PRSC, a clear takeout candidate - Page 5 - Business, Finances and Investing Forum

And one of those additional deals was announced this morning. Another big one, $400m acquisition. Matrix has done $187m in revenue and around $40m in EBITDA in TTM. Doesn't strike me as an amazing price but the company has sick margins and is also based in AZ so the likelihood of cost saving synergies is probably much higher than with the Igneus acquisition.

where did you see the ebitda number? Conference call this am will probably give out a lot of useful information, but my quick thoughts: I like that they are doing the deal with debt in the US, as their insanely high tax rates mean in theory prsc should run with higher leverage. 10x ebitda is high and higher than prsc trades, but its a new market for prsc and if matrix does have very good growth it would soon be worth it. with margins that high, and being in a different vertical, I actually think there wouldn't be too many synergies or fat to cut. could probably save a bit on admin but not S&G. anyways, will listen to the call

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09-20-2014 , 07:58 AM

#102

ahnuld

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OK I finally updated my website with a long post on the last 2 deals, but for a quick summary, I believe PRSC will do just under $5 in eps in 2015, and just over $5 in fcf.

edit: biggest difference as to why I didnt up my cash flow per share forecast much, despite a debt funded deal, is due to sharecount estimate of 16mm fully diluted next year vs 14.5 in the calculation last month. using 15.5mm shares I get about $5.50 in free cash

Last edited by ahnuld; 09-20-2014 at 08:32 AM.

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10-23-2014 , 11:47 PM

#103

BCI23

grinder

Join Date: Jun 2008 Posts: 569

Just heads up, looks like PRSC will be doing a rights offering for preferred convertible stock as part of the Matrix acquisition. Coliseum Capital will be back stopping the offering.

http://seekingalpha.com/pr/11422875-...edical-network

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10-24-2014 , 12:44 AM

#104

steelhouse

banned

Join Date: Feb 2007 Posts: 6,109

Quote:

Originally Posted by ahnuld

Providence service corp (PRSC) is the wonderful story of a good company that has been growing at a great pace but has been mismanaged over the years by a distracted CEO but now has the team in place to unlock shareholder value.

From 2004 to 2010, LHCG rps grew from $10 to about $35 per share and EBIT doubled. Coliseum has been involved with since 2011 and since that time revenues per share have gone up only about 20% and EBIT is half what it was in 2009.

PRSG from 2004 to 2013 rps has grown from about 10 to 80. This post was initially done in 2013 since that time EBITDA is still the same or less than it was in 2010, rps might be up to 90. PRSC might have been undervalued when they bought it but that is about it.

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10-25-2014 , 09:48 AM

#105

ahnuld

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Quote:

Originally Posted by steelhouse

so much wrong in the above.

ebitda peaked in 2010 and then declined substantially until the new management team took over. So im not sure what comparing 2014 results to 2010 does for anyone. thats like saying if john chen got blackberry back to 3.4 billion in NI he only managed to be flat with fiscal 2011.

and my OP was done in 2012. it says it right above the words in the original post.

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11-19-2014 , 07:50 PM

#106

BCI23

grinder

Join Date: Jun 2008 Posts: 569

Looks like a good entry point at $34 - 35 here. Stock has been on a steady decline since earnings with no news since. We said the original core businesses were worth $40/share and as long as you don't think Shackleton way overpaid for Igneus and Matrix there seems to be a disconnect in the price here. I wish PRSC had LEAPs.

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11-19-2014 , 09:17 PM

#107

ahnuld

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yeah ill try to do a long post later but they gave a bit more info on what matrix should do going forward in a separate press release the day of the conference call. Looks very likely next year will be 4.50 to 6.00 in cash. even at low end it should be 45$ minimum so its becoming a clear buy again. It will also be a growth stock due to matrix and ingeous divisons so you can probably put a higher multiple on that, maybe 15x. I took some off the table for my clients at 47 in aug/sept so ill probably start to buy that back here. but I want to see how convertible pref rights issue will play out first.

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11-20-2014 , 04:48 PM

#108

BCI23

grinder

Join Date: Jun 2008 Posts: 569

Quote:

Originally Posted by ahnuld

What do you think about them doing this rights issue? To me it makes a lot of sense especially if their debt options are becoming too expensive. One thing i was thinking about is that Shackleton might be doing this to pull off a little financial engineering (he is backstopping the offering). If the prefs are convertible into common in the $30s, thats a very attractive price relative to where we think this thing could trade in the next two years. It could be a way for Shackleton use this rights offering to get his hands on a large chunk of cheap stock exposure. Either way, I like it.

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11-20-2014 , 10:05 PM

#109

ahnuld

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yeah thats bascially my thoughts as well. Id rather they have just done a standard bought deal when the stock was trading upper 40's or nothing at all, but rights offerings are generally fair to everyone. I suggest people exercise if the terms come out standand. only annoying thing is they are not transferrable which could be to help out shackelton due to the backstop. he would get anyones shares who doesnt execute

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12-23-2014 , 06:33 PM

#110

BCI23

grinder

Join Date: Jun 2008 Posts: 569

Rights offering was announced. One thing stood out to me for sure:

"Stockholders of record at 5:00 p.m. New York City time on January 5, 2015 will receive their pro rata share of non-transferable subscription rights."

