Yet Another Value Podcast - Matt Turk on why corporate history matters with Target Hospitality $TH

Episode Date: April 23, 2024

Matt Turk joins the podcast to discuss his thesis on Target Hospitality Corp. (NASDAQ: TH), one of North America's largest providers of vertically integrated modular accommodations and value-added hospitality services. Links: https://www.bamsec.com/filing/114036124014503/4?cik=1859285 https://www.youtube.com/watch?v=31s6todiuM8 Matt's YouTube Channel: https://www.youtube.com/@given2trade4 Chapters: [0:00] Introduction + Episode sponsor: Fundamental Edge [1:53] What's going on with Target Hospitality $TH and why its interesting to Matt [8:18] $TH Corporate history and why it's important / 2020 letter compared to 2024 letter from Arrow Group [31:22] History cont'd of $TH with Arrow Group / why this situations reminds Andrew of $HRT situation [39:11] Government contract / tail risks [41:54] Bull case / comparables / rollups [49:13] Additional risks [58:50] Likelihood of closing and talking through potential buyout prices[1:04:50] Final thoughts Today's sponsor: Fundamental Edge You’ve probably heard about the Analyst Academy from Fundamental Edge by now. So instead of repeating the basics, let’s talk a minute about what the Academy is and is not. The Analyst Academy is a practical course on the tools and skillsets required to succeed in the buy-side analyst seat. The instructors have experience from firms such as Maverick Capital, DE Shaw, Citadel, Balyasny and ExodusPoint. But what is the Academy NOT? It’s NOT a course on stock-picking. It IS a rigorous guide to learning a process. It’s NOT a guide to pod shop investing. The Academy attracts a wide range of equity investors, from multi-managers to long only to family offices. Rather than teaching a particular style, Fundamental Edge equips learners with the essential skills required to hit the ground running and support their PM. It’s NOT a financial modeling course. Modeling is, of course, part of the curriculum and plays a central role. But the Academy is more than that. It teaches idea generation, thesis communication and how to add value as an analyst. To learn more and access a 10% discount code, go to fundamentedge.com/YAVP

You've probably heard about the Analyst Academy from Fundamental Edge by now. So instead of repeating the basics, let's talk a minute about what the Academy is and is not. The Analyst Academy is a practical course on the tools and skill sets required to succeed in the by-side analyst seat. The instructors have experienced from firms such as Maverick Capital, D. Shaw, and Citadel. But what is the Academy not? It is not a course on stock picking. It is a rigorous guide to learning and process. It is not a guide to pod shop investing.

The Academy attracts a wide range of equity investor. from multi-managers to long-goly to family offices. Rather than teaching a particular style, Fundamental Edge equips learners with the essential skills required to hit the ground running and support their PM. It is not a financial modeling course. Modeling is, of course, part of the curriculum, and plays a central role.

But the Academy is more than that. It teaches idea generation, thesis communication, and how to add value as an analyst. To learn more and access to 10% discount code, go to Fundamentedge.com slash YavP, or just see the link in the show notes. All right, hello, and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker.

If you like this podcast, it would mean a lot, if you could rate, subscribe, review wherever you're watching or listening to it. With me today, I'm excited to have on one of Finchwitt's favorite locked accounts, a true wild man, my friend, Matt, Tirk. Matt, how's it going? Good. I think I might be the first person ever to be drinking on your podcast. Hey, I love it.

I mean, you're a true wild man. It's 1 p.m. somewhere, and that somewhere is here. So, well, it's 4 p.m. here. I'm Eastern, you're Pacific. I'm sure people figure that. Let me see. Before we get started, just want to give everybody a quick disclaimer. Nothing on this podcast is investing in advice. That's always true. But as I said up front, Matt is a wild man. And if you follow this man, he will take you on some wild adventure. So just please remember, neither was our financial advisors. Please consult one. Do your own work, do your own diligence. This isn't investing in advice. Matt, look, I was, I'm so excited. You have a, I don't know if you want to share it or not. You've got a private, video channel that I was watching. Yeah, yeah. You could show. That's not locked. Yeah. Okay. We could all include a link to the YouTube. Matt did one yesterday. Him and I are involved in a name and I was so passionate and fired up about it. I was sending a message and you look, we've got to get you back on for a podcast and just go back over the name. So the company's Target Hospitality. The ticker is TH and I'll just talk it, toss it over to you. What's going on

with Target Hospitality and why are we so interested in them? Yeah. So just to give you a brief update of I've only known about this company for like eight days and you actually. is responsible for the reason why I know about it. He just briefly mentioned, we were talking about another name, and he briefly mentioned this to me as something he likes more, one of the favorite ideas right now. And the pitch was very short, and I took it, I took it, and then I started researching on my own, and I've become completely obsessed with this idea. And you can tell you, I've probably spoken to him, I don't know, a dozen times a day since

that day. Hey, it's always nice to catch up with friends, but one. of the great things is when you get into something, I think I'm the same way, but you get obsessed over it and read everything. And I like to think I'm the same way. You know, we're Googling, we're looking at everything. And there's one thing we'll talk about today that I had completely blanked. You know, you're reading 5,000 pages. You miss something sometimes. I completely didn't notice it. You sent it to me. And I was like, oh, my God, that's a wildly confirmatory bullpoint for the Super Bowl case. And I'll let you know what, it's the special committee.

But we can talk about it later. But please continue. Yeah. So, you know, I don't know exactly. I'll start from the recent reason why we find it interesting. I case I could speak for Andrew with a collective weave with everything here. I think our views are very aligned on this. And then I'll go give you some history with Andrew. Andrew actually knows more about the history than I do. But the most recent thing that happened was this is company is owned by a private equity firm. They own 65% of the company.

I guess I should tell you it was a SPAC. So it was despacked in 2019. And recently, on March 25th, the private equity firm put out a 13D that said they want to acquire the balance of the company that they don't own for $10.80. And the stock was trading around nine. And this is commonly referred to as a squeeze out, a majority minority squeeze out. And I love these ideas. I've invested in a lot of them over the years, as is Andrew. That's how it came up from Andrew to me.

from there, I then started researching the last kind of five years on Target Hospitality, which we will discuss, and we might as well start from this background. I'll let you take it from there in a second. And, you know, the punchline of the story is, I think the company is dramatically undervalued, is one of the only, could be the only special situation right now that fits a financial profile that's a traditional LBO. It's trading at five and a half to six times EBDA with no debt, no debt. And, you know, if you do traffic in the stuff that you're not trafficking, most of these take

privates are trading at teens multiples EBDA or, you know, three, four, five times sales with no real free cash flow. And especially in this debt market, you can't lever that up. You know, maybe you could do one or two terms. And even then, you don't, you can't even, you can't even, you can't even. service the interest, given it's already so expensive in the first place. With this, you can, and again, we'll get to it all, the numbers, but you can lever this up and take out the entire minority, the 35%, and put in zero incremental dollars for the private equity firm. So, Andrew,

why don't you take it from 2019? Yeah, so I'll do that in a second. I just want to emphasize one point you said. And this is one thing that when you hit on when I did, when I brought up to you, You know, you and I, as you said, we love to play these squeeze out transactions. And that's where you've got a private equity or sometimes corporate controlled company and the corporate controlled company makes a bid and squeezes out minorities. And we love to play them. I didn't realize until you kind of told me and we did some extra work on this, how rare these are. Right now, a lot of times you'll have a private equity firm own, 35% of a company, 20% of a company.

