ToffCap's Monday Monitor #41

Interesting event-driven and special situations

ToffCap’s Monday Monitor is our weekly overview of interesting and carefully selected 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

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1. SPIN-OFFS

• Lennar (LEN US). Lennar will be spinning off its mortgage finance division (Melrose). Spin-off date Feb. 7, ticker MRP. Large difference between Lennar and Melrose might create interesting trading dynamics.

• Euroseas (ESEA US). We note the upcoming spin of three vessels. Spin date Jan. 30. Always interesting to check these weird small spins out, particularly in end-markets that are generating healthy cash flows.

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2. STRATEGIC ALTERNATIVES & REVIEWS

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

• Apartment Investment and Management (AIV US). AIV announced that it will be exploring options to enhance shareholder value. The company believes that the shares 'continue to trade at a meaningful discount to our estimate of private market value' and intends to close the gap. AIV already stepped up its efforts to close the gap, announcing the sale of assets for $520m in Dec. Proceeds will be returned to shareholders.

• IGM Bio (IGMS US). Net cash, negative EV, busted biotech, recently announcing that it will be reviewing strategic opportunities to enhance shareholder value. The company will ao halt certain programs and slash >70% of its workforce. $184m cash on the b/s as of December and $25-30m estimated total restructuring costs.

• Forward Air (FWRD US). In a letter to the company, activist Ancora urged Forward Air to initiate a strategic review and consider a sale. The letter notes that 'holders of approximately 22% of Forward Air’s outstanding shares have already independently disclosed support for a strategic review'. UPDATE (October 21, 2024) The pressure is increasing, with Alta Fox joining the active party. Alta Fox is asking for a strategic review to maximise value (i.c. sell). Also, Bloomberg reported that Forward hired bankers to lead the sales process.

  UPDATE (January 13, 2025) Officially (and finally!) announced that it initiated a review of strategic alternatives, incl. sale of the company. Little share price action so far. FA also guided for ~$300-310m ebitda for FY24 and is confident that its transformation strategy will bring $20m savings pa in the future. We fully expect this company to be sold.

• International Money Express (IMXI US). IMXI recently announced that it will start the process of reviewing strategic alternatives (i.c. will look to go private). While the shares were up ~12% on the news, they are basically back at the levels of a few months ago given the large correction in August. We think there's a good chance IMXI will be taken out. This is a steady growing, very profitable company trading at ~9x p/e on FY24e for what could be at least ~10% earnings growth p.a. in this very high returns business. To note that activist Voss Capital owns ~6%.

  UPDATE (January 13, 2025) We note the upcoming Investor Day on Feb. 26. It has been some years since IMXI hosted one, and this one could be particularly interesting given the strategic review.

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3. NOTICEABLE LARGE BUYBACKS

• Annaly Capital (NLY US). Announced a $1.5bn buyback, roughly ~15% of the current market cap. Add to that the ~14% dividend yield and this one screens interesting.

• Royalty Pharma (RPRX US). Recently announced a $3bn buyback (c. 17% of the market cap), o/w $2bn will be repurchased in 2025. RPRX also announced that its acquired its external manager, thereby saving >$100m in costs as of FY26 and a total of $1.6bn over the next ten years.

• Aurora Mobile (JG US). Net cash, Chinese micro-cap that announced a $5m buyback. We generally ignore these Chinese net cash companies, but we're still keeping an eye on this one as the small size and relatively large buyback could bring some interesting action.

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4. INTERESTING INSIDER PURCHASES

• AirBoss (BOS Canada). A flurry of insider purchases in the open market recently, after quite some time with little action. Small cyclical that is having a downturn (along with the shares). Trading at <8x ev/ebitda for substantial growth ahead according to consensus. Could be explosive if growth indeed returns.

• Ascent Ind. (ACNT US). Interesting insider action. The combo of small and cyclical always makes it interesting if insiders are adding in the open market. Ascent is having a few bad years, which happens in this industry. Relatively healthy b/s.

• Butler National (BUKS US). Another small company with some great insider action on the open market. Good to see that insiders are adding even after the recent strong run. The last time this happened (Sept / Oct) the shares ran another +25%. Butler operates in the aerospace industry, which has been extremely strong. Management clearly expects this to continue. Last quarter saw record ebitda.

• Saga Communications (SGA US). Gate City Cap recently acquired a ~14% stake in the open market. Gate City has not gone active yet, but that'll come. Saga has been a classic no-growth, cash flow generative broadcaster, but profitability dropped quite a bit over 2024, along with the share price.

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5. NOTABLE 'RUMORS' AND REPORTED INTEREST

• Nothing worthwhile mentioning this week

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6. M&A / MERGER ARB

• SoHo House (SHCO US). Bit of a weird story where SoHo announced a strategic review and set up a special committee to evaluate an offer it received. But despite this offer "reflecting a substantial premium" the deal wasn't closed. Roughly a half year later the company announced that a new third-party consortium offered to acquire the company for $9.0 p/s. "The offer, which is supported by Ron Burkle and Yucaipa, was the result of a thorough strategic review undertaken by Yucaipa and its financial advisors to enhance shareholder value, as Yucaipa believes the inherent value of the Company is not reflected in its current share price." Seems this time is a go. Spread +17.5%

• Gear Energy (GXE Canada). Gear is to be acquired for $110m in cash by Cenovo, and will spin certain assets into a new company. Upcoming vote. Closing expected by end of Feb. Spread still +16.7%.

