not a lot needs to go right to see this one move.
GMO Payment Gateway (3769 Japan). Japanese diversified collection of resilient payment and internet infrastructure operations. Despite the fundamentals showing a very healthy trend over the past years, the share price action has been very disappointing. Growth should remain strong over the next few years, with continued healthy FCF generation. Low-teens forward ev/ebitda for what should be >20% ebitda cagr over the medium-term. Interesting to keep an eye out.
Brain Biotech (BNN Germany). Brain Biotech recently concluded a royalty deal valued € 129m. Brain is to receive € 18.4m immediately, another € 18.4m upon regulatory approval, and € 92m upon reaching certain milestones. Despite the strong share price reaction, the company is still valued much below this deal, but more importantly showcases the potential of Brain's pipeline. The company intends to 'commercialise and monetise additional projects with high value... over the next years'.
UPDATE (January 6, 2025) Brain Biotech announced 5 year targets for the new BRAIN Biocatalysts segment (a combo of two segments), ao revenues of €100m and 15 % adj ebitda margin. A reminder that the BioIncubator segment recently signed a nice licencing deal and the company is projecting 'significant future potential' with further licences.

10. MISCELLANEOUS

(Asset sales, out-of-bankruptcies, IPOs, up- and delistings, etc.)

Alico (ALCO US). Interesting agri and land management company. Owns over 100k acres in Florida. Involved in citrus fruit manufacturing. Current in the process of optimising its portfolio by reallocating to less hurricane prone areas and selling sub-par locations. Based on management assumptions the land could be worth $50 per share (roughly 100% upside), and potentially more given the attractive location of certain assets. And today, Alico announced a strategic transformation of its agri operations in order to unlock value. Management ao estimates that the current value of the landholdings could be worth $650-750m.
Lithium Chile (LITH Canada). LITH announced that it agreed to a binding offer of CAD 250m for its stake in Arizaro project in Argentina. The offer is significantly higher than the current (fully diluted) market cap. The company plans on distributing most of the proceeds to shareholders. The company has also recently spun its gold and copper assets in to Kairos Gold (should start trading soon). What remains are 106,135 hectares of lithium properties in Chile, which should have meaningful value and could be acquired as well.
The Children's Place (PLCE US). Announced it will evaluate strategic alternatives (should new financing efforts fail). Mithaq Capital took >50% of equity and aid restructuring efforts.
UPDATE (January 6, 2025) Launched its rights offering to reduce debt. Subs price $9.75; looking for $90m.

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January 6, 2025 Toffcap Monday Monitor #40

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