And they'll say, hey, we'd love to own the whole thing. But in this case, as you said, TDR owns 65% of TH. It is vanishingly rare for a company to have more than 50% ownership and to get taken out except for MLPs, which are a very rare unique case that you and I have also talked about and played in before. But it's vanishingly rare. One of the comps that we'll probably talk about later, if you look through their deck, a firm put together over the past like 12 years, there's only been 13 examples that they could point to of someone who owned more than 50% trying to squeeze out minority. So this is extremely rare. And the reason it's so interesting, and maybe the private equity from this one, too. And by the way, all those 13, only two of them were private equity firms.

Usually it's a strategic. Think of like, I'm trying to think of the one that we recently, like, let's say Interactive Corp, this didn't happen. I was coming with an example. Interactive Corp spins out Expedia or floats 20% of Expedia and then decides after five years, this isn't working, we're going to buy it back the 20%. It's usually things like that. For a private equity firm to do this, think about it. I mean, I was thinking about it the last week a lot.

They would have had to take a company public, float, this is what happens. They flow 20%. It's public for years. It's a failed public company. They then would have to think that it's really undervalued and want to own the rest of it. And for all of those things that happen in that succession are really unlikely. So that's why it doesn't happen. It doesn't have.

And the other reason it's interesting is because if we own 25% of a company and we offer to buy the company out. Well, the board could negotiate with a very stiff spine and say, hey, we've got 75% of other shareholders. Once you go over 50%, the board can negotiate. They've got fiduciary duties. Nobody doubts that they're going to get sued if they don't. But if they negotiate too hard, then the private equity firm can just say, cool, we own 65%. We are replacing all of you, right?

So they actually have control. So these are very different than, you know, there are several out there where a private equity firm owns 20, 25% makes a bit. So just wanted to point that out. Uh, where do we, let's talk history. This was a D SPAC for, forget the D SPAC, right? That's far in the past. That was 2018, 2019. I think one thing important to note in the history is in 2020, post-COVID,

mid-November 2020, TDR, the private equity firm here, the stock was trading a dollar and TDR lobbed in a dollar 50 per share bid. And that eventually got rejected for a whole host of reasons. We came up with a vaccine, the stock market raced, and all the minority shareholders push back and said, you're trying to steal the company. It didn't work. The only reason I think that's important is because it shows that this private equity firm is, when they see value, they're willing to pounce. And look, the stock is 10 right now, and they offered to buy it for $1.54 years ago, that would have been a grand slam if they could have done it, right? So it shows that they're thinking. Let's fast forward to last year. One other thing, in 2020, when this was a despat, this company provides temporary housing. And the way it used to work, and they still do this is if you're an oil and gas company and you're drilling in the middle of Texas and there's nothing there, you would contract out with target hospitality or one of their competitors, and they would bring a lot of temporary facilities in, and they're going to provide lodging for your workforce.

You know, your workforce needs to live there. They're going to provide food. That's what they do. 2020, it was 67% oil and gas, right? That's very cyclical, obviously. 2021, 2021, they start developing this big government business of housing migrants who come over the border, particularly unaccompanied minors and particularly unaccompanied minors. So they've got a big migrant business.

And this grows incredibly because of border crisis, all the stuff you see in the news, right? It grows like crazy. So those are important backgrounds because in 2023, this was an event-dressed investors dream stock. I can't tell you how many people were pitching this to me. And it was a very good thesis. I almost had several of them on the podcast where they said, hey, Andrew, the stock is at 15. The stock is at 16. There's a migrant crisis.

They're going to win the government's out looking for a new temporary facilities to host all migrants, they're going to win several bids. And it was only treating it like five, six times EBIDA at 16.15. Exactly. Absolutely exact. So they said, hey, your downside is low because this is low multiple. They're generating tons of cash because the customers basically pay for the catbacks generate tons of cash, low multiple with this huge upside if they want to bid.

Fast forward to the end of 2023. The government from memory is bidding three different contracts. And the bull case was they're going to win all three or maybe two. but even if they just win one, that's going to be great. They win one contract, but then they reveal the terms and the terms are not as are not what anyone expected, right? Lower margin. There was a little issue with previously they'd gotten paid for CAPEX.

Now that the CAPEX installed, they're not getting it. Stock sells off like crazy. Goes from 15 to 8. Now every investment investor is out, right? And I think that's pretty much the basic background of, hey, the stock gets killed. EBITDAQ kind of resets. And then your 65% owner says, hey, this company. company looks really cheap. There's a lot of call options we can talk about. Let's try and take

them out. I don't know. I miss anything. How do you think I did it? No, that's exactly what happens. There's some very interesting, this is such a weird situation. I don't know, you and I have never talked about this, but this private equity firm is European-based. And if you go to their portfolio holdings, they don't have a single company that's in America except this one. Every single position is European-based. And this is like an inherited position from Arrow, because they acquired Arrow and investment firm a few years ago. And this legacy position goes back for them to 2012. So this is a

stale fund that clearly needs a kind of a secondary transaction or a complete sale. So there's an impetus for them to do something with this position mostly because they don't do America. I mean, it doesn't make any sense why they even have this. Well, that is, one of the other interesting things is you're the one who jumped on this much more than me, but if you compare their 2020 letter, they offered to buy this thing for a song during COVID. I have it right now.

They said, why don't you go through it? You know where I'm going. It's just really interesting. They have, it's very rare that you'd be able to have a, to compare two letters, right? Usually these things, a majority bids for a company, if it's an MLP, forget it. There's no provisions. We can talk about the differences between this and that, and it's all very relevant. but to see to be able to look at the letter from 2020 and the letter from 2024 and see what's there and what's not when it's the same exact firm trying to buy the same company is totally riveting because there's parts in it that are omitted in the 2024 letter that were in the 2020 letter and you could really only come up with bullish reasons for the omission so I'm going to read you three paragraphs from the 2020 letter and the spoiler is all three of these paragraphs were deleted from

the 2024 letter. So focus on that. This is not there in this letter. Okay. It is our expectation that certain key members of management will roll over their equity in connection with the transaction. Given the arrow group's existing controlling stake in history with the company, we will need to perform only very limited due diligence prior to executing definitive documentation. That last sentence, they have something kind of like that. But the other one, they don't. There's no management roll over. These are the two important ones. Our proposal should not be construed as an interest in participating in any alternative change of control transaction involving the company. The Arrow Group has no interest

in selling the control of the company at this time. We emphasize that neither the failure of a special committee to recommend a transaction nor the failure of the company's public stockholders to approve a transaction would adversely affect the Arrow Group's ongoing relationship with the company. the arrow group intends to remain as long-term stockholders of the company if a transaction cannot be completed under our proposal. They've deleted all of that. And just remind listeners, that was language from the 2020 letter when they tried to take the company private on the cheap.