A non-transferable rights offering backstopped by Coliseum = increased ownership % for Coliseum = hugely bullish signal for the stock especially if the conversion price is in the $30s.

http://seekingalpha.com/pr/12069405-...ights-offering

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12-23-2014 , 09:55 PM

#111

ChipsAhoya

2011 $10k Stud8 Champion

Join Date: Oct 2004 Posts: 6,890

Quote:

Originally Posted by BCI23

Rights offering was announced.

will we know how much cash / share is required prior to actually getting the rights and the prospectus, etc. on the 5th?

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12-24-2014 , 04:45 PM

#112

ahnuld

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they announced that awhile ago. Its a 100$ pref that pays 5.5% and is convertible at any time at 39.80 (or close to that). Can only be called if stock is at 80$ or higher with 3 years protection. Id way rather own that than the stock (just out of money, higher in capital structure so chance of loss is minimal, pays a divy).

will be only about 1 right per 25 shares.

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12-25-2014 , 08:37 PM

#113

ChipsAhoya

2011 $10k Stud8 Champion

Join Date: Oct 2004 Posts: 6,890

okay, thanks; obviously I missed that.

so it's basically $1000 of stock gets you $100 of pref then?

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01-12-2015 , 02:45 PM

#114

Jaysick88*

journeyman

Join Date: May 2012 Posts: 283

Stupid question: Do I need to do anything with these stock rights? They appear in my brokerage account but I never received any messaging on them.

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01-12-2015 , 07:22 PM

#115

ahnuld

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Quote:

Originally Posted by Jaysick88*

Stupid question: Do I need to do anything with these stock rights? They appear in my brokerage account but I never received any messaging on them.

at some point (or now, no reason not to) you need to instruct your broker than you want to execute them

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02-06-2015 , 01:03 PM

#116

BCI23

grinder

Join Date: Jun 2008 Posts: 569

good lord, looks like Coliseum Capital and Twoplustwo were the only shareholders to exercise their rights for the convertible prefs. Coliseum will own nearly 95% of the convertible debt.

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02-06-2015 , 05:59 PM

#117

BCI23

grinder

Join Date: Jun 2008 Posts: 569

The other crazy thing about this is that Coliseum has just effectively increased their position in PRSC by 70%. Prior to the rights offering they owned 2.2m shares. With this rights offering they will be buying somewhere around 615k pref shares for $61.5m which are convertible into stock at $39.88/share. 61.5m / $39.88 = 1.543m shares. PRSC was already their largest position and they just increased it big time.

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02-06-2015 , 07:13 PM

#118

ahnuld

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I wouldnt be shocked if they sell some of their common stock after this, just to rebalance. It was such a no brainer to buy the pref, I cant believe no one bought theirs.

Im also a little pissed it was non transferable and coliseum got such a big payment to backstop. Normally shareholders can elect to buy more of the rights not utilized. Nope not in this case. Its good to be a controlling shareholder.

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02-06-2015 , 08:24 PM

#119

BCI23

grinder

Join Date: Jun 2008 Posts: 569

yeah Coliseum got such a good deal here, they shouldn't have taken any payment to backstop.

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02-07-2015 , 02:40 AM

#120

Derek123

adept

Join Date: Jun 2005 Posts: 1,059

I exercised my option but am not sure I fully understand convertible prefs. Each convertible pref gets a 5.5% dividend/year and then can be converted to ~2.5 common stock shares at anytime. Is there any expiration time that you have to convert it by? Since you like the stock I assume you will keep the pref and get the upside of the stock along with the dividend. Is there any plan as to when you would convert?

Also, what are the risks of exercising this option? I dont see why everyone wouldnt do it. The price right now is already above the $39.88/share and you get the dividend on top..

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02-07-2015 , 12:49 PM

#121

ChipsAhoya

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Join Date: Oct 2004 Posts: 6,890

wow, that is insane. was it the non-marketability of the pref?

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02-08-2015 , 09:50 AM

#122

ahnuld

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Quote:

Originally Posted by Derek123

to answer your second question, people are dumb and lazy.

to answer your first, it is a perpetual pref meaning it will exist forever but the company has the right to force convert you after 3 years if it is more than 100% in the money (so if the stock trades above 79.76). Both of those terms are very generous. normally you would see something like 1 year portection and 25% in the money. Im sure both generous terms were added by Coliseum since they knew they would get the bulk of the prefs (not listing makes it less attractive, non transferable means they get all the extra).

A bit sleazy imo.

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02-08-2015 , 07:02 PM

#123

BCI23

grinder

Join Date: Jun 2008 Posts: 569

a lot of the institutional shareholders their charter prevents them from participating in stuff like this. It's also not like a normal rights offering that threatens to dilute shareholders who don't participate. I am surprised that no other hedge funds came in and bought up a bunch of stock in order to get their hands on the rights.

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02-08-2015 , 07:04 PM

#124

BCI23

grinder

Join Date: Jun 2008 Posts: 569

Quote:

Originally Posted by ahnuld

I wouldnt be shocked if they sell some of their common stock after this, just to rebalance. It was such a no brainer to buy the pref, I cant believe no one bought theirs.

This is a good point. I could definitely see Coliseum selling down a lot of their common to balance out. This could put a lot of selling pressure on the stock over the next few months.