• Revance Therapeutics (RVNC US). The Crown/Revance deal spread blew out to 80% (give or take) after a 'going concern' disclosure at the recent result filing. This deal has been pretty dynamic to say the least, but it might be a good time to look at Revance; this biotech has strongly ramping revenues with >70% GPs and will soon be hitting operating profitability if it continues to grow a this pace. UPDATE (December 16, 2024) Crown Lab and Revance restated the merger agreement, slashing the price >50% to $3.1. Crown commenced the tender offer to acquire Revance; offer is expected to expire on January 13, 2025.

  UPDATE (January 13, 2025) Teoxane announced an offer to acquire Revance for $3.6 p/s, topping Crown's offer. Teoxane does not anticipate regulatory risks or delays. Spread +10.8%.

• Paycor (PYCR US). Rumored to be in advanced talks to be acquired by Paychex (PAYX). Deal could be already announced this week.

  UPDATE (January 13, 2025) Officially announced that it is in talks to be acquired by Paycor. We would not be surprised to see a deal; HCM companies have seen quite some competition, with decelerating revenue growth. Substantial synergies could be generated.

• Smart Share Global (EM US). Truster proposed $1.25 per ADS (current share price $1.0). To note that Alibaba Group owns ~17%.

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7. ACTIVIST ACTION

• Solventum (SOLV US). Trian Fund Mgt (~5%) is getting vocal on Solventum, issuing an open letter to Solventum shareholders pushing for improved operating performance, portfolio actions and prudent capital allocation. The fund believes shares could be worth $140 by the end of 2027 (>100% upside) if such action is taken.

• TriMas (TRS US). TriMas recently announced that the CEO would leave. At the same time, (another) investor Barrington Cap (~1.5%) is pushing the company to explore a sale of its aerospace operations or the entire company.

• Intrepid Potash (IPI US). Gate City Cap (~6.5%) is urging the company to explore strategic alternatives and return (more) cash to shareholders.

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8. INTERESTING SITUATIONS

…but not exactly event-driven or special sit

• Riskified (RSKD US). Riskified is a company that jumped out of one of our screens (buybacks) given what it seems might be interesting action. RSKD has long been loss making but seems finally on the verge of inflecting positively. The company burned quite some if its large cash balance, but it seems that's about to change going forward. Growing, with large margin expansion potential and still ~40% of the market cap in net cash; ~20x ev/ebitda on FY25e does not seem much for 50-70% ebitda growth p.a. over the medium-term.

• Quipt Home Medical (QIPT US). Quipt seems your classic home healthcare provider that has been on an acquisition spree. The company grew revenues from ~$100m in FY21 to roughly $250m in FY25e with strong ebitda and CFO generation along the way. But debt grew as well, and while manageable at ~1.5x forward ebitda, the company generated little income. ~3.5x FYe ev/ebitda.

• Lifeway Foods (LWAY US). Lifeway rejected a (revised) proposal made by Danone to acquire the company for $27.00 per share as it would 'substantially undervalue' the company. LWAY is a net cash, rapidly growing and profitable company; the proposal implies ~15x FY24e ev/ebitda, for what could be >20% ebitda growth pa over the medium term. To note that two major shareholders from the big family (~30%) are pushing the board to 'evaluate and negotiate a transaction' with Danone. UPDATE (December 2, 2024) Lifeway expanded on the reasons for rejecting the deal, basically reiterating the message that the offer was too low. We agree, given the healthy b/s and strong growth path ahead for this company. Interestingly, the board added that ' it is not, however, opposed to the sale of the company at any price' . In other words, Danone needs to pay up.

  UPDATE (January 13, 2025) The action continues, with LWAY confirming the rejection of the offer and reiterating that it is still open to higher offers. At the same time, Danone stated that it is planning to sue the CEO, stating she engaged in self-dealing and value destructive activities. We tend to agree.

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9. MISCELLANEOUS

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

• Matthews International (MATW US). Matthews is to sell its SGK Brand Solutions to a newly formed entity created by affiliates of SGS. MATW will realize an upfront consideration of $350m and receive 40% interest in the new entity, which is estimated to have an initial EV of ~$900m, reflecting 9x ev / adj. ebitda. Might be interesting to keep assessed given all the moves.

• XXL (XXL Norway). XXL announced a rights offering. The company is planning to raise NOK 600m. Rights will be freely traded.

• Net Lease Office Properties (NLOP US). Old ToffCap highlight NLOP (WP Carey spin) continues to sell assets at pretty decent prices. The last announcement considers the sale of five properties for $43m. Total gross proceeds from dispositions completed in 2024 were $364m at a weighted cap rate of 10.5%. NLOP is almost debt free now. This remains an interesting case given the limited downside, good upside from continued asset sales.

• Stroer (SAX Germany). Stroer recently confirmed that it is in talks with PE to sell its Billboard Unit. According to Bloomberg the company is looking for €4bn. Despite the ~20% move in the share price, this value would still represent ~85% of the current EV.

• Capstone Green Energy (CGEH US). We highlight Capstone which recently came out of bankruptcy. The shares are still trading OTC. As the company works to update its filings it will pursue upslitings. We get ~18m s/o, making this a micro-cap with interesting potential if it'll be able to pursue profitable growth.

• Unified Post (UPG Belgium). Little, indebted UPG recently announced the sale of its e-transaction assets for ~€130m. If this deal closes, it would eliminate UPG's debt and, together with the proceeds from other asset sales, the company will have a comfy net cash position. Should it reach its targeted FCF break-even level, the shares could be very interesting.

  UPDATE (January 13, 2025) UPG finalised the sale of its Dutch Wholesale Identity Access unit for a purchase price between €108.4-116.1m, subject to the possible earn-out payment of up to €7.7m. Proceeds of the deal will be used to repay debt. This deal completely changes the financial profile of the company, and makes this one very interesting to keep an eye on.

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January 13, 2025 Toffcap Monday Monitor #41

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