All of that was deleted from the 2024 letter, which they're trying to take the company private now. Please continue, Matt. So many fascinating things about this, okay? The reason why you put the first thing, which is that you're not willing to sell anybody else is you don't want a competitive bidding process because you don't want to pay it against other people. Because if you own, as Andrew said, if you own 25% of a company, well, you know, even if you tell them that you're not going to sell your 25% stake, you don't have a blocking

stake. Yes, it's hard probably to get around that 25% stake. But if the price is high enough, you probably can get 51% of the 75% to vote for a deal. Now, how closer you get the 50%, the less likely it's ever going to happen, right? So they, you almost, always, always put that in there. You say, I love this company. I'm not selling this to anybody. Take my crappy bid. Maybe a little bit of a bump. We'll talk about the dynamics of how these things usually work. But take my bid or take nothing. That's gone. The second thing that is almost always in there is we're not going to be mad at you if you don't agree to our terms. We're not going to mad at the special committee. We're not going to man at the public shareholders. We love this

company and were long-term shareholders. They deleted that from the letter. Why? They only 65% of the company. Clearly, if they don't agree to their terms, they're going to be long-term shareholders unless they sell the companies to a third party at a much higher price. Now, that dynamic is weird because they could have just wrought a private process. I mean, they control the board.

So if they really weren't interested in bidding, this isn't like a stalking horse bid, I think they genuinely do want to buy the company. But something is going on here, and I noticed in the proxy that came out last week that last year, there was a special committee form. They won't tell you what it was for, but it says that board members were paid a premium to be on this special committee from July through October of last year. Now, that's also around the time they were doing the bidding for this very important project. And it's possible that the board was involved in that bidding process.

that's really a management thing, not a board level decision. So my gut tells me that they either ran a process then or this private equity firm was interested in bidding then, and they could not come to an agreement on terms, and they dropped it. Just to be clear, there's no real set way a majority firm has to go through the way to acquire the minority. So there's a lot of different ways to look at this. You can look at Silver Lake, for instance, just bought Endeavour. They only owned, which was a big position of Andrew Nyes, they only owned a third of it, but they controlled it. They had 65 or 70% of the vote, okay? They put a 13D out back in back in October, and they said they want to bid for it, no price, and they're not going to

sell to anybody else. Okay. They also didn't say that the bid would be subject to a majority of a minority vote. I should describe what that is. That means exactly what it sounds like, which is anybody that's involved in buying the company cannot vote. And if you are being taken out, you do get a vote. So in this case, 65% holder can't vote. But the other 35% they have to get the 51% of that 35%. I don't know if it's a simple majority or a voting majority. I don't know which one it is. But I believe it's simple majority of the votes. And just to be clear, this is something that they put in, you know, it's a fairness thing, right? They can't jam it through and say, forget the 65%. Let's go back to EDR. I own 35%. I get a deal over the finish line with 51%

of the votes. And I say, look, we're heroes. And then everybody says, well, 20% of the minority shares voted yes, 80% voted no. You only got it over because of 35%. Opened yourself to lawsuits. It doesn't look good. All this sort of stuff. You include the majority of the minority so you could go to anyone and say, hey, look, all the unaffected minority shareholders, they voted yes for this 51% of them did the majority wanted the majority of the minority wanted this a edr wasn't 35 they have a 70% vote so they didn't even know they own three yeah edr had all i mean you and i just figuring out the share count there was kind of tough and you know on a side note we could do a whole podcast e vr i think they're going to have huge lawsuits i'm going to get to that in a second so

so the reason why so in this letter in the 2020 letter and the 2024 letter they explicitly have a power grant that says they will only go through with the transaction if an independent special committee approves it and a majority of minority vote approves it. It says that's non-waivable, okay? The reason why companies do this is you are almost certain to get lawsuits after the deal closes. This Delaware has a huge history and precedence with fairness for takeouts involving majority shareholders, whether it's 51% or 40% or whatever it is. If they don't do those two things, there's an acronym for it, MFW or something like that. You would know that I would.

I actually don't know the acronym. It's based on a famous court case that Delaware law said, if you don't do those two things, you are subject to litigation. So it's always super interesting. There's another podcast for this. It's always super interesting when they don't do that. And in fact, two of the 12 examples that Andrew had on that list of majority, minority squeeze-outs that were private equity firms did not agree to a majority-minority vote.

They were huge premiums. One was like 120%, one was like 80 or 90%. Guess what? One already settled a lawsuit for $20 million, and the float they took out was only $250 million. So that's an 8% bump minus lawyer fees. Lawyer fees are a big asterisk there, right? But to them, it's an 8% bump. Yeah.

Yeah, yeah, 8% of what the company had to pay. Exactly. That's their money out of the bank. The other one, lawsuits are pending, okay? Two out of two, okay? So you always do that, but it subjects you to maybe not getting the vote. And that's where this, I actually, I think I'm going a little bit off total trip, but it's very important to this story.

So this one is great because this one has two, 5% shareholders, both, I think, pretty savvy firms. They're not kind of, not to be disrespectful, but they're not kind of sleepy, long-only, you know, index funds or mutual funds, stop fidelity that's owned this for 25 years. That isn't, you know, we're not active managers. These are active managers. And they own 5 and 6% of the company.

And I can assure you, and I'll give you an example why, that they are very interested in this being acquired at the right price. Can I, can, I want you to give the example, why, but I do just want to add one thing. We mentioned that TDR owns 65% of these. You know, normally if you've got a 5% shareholder, they carry some weight. But here you have two, five percent shareholders. So add them up to 10 percent, right? Only 35 percent of this company floats. So these two with 10 percent,

them alone are almost a blocking stake for the majority of minority consideration. They're going to carry enormous weight, enormous weight if and when a final deal comes. And I'm just kind to point out, again, 5 percent normally say, oh, that's a nice sorting. But here, it is enormous because of how small the free float is. And it's not 10. It's 11%. And I think it might be more by now, by the way. I'll get to why I think that.

But also, to be clear, that 35% can vote. But usually in a proxy, 50, 60, 70% will vote if it's kind of even a hairy proxy. So you're probably looking at 20 to 25% of the shares voting. 11 is pretty much a block. You know, yeah, Andrew owns like millions of shares. I'm just kidding. But, you know, if you add all the whales between the two of us, you know, we have them, Matt is 100% joking.

No one listened to anything he just said there. Andrews exclaimed at the beginning should have been. None of this is advice. If you're going to sue anybody, sue Matt. You said it, not me. You said it, not me. So the bid, the share, sorry, excuse me, the majority shareholder bid on March 25th.

On March 26th, the second biggest shareholder, who we knew owned 4.7%, as of December 31st, because they file quarterly reports like all major investors do, they filed a 13G, not a 13D, a 13D, a 13G. A D is when you're active, a G is when you're passive. Now, there's so many interesting dynamics about this. Usually you have to file a 13G. It's like 10 business days after you cross the 5% threshold, okay?

And no one ever rushes to do this, okay? They did it the next day. So on March 26th, they filed 13G. they say the date of filing that they needed to notify you was as of March 25th. So they definitely bought stock on March 25th. Now, we don't know how much they bought from January 1st to March 25th because the last filing update was December 31st. It's only a few hundred thousand shares that got them to 5%.

They had 4.7 million. Now they have 5.1 million or something, right? So I didn't even notice this at first. But my first thought was, okay, they did this for just for one main reason. once you file the 13G, they can now go up to 9.9% and they never have to file again. They have to file quarterlies. So March 31st, we'll find that what they own. But we won't know what they own again.

I mean, we'll find out May 15th, but they own March 31st. But we won't know again until middle of August, what they bought in March. I'm sorry, what they bought in May, whatever. So I thought they were like, hey, let's get the 5%. So we can notify the public we're there. And then we can be kind of stealth and keep buying. more stock around the bid at price. We haven't even talked about where the stock's trading and all that stuff. That's obviously the most important part of this thesis. But that way, they keep accumulating

every day and they're more likely to look. By the way, talk about make your own paddalyst. They know without, they're not, they're not legally allowed to communicate or form a group with the other 6% holder. But I can assure you they've spoken. And it's totally legal to speak. They're not trying to acquire the company or anything. But they can definitely talk to each other and say, we think this is worth X. You know, this is how we're thinking. And I'm sure. I don't even know these people. I never met them, never spoke to them, never emailed them. So this is just me hypothetical hypothesizing. They're speaking to each other and or have spoken to each other. And it definitely behooves both of those groups to buy as much stock as they can to have

more of a block and more of a say in what this is worth. Okay. So yesterday, this, I didn't find this, Andrew. Somebody else told me this yesterday. It was in the 13G when under purpose of transaction, it's usually only, you're not a shock. And usually in the 13G. you're not an activist. So usually just says, this is for investment purposes, have a nice day. That's all. Yeah, ever says anything other than that. I, so I saw the 13G as did you, and I know some of the people at some of the firms that have filed these 13Gs and respect them.

I know people who know of them, respect them. But as you said, my thing is, if you file 13G, I don't even look at 13Gs because 13Gs never have information in them. They're passive investments. You never get anything interesting in a 13G. And without reading it verbatim, it says we are aware of the bid by the private equity firm and we are going to be very focused and concerned that, oh, we've been long-term shareholders for two years. Look, it says, don't steal the company from us.

It says, we are on you. This bid is ridiculous. I'm paraphrasing. And it says, and it says, we are going to be monitoring this situation, which is basically saying we're going to vote no if you accept this to pay any bid or anything near it. I mean, that's what they're telling you. So when they bid $10.80, the stock was nine. It was around $9 for 30 days before. And a lot of times these things, these, these deals, any deal, they use 30 day VWOPs. They do 60 day VWOPs. They used the day before a Reuters article came out that said they were, you know, looking to sell themselves. In this case, the most, the most likely price you would use is the unaffected before they made the $1080 bid, the day before. which was nine, okay? And it traded in a range of 840 to 9, call it 50, 930 in the 30 to 60 days before,

okay? And they bid this 1080. And this is a good, a good segue into how these things usually work. So if you look at the comp table, which Andrew had, I keep talking about this. So I wish I could share it with you guys. I'll include a link to the, I'll be nice listeners. I'll include a link to the, I'll include a to the HRT comp table in the show notes for people who want to go look at it? Which is, by way, this thing that Andrew found, which I'm embarrassed and said and no existed, was HRT was another majority minority squeezeout. There's no reason to get super into it. We are going to get into it a little bit actually because we're going to talk about the dynamics

of how these squeeze outs work. HRT is a perfect example, and it just happened a few weeks ago. But Andrew found, it was not a C filing, but I just didn't know that they posted these things, that Center View, which is the preeminent fur, that advises special committees for these squeezeouts. In fact, I didn't find a single squeezeout that they didn't advise. They were in Endeavour and Silver Lake.

They were in all the other ones that I researched. People must just hire them automatically to represent the special committee. They prepared a 20, 25 page deck for the special committee that explains everything we're kind of talking about, how these squeezeouts work, what historical premiums are paid,

how long they take. you know, because remember, the specials committee is not, they're not professionals in squeeze outs. In fact, this special committee isn't even specialists in the stock market. Almost everyone on this special, on this board, remember, these are all handpicked by the private equity firm. They're like ex-government officials and there's some entrepreneurs and stuff, but there's no stock market people. Now, that's good and bad, right? They're not savvy when it comes to stock market. There's not. They have no, literally not one of them has experience in the stock market or in financial services industry.

So they have to rely on the special committee. So anyway, in that comp list, you can see that, you know, a lot of these private equity firms, there's only two comps in the whole one, Weber and, and, and, and, and, uh, uh, keep getting the name wrong, I do with a Convey Health, I think it is? Does that sound right? Oh, I think that's right. I'm looking right now. It was, yeah, Convee Health with TPG.

Yeah, so those two are the only real comps on there. You'll see. The rest of them are all strategic, which is a whole other. ball game, a whole other animal. And they bid higher than 18, 20% for their initial bid. They bid 35, 40, 45, 50% for their initial bid. And then their final bid was another 50% higher, 15% or 25% higher or whatever. Like big, big initial bids, 13D it, a few months in negotiation, and then you wake up to a takeout price. And remember, both. of those examples did not give you a majority of minority. So there was no provision to protect you

from the special committee screwing this up. We have that provision here. They have made it unwaivable. So we are definitely going to vote here. So the odds of a steal are almost zero with 11% holders on this thing that have owned it for years. Okay. So that's very important. Our protection here at 1080 is it's not happening at 1080, okay? Just not happening. Okay. So where to the stock, so they bid 18%, they bid 18% higher than the $9.005. The stock traded to like 11, 11, 10, 10,000, whatever. It drifted down. Right now, it's 10. 90s. So it's 10 cents above the bid. Now, historically, that comp sheet that Andrew will show you on the link, the bids, and we looked at this a lot, Andrew and I, the bids, you tend to get a 15, an average of 15% bump. But again, it's not comparable to this. It includes all the strategic transactions, and it includes initial bids that were much higher. Brett Coffron, founder and lead trainer of Fundamental Edge, barely remembers his first year as a hedge fund analyst.

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Lose the panic and fast track your career on the by side. Find out more info about their next cohort at Fundamentedge.com slash YafP. Or just see a link in the show notes. As you're saying, I initially focused on that initial to final bid bump, which is about 15% is the medium. And that was what I was initially focused on. Where you're going, where I've kind of come is, hey, actually what you want to look at is the first is the final bid to the

unaffected price. And that, the median there is 60%. And some of that is there's one or two that are big, big, big, big boy premiums. But again, this is medium. It's a medium. So, yeah, I kind of think, look, it's a private equity firm. They're very sophisticated. They probably knew, hey, could we bid 12 on the first bid?

Sure. But then we're going to be really up a creek without a paddle when we go to negotiate. Like the way I think they probably looked at is roughly a 20% bid for the first bid. Maybe we bump it 20% when we get a final deal done. And hopefully we get that over the finish line. But majority minority, have another 10% in our back pocket if we need to bump it. And that would get you to roughly a 50% premium, if not a 40% premium thinking that first. So that's kind of how I've been thinking about it.

I don't know if you agree to disagree. I agree completely. But the beauty of this is you're not just focused on comparable transactions. We can look at what this company's worth as an LPO, as a public company, and they're stealing it at a 40 or 45% bid. Let's go talk about it because one of the things I like, and you hit on this immediately, one of the things we both like is a lot of these things when you look at them, these were private equity back companies. So they come public and they come public with eight times leverage and they use the IPO proceeds to pay down to six. And then after a few years, they're at four and a half times leverage. And then if a private equity firm wants to take a private, they need to put new equity capital.

This is a very levered company. Here, because TH has grown so much and because they generate so much free cash flow, they are basically net debt zero. And they generate, I'm trying to, my stupid, there it is. You know, if you are probably $100 million in free cash flow here, I don't even know the exact number, but it's $200 million to EBITDA with a very low Kappex. It's like a $25 million Kappex number. And no interest, of course.

because there's no debt. And so they've got, and I do want to talk share by a second, but so they've got roughly 35 million shares outstanding. If they, 35 million in the free float, if they bump this to 12, you're talking about a little bit more than a 400 million dollar equity check to, or sorry, check to take this out. That would be two times EBITA if they just levered it up with, if they levered it, the whole business up to two times. So I think what you and I both like here is the private equity firm, assuming they can get

this done for a 20 to 30% bump, they're not even going to have to take equity out their pocket. In fact, you could imagine a scenario where they go and they say, hey, we've historically levered this up four times. We're taking this to four times leverage. We're going to use two and a half or three turns to pay all the minority shareholders. And we're going to take out a one X EBITDA chat for the rest of it. So they could actually take cash back. So that's what I love. The low, low leverage, low multiple here opens up a lot of optionality. There are two important points in this subject. So first of all, Andrew, said that often these companies are four or five like the private equity LBOs that go public

or four times others. This one was. So to be clear, when they bid, when it was, you know, again, it was a distressed company. But when they bid a dollar 50 in 2020, it was five times leverage. It was about 100 million of EBITDA and I guess 500 million of debt. I didn't look exact the number. I just read the pressure lease. I was looking through the research of, I mean, there was 100 million EBIT. So it must have been 500 million dollars a debt. And then in the, in the, in the March 2021, earnings release, when they killed the bid, they said they were aiming to be four times levered by the end of 2021. That's the first part.

The second part, just to go back to that event, the bid in 2021, that stock was a rocket ship from the minute they put the bid in to when they killed the bid. It never went down. So it was trading way over $1.50 by the time the big got killed. So it wasn't a situation where like, oh, if you owned it, you got burned by the private equity firm because it went back down to a dollar. no they were trying to steal it they couldn't come to an agreement with the special committee because everything was going right i think the stock was like three dollars within a few months of the big

yeah i mean remember this was a highly levered company they made the bid literally like close to the covid lows early no early to mid november vaccines were coming people were coming across the border like they were just getting the government business really spinning so there's one other thing i want to point out here so hrt is the reason i got interested in this right so hrt is the company It's got the comp table, I'll include a link in the show notes. The other thing that I thought was really interesting was HART was majority controlled. And what happened was in the year prior to the private equity firm making the bid,

HRT was very aggressively buying back. And the other thing I like about TH is they've had a share buyback plan in place for a while, but they didn't start executing on it until you can read this in the 10K until January, 2004, when the stock bottoms after they get the new business, and reset their earnings. And they buy back shares pretty aggressively, and you can read, again, read it in the 10K from January until March, 24. And that's all we know. I'm sure they're not buying back shares while the special committee's out. But that's important to me for one pattern recognition reasons. We saw HRT, private equity controlled, buy back aggressively to shrink the

minority and then make the bid. And two, it speaks to everyone involved here sees the value. They see the cash flow. They were trying to buy it back. I just think for both combination, again nothing's guaranteed there's risk in everything but i think that combination really speaks to hey we're probably going higher we're probably getting a bump i'll that was that was the last really important part i want to make and i think the risks part part we can get to the risk section now there are risks here there's in every stock course but i was just talking to my wife about this uh she was like what company are you talking about first she all made fun of me for being on someone's podcast she's like you're going to be on

podcast it's going to be famous who makes someone for being famous i didn't want to tell her that i was already on Andrew's podcast in 2020. By the way, that was BMIRT, and it didn't work out so well. So I hope this one works out better than that one worked out. But we'll see what happens in the future with that. But anyway, I was telling what they did. I'm like, oh, you know, I'm just a casual company that houses unaccompanied minors, migrants, they are at the border. And I said, I was trying to think, Andrew, I think we were talking about this, but maybe not. I was trying to think how, from a business perspective, we can get screwed here, like wake up to multiple standard deviation, you know, risk. It's not them canceling the contract. That contract's up for renewal

in November. And pretty much everybody thinks it'll be auto renewed for the next five years. That's one of the bare cases of this, is that's that's important. Let's talk, do you want to finish that or do you want to talk about the contract? There was one other risk that you might, you know, it's ridiculous, but it might, I think it should be noted is since that's what their job is, is housing on, uh, un-uncompanied minors, you can make up tomorrow in your Times article that, you know, there's sexual assault going on in the facility. And the government's like, we're done with you. And the stock goes down, you know, 50% the next day.

So a real black swan that could definitely happen. I mean, I don't know. Yeah. You are, you are 100% correct. There are definitely risk there. You know, I think I would take some comfort in there. This is not the only person that's doing housing for the government. You know, I think about the for-profit prisons and everything.

And, you know, it's a big business. They are very incentivized to get complied. correct and it's not to say that crazy things can't happen but generally you get really hurt when crazy things it runs endemic through the system and i would just think here like as you said board of directors with former government people i i anything crazy can happen but i think that was the one risk i don't you're talking about the other risk is let's talk about breaks but do you want to do you want to take that yeah just so the contract i think a lot of people have gotten scared about the contract so the the the way this contract is structured

and I am no government contracting expert, but it's IDIQ, indefinite delivery, indefinite quantity, is I believe what it stands for. And what that means is they just, it's a series of one-year deals with basically auto-renew options. But people are really scared that, you know, you go to November and the auto renew is about to come up. And the government says, actually, thank you for your service. We don't need you anymore. And yes, that is a risk, but I would just counter it with two things. And I'd love to hear your pushback on these. A, the government is desperate for places to house.

on a company minors. Demand for these facilities is going up, not down, and it's going to keep going up unless we basically shut the border down. And you could say, oh, what if we get an immigrant deal and stuff? And I'd say, oh, you poor naive child, I don't think we're getting anything anytime soon. But my other counter to that would be, okay, that will stop the inflow,

but it still takes two to five years to process these people. It's not like the demand is going anywhere anytime soon. So that would be one. And, you know, IDIQs are not uncommon in terms of major contracts. It's just one of the ways the government does delivery, and I would kind of think the private equity firm, when they made this deal, I mean, they have the chairman of the board. I am sure that they've done extremely deep work. They knew the contract when they were negotiating. Again, this contract was just awarded in November, and the government, we'll talk about bull cases, the government has another contract that's going to get awarded in the backout of it this year.

I'm sure that they know the government almost come hell or high water is going to be renewing this deal. So I don't know if you want to add anything there. Clearly the most important part of here is the 65% holder. I mean, Andrew and I don't know anything in the first place, but they definitely know much more than Andrew and I know. And they're not under any kind of, you know, requirement to buy out this company. I mean, you know, there's not, this isn't the end of your mark. This isn't, you know, there is probably some impetus because the fund is 12 years old, but they could then, you know, sell the company or they could do secondaries. They could do secondaries in the whole if they thought this was worth five and it was trading at.

Or forget. you know, what else he could do? Again, this is a no, no leverage business. They could take it up to two times EBDA and do a big dividend recap, right? If they said, hey, if we sell, nobody wants to buy from us, they're going to think we've got inside information. No one's going to be grudged them for doing a dividend recap. Like, there's a lot of ways that they could be $4 a share.

You pull out a lot of capital. It's only trading a nine. So, so exactly. So that gives me most comfort is that they wouldn't be involved in this and wanted to buy more of it if there was really tail risk with these. they wouldn't have made the bid they wouldn't have been buying back shares earlier this year like i just don't think they would uh quick bull case you know again we i mentioned when i was going through my background there were three contracts to get awarded they're before you do the

bull case just the trump oh trump great yeah yeah we love bringing up trump what if trump gets elected doesn't that mean that these facilities get shut down whatever uh it's pretty much nothing burger if you pull up you know their their deck from november they got awarded contracts when Trump was president. As Andrew says, there's going to be a need to house these unaccompanied minors for years to come, even when, even if he tries to shut the whole border down completely, you can't shut the border down. It's not possible.

You build the biggest wall in the world. Hey, I mean, even if you do, again, you've got the stock of people here, so you're shutting off the flow, but you have to house these people because I, I'm pretty sure the last thing they want to do is just be like, all right, we've got 50,000 people in these facilities. Let's shut the facilities down and just let them run. And also, be clear, this is a special situation. So a lot of Andrews pitches in these podcasts are like long-term, you know, value plays. This will be resolved by the election.

And I'm pretty sure that the majority holder, when they bid in March, knew they wouldn't know who was going to be elected in November. And right now, the election market says 50-50, they would be bidding. They would just wait until the election to do this. And that is another, that brings me nicely to the bull case because, look, it's not like the election is known, right? They didn't buy all the stock back in January and February and then make the best. in March without knowing the election was coming up.

I'm sure they have an idea, and they also probably have an idea that the government has one more contract outstanding. And if they win, which they very may well could, this stock would go a lot higher. Earnings would be a lot higher. It would be great for them. So to me, like what I kind of see is, I see a situation where you've got a majority owner who looks at the stock and says, oh, my God, there's a lot of value here. I could probably lever this company up and basically take minorities out for almost free.

And if I buy it now, I'm buying it too cheap. get actually call option on winning another contract or all this other stuff. So that's kind of how I've been thinking through the situation. How about you? Well, and they probably have, I mean, they have won two contracts. They have, they have not just this one. They have another contract, too, I believe, for housing migrants. But I bet you they have a pretty good view on that third contract. If they keep, if they won the last two, you know, it's probably more than a coin flip that the government gives them this contract. The other really bold. case on this company is they believe they have a line of sight into $500 million of organic

and inorganic growth cap X over the next few years. And they've shown their return profile on these projects. This is the kind of problems we're talking about winning bids and so forth. There are enormous returns on domestic capital. So if I told you, you're a private equity firm, and I told you you could buy a cash guzzling business at seven times EBITDA, that's not levered. We'd have to lever it to get them to seven times. Even if you put nothing up, okay? By the way, it's funny where we live in where two times levered is levered.

As Andrew says, these things used to be like seven, eight times levered. When I was pitched this idea to somebody recently, they said a business like this would have been seven times levered in a private equity. It was four or five when it was, again, it was all, it was mostly oil and gas, which is much more cyclical. So it was four or five just four years ago. I mean, yeah. And remember, these revenues are really stable. Now, yes, they can lose the contract 5, 10, 15 years from now.

The idea is that there's other contracts, you know, the business ebbs of flows. They say in their deck they have 95% retention in contracts. Now, again, the government business is different than the oil and gas business. But so that's the first, the second bowl case, is that $500 million of growth cap X, just buying a value business at seven times EBITDA with no growth works, the math works. You lever it up a little bit, it has a double-digit free cash flow yield, and you ride it off to the sunset. But if I could then use a revolver, which they have, and that's what they do, so they'll lever it up the $400 million, they'll have another revolver of $150,200 million on top of that, and they'll be able to put money into organic, inorganic projects

and grow this EBITDA from 200 to 300 to maybe 350, they can exit this thing at eight times, maybe eight and a half times EBDA to another private equity firm, they would more than, it would be worth more than double the current stock price. Forget about how much they'll make. They make way more than that because they're not, they're levering up. So the actual money to them would be astronomical.

Before I forget, there's a slide in their, should all look at their November slide deck. It's pretty hilarious. They have a slide where they comp it to other industries. And they're like, we trade a five times EBDA. These trade at nine times EBDA. These are our, you know, free cash flow characteristics. These are their free cash flow characteristics. We should be nine

times even though. I have a little bit of issue with that slide. I'd rather like lower margin free cash flow businesses so that they're less likely to be like cut by the government or people saying, hey, you're making too much money here. Like you should be making less. I don't. The government making too much money that's definitely yours. You know, just to yes and what you said, this private equity firm TDR and I believe it's through their legacy era position, you know, a company that has, it's not the same business, but it has similar characteristics is Will Scott Mobile. The ticker there is WSC, you know, rental. And go look at that chart. It spits off cash. It's a rental temporary storage for the most part. But that has done

incredibly because it spits off cash and they have done so many different accretive roll-up Balton acquisitions. And this company has been telling you for the past two years, I mean, this was born from a Balton. They've been telling you for the past two years, we want to go do bolt-ons. My gut is the private assets trade a five times EBIT off is my gun. There's a company Sivio. The ticker is C-V-E-O. It was a spinoff multiple years ago. It trades for about five times EB-O-R-R-Rae, and spits off a lot of cash. That's all oil and gas, for the most part, from memory. I think there might be coal, too, but it's very similar, but it's trades up five times. And you could just imagine take TH private at this multiple, go buy Sivio, bolt them together,

you know, levered up, spew off a lot of cash flow, do one more deal, take it private or sell to the next private equity firm. I mean, you'd be talking about incredible IRAs from there. Their goal here is not to re-public, we both know this course, but just to say it out loud. Their goal here to exit will not be to bring this public again. It'll be to definitely trade it to another private equity firm. I don't even know if we even go to this step of doing a dividend recap a few years. They'll just trade it. And they'll trade it for a multiple that's higher than it's trading at when they take it out. And they have pretty good confidence in the in the revenue base and the growth base to get to that exit.

Or still it's a strategic. And the one other thing I wanted to mention is, you know, one of the reasons these things are so great for roll-ups is, A, buying low multiples, put a lot of leverage, great free cash flow character. But B, I mean, you know, Will Scott Mobile is literally like metal cubes, right? I buy your metal cubes. I fire you, like all the GNAs gone. So it's hugely, and it's hugely, hugely synergistics in terms of cost energy.

So, TH goes and buys, you know, $50, $100 million worth of competitors, fire all the GNA, buy it five times, you turn it in to four times. I mean, just go running, go running. There's two things I want to touch on before we wrap up. Yeah, yeah, no, no, no, no. We're on the risk side. So, so one, the only negative thing I found through my, all my research was that the management team, exactly, got all these stock appreciation. rights, which are like phantom stock, they got them in 2021 at the lows. So it was like a dollar 50 strike or something. And they vested in two years and three years. And the entire management

team sold the vested amount in 2023. I believe it was like in early March, it was within a few weeks it went invested, probably when their window opened. Okay. They did it again. They sold the entire vested amount a couple weeks ago, all four management players. And they did it three days apart. which is super weird. And you would be like, why would they do that if they know there's going to be a big, big bump coming? The best I can come up with is that they have been selling stock for years. They're not selling stock now. So the CEO has been selling stock for the last two years.

No stock's been sold since the bid, just these SARS, that it was kind of like an automatic thing that they just were going to do once they vested. They're not part of the special committee. they're not part of the buyout group. In fact, if you recall, the private equity firm deleted the sentence about how management is going to be rolling stock in this deal. So for all we know, and actually, I don't want to say something that, and now I want to get Andrews scared.

I don't say anything that's controversial, but someone did tell me today that there might have been some conflict between this private equity firm and the CEO over the last few years. I think I can help a little bit here. So in late 2021 or early 2022, the CEO said that he was going to leave Target hospitality. And then if you go back, this is a May 2025 press, May 22 press release. He reached an agreement with Target to stay long until June, June 2025. So he signed a three-year extension. And I think it's possible that he was ready to move.

they couldn't didn't find the right whatever it is but we're in 2024 right now right by the time this deal completes it's probably going to be late 2004 like the CEO might be ready to retire I also might say hey maybe TDR is pissed at them because the last deal wasn't great they think there was a bungled sales process in the summer of 2023 like TDR might be ready to move on so I'm with you like it's kind of weird you would think if they thought a big bump was coming they would just hold up for three more months you know yeah but i've got 1.4 million or 1.3 million shares by the way so while he did sell like 350,000 or 400,000 in these SARS he's very incentivized to get the best price he's not even he's not even involved in negotiations he's not in the special committee

and he's not going to be part of the majority minority actually he will he'll have a vote i'm pretty sure he's going to vote for it even if he's not rolling but how funny would it be if the CEO came out and was like hey right i'm voting against this i've got a board seat on the CEO screw it I'm out And I want a jet. But it's funny, even though that's the bearish point I have, there is a bullish point. So those SARS can be settled by the company either in stock or in cash. And both in 2023 and in 2024, the company elected to pay them cash above the bid. So it was 1090 or 1088, whatever it was.

And the board, whoever decides this, it's obviously not the same. CEO said, no, no, no, we're not issuing them stock so they could sell in the open market. We're just going to give them the money, the 1090 minus the 130. You clearly don't do that if you don't think the stock is under value. It's the equivalent of a buyback. It's exactly the same thing as a buyback. You would issue the shares and let them sell in the open market. So that's very bullish.

The way I look at it from a break standpoint, again, my final wrap on risk is let's say that this breaks for one of two reasons. The market's been terrible, okay? So the market keeps going down. I think this is my favorite idea in a bad market because none of these math changes. This is contractual revenues. The interest rates they're going to borrow at

were probably always going to be 10, 12%. A month ago, today, a month from now. It's not going to change what that junk debt costs for them to borrow a very low amount of turns on the leverage. So that's a risk, the market's always a risk. But the bigger risk is special committee and the private equity firm can't agree on a price. So they want, you know, the transparency wants 18, they want to be 14.

They don't agree. They usually agree, by the way, but they don't always agree. And it breaks. Assuming you don't find out why it breaks, it just announced that we're no longer bidding for this company. Let's say it goes back to 9 or 850 or 950 or whatever. So you come up and what your break is. Everything we said about this company still remains. at nine, you own this thing at four and a half times, EBITDA, and you have a 65% holder

who's completely aligned with you that has to exit this position in the next 12, 24, 36 months. To yes, and you, I mean, if it breaks, right? I love what you at that, me. I need you around the house. Say again? I need you around the house with my kids and my family. I'm going to be like, you guys need to be your homework and eat your vegetables. And here's.

Yes, and I need you to exercise as well. Just to yes, Andrew, I mean, if it breaks, A, you mentioned the 2020 letter said we're not, we don't want to sell to anyone else. The 2024 letter does not say that. So if TDR doesn't take this, I'd have to imagine it's because the special committee goes in shops and says, hey, TDR, you guys won't go about 14. You know, they come out and say, hey, we've rejected CDR.

We're running a full process and we're going to get more. So I'd have to, I don't think this can be a public company anymore with TDR open to sell them, right? If they said, hey, we won't sell to anyone, then you could rest it in and pass. But if they say, we'll sell to anyone, then the special committee has to take the highest bid or go find a better one. They deleted. We want to be long-term shareholders of the company. We don't care if you reject this.

And so that's a jump all around. I know we're hitting an hour. This is the last thing we talk about so we can get hell out of here. But I can talk forever. And I guess your viewers could just close the YouTube, you know. So we can talk for two more hours. They'd never do that. I can't talk forever because I've been a little sick and I'm not going to have a voice in five minutes.

What I thought I wanted to say was, which is more of like an intro to squeeze-outs, was we never really talked about why company to the majority minority, how these different things progress. The reason why the only reason why you would take out that we will not sell to anybody else is, again, it's always about lawsuits. So if you have that in there, okay, and you still allow a majority of minority, you still have a small window of lawsuits after this encloses. because you could say the special committee did not shop this, thoroughly shop it, and we were between a rock and a hard place and shareholders.

We voted for it, but we had no other options because it's going to go to nine if we don't take the 13. And you didn't let people see whether anyone wanted to buy it for 15 or 16. So there is a chance. It's not a bad thing that they took that out again to make it the most kosher way to buy this so that they do not have lawsuits after this is over. They're totally going by the book here. there is a majority minority. They said,

shop it. They're telling you to shop it. I mean, I don't think I've ever seen that before, Andrew. Do you remember a time you've seen say shop it? No.

No. Yeah. So, anyway, I love it. It's one of my favorite ideas. Yeah, I don't know.

I'm very happy about it. I really do love it. I mean, so it's treating 10 cents over the bid. So why don't we talk? Let's do wrap with this. This is a pretty good.

I think it's a good way to talk about a little bit. So how do I value it? How do we think it should trade? We have never talked about this. But if you think that this should have a traditional 15% kind of bump, okay, that would get you to the low 12s, like 1220, I think 1230, something like that. 1242 would be a 15% thing.

So the way you do this, in case you're wondering if you're not familiar with Mergerard, is you have to then see how long it's going to take for them to sign the deal. And then you have to see how long it's take for it to close. And then you try to figure out what deals trade at once they're signed. Now, deals like this trade very, very tight. Tight means you don't get paid a lot of money. You don't get paid a lot of money. Once this is announced, the odds of it breaking is virtually zero.

Because even if, like, the government pulled a contract, they own 65%, and the merger agreement will probably say that's not a material adverse pause. Like, it's probably going to be in there. Like, you can, bad things could happen at the, you know, at the facility, and you can't get out of this. But the other reason, I don't know if they could do that because I don't know if they could do that because I don't think a debt lender would be okay with, oh, yeah, you lost the government contract three weeks ago, but here's a $400 million check. But the counter is, because these

guys are in 65%, this is going to close fast. It's going to close really fast. You have to get the majority minority. It's actually not, I'm going to push back a little bit there. They have to do a certain filing, I think, for the majority minority because they're controlling it. So it's not like a three-month close. It might be a four-month close. I was thinking you could close within 90 days because it's just file a proxy, you get feedback from the SEC and then close it. Yeah. Let's call it four months. And let's call it the fact that they removed the language about not willing to sell to somebody else, that adds time to this process. Now, we don't know when they originally approached the committee in the press release for the company. I also find this pretty

interesting. The company says, we just got this bid and we're going to hire, you know, people to advise us. Interestingly, it was the exact same language they used, literally the identical press release in October of 2020. When the bid broke in 2020, it was March of 2021, which kind of speaks to that. They really did just get it that. It took about four months. The stock was working. They couldn't agree on a price.

We'll never know the background there. We might know the background there if this happens. It might be about the proxy. But that's why I think we might still be. three up to four months away from this being concluded because they have to run a full process now. Now, usually nobody wants to bid against a 65% holder. If you're a private equity firm and you're told, hey, I have this great, a banker calls you up. I have this great idea.

It's everything we just told you, all these great financial metrics. Are you interested in this process? Yeah, what's the catch? Oh, well, the catch is there's a 65% private equity firm that's already said they want to bid for it. and you're just so long for the ride because it's fun to have you along and it's good for lawsuits in the future and they're going to outbid you or match you

anything you say. So if you want to spend millions of dollars of due diligence and fly your plane to all of our facilities and waste all your time, please come give me your best bid. They usually don't bid, okay? They usually aren't even involves. Now, we don't know what's going on here. There's a chance that they are interested in selling the company to a

third party at a really good price. Again, I think they would have just done that in a private setting. It would have been a private process and we would have just woken up to a deal. So I do think they want to buy it. I don't think it's going to be a long arduous process with third parties. My guess is this is resolved between 60 and 120 days, which means if you use the midpoint 90 days and four months to close, there's two different data points here. So one is 90 days for it to be bumped 15 percent and then, you know, four months to close. And where will it trade each of those? I promise what's done here. So let's say it goes for 12.

1232 in 90 days, where does it trade? It would usually probably trade at like a 2% discount because that's an 8% or a 7% yield too close if you annualize it. Okay. So a 2% discount on 1232 is whatever is 1210 or something like that. It's trading at 1090 right now. Okay. So 1090 to 1210 over the next three months that's pretty uncorrelated is pretty good. By the way, I think that's the low end. I don't think they can get this through less than 13 is my personal opinion. 13, the 40% premium. The math all works. Tell me I'm wrong, Andrew. No, no, I agree. So I think the bump is likely to be, as we discussed, I initially centered on about a 15% bump, and I've come to the opinion that a bump is likely to be bigger, or especially the 13G reasons

we talked about in the low initial bid. But the way I've kind of been doing my math is like, you know, a little decision tree with, hey, a bonanza bump, which I'm going to call a 30% bump, which we could get bigger. So that would be to the low 14s, 10% chance of that, 70% chance of a 15% bump, which again, I actually think is on the lower end now, a 10% chance that these guys are just like F it and try and get a 1080 deal through. That's actually probably too high, but you know, there is some. And then I've got a 5% chance of this not going through and this going to 9, which I

actually think is crazy. and then there is a 5% like hail risk, disaster, lose the government contract. You'd still have the oil and gas, and then it goes to four. But when I sum all those together, I get to 1185, time discount that back. I get to the same math you do. I think I'm a little surprised. It's not in the middle 1100 right now. I think it should be about 1150.

And even then I would be a, you should never be a holder. You should be a buyer or seller, but I think I would be a net, I would hold my position still. It would have to be, I think it would, that's my Sandy check here. If this was, if this started going into the 12s, I would trip it. But bind you, this is the disclaimer that I didn't tell you. I size things very big personally. I'm not even that we're compliance. If you say your sizing compliance is going to come down on us with the.

I'm pretty sure you can't get a trouble for anything that I say. You know, one thing that strikes me just on. You and I both kind of settled out mid-elevens. It does strike me. We played a lot of the take private MLPs over the past few years. And most of the take private MLPs, now a lot of, of different dynamics. But most of them did trade for about a 5% premium to the initial bid. I'll tell you why that is. Because the initial bid, almost all those is like last trade.

True, true, true. But most of them did trade for a premium. And again, I mean, right now it's a really interesting time. There are a lot of these take privates where 20 to 40% owners are making bids. And some of them are trading way below. And a few of them are trading a little above. But this is my favorite. This is my favorite. Like all the best investors. Fundamental Edge believes that the learning process never truly ends. That's why the Analyst Academy is just the beginning of their journey with you. Fundamental Edge alumni gained access to exclusive content, such as the guest speaker series, which recently featured Rich Falk Wallace of Arcana,

who discussed the role of factors in Fundamental Investing. Alumni can also look forward to frequent webinars, case studies, and content from industry partners. Fundamental Edge recently hosted its first analyst spring training conference in Scottsdale, Arizona. Attendees enjoyed a range of speakers, judge a Soxman competition and network with fellow alumni. Mark your calendars for the spring of 2025 for the next conference. Visit Fundamentedge.com slash JFP or just see a link in the show notes for more information about the next Academy cohort. Anyway, Matt, I am losing my voice.

Any last thoughts before we wrap to sell? It was so much fun and it's like it shows me it's fun because, I mean, when you know this, this business is a drug and it's like when you find an idea that you think is so interesting, and part of me wants the private equity firm to watch your YouTube. I want you to send to them. And they want to be like, I want them to be like, fuck, these fucking guys are on to us. They're going to stop getting. We want the stock lower so that we, you know, our premium is bigger.

Sometimes, like, you and I come on and do a podcast on Apple. What we say doesn't matter. We're speaking about it. Right, right. One of the interesting things about these squeeze outs is eyeballs matter. If nobody cared and this stock was at 1020, that increases the likelihood. that they could go through. But I would encourage people should go read Consolidated, CNSL.

They had a squeeze out. Now, the private equity firm there on like 30 or 40%. If you read, it is very clear that minority shareholders are sending letters into the special committee and saying, we think we are getting stolen. And because of that, the special committee is able to get every last penny from the buyer. And here, I think if TDR buys CH for 1250, I will be. very sad. They will get my shares and I will make a nice profit, but I think they will have stolen the company. So every voice, every buyer actually matters because what are we going to do?

After the Q1 earnings come out, you and I are both going to send a letter to the special committee. We're not coordinating. We're not a group. I'm just saying what we're mostly like, we are five percent together. I don't think that'd be even illegal we're coordinated. I just never wanted. But what every informed shareholder should do is send a letter to the special committee being like, hey, here's my valuation. I don't think you cannot take 1080. You cannot take 1150. This is what this is what is fair. And you're probably never going to get what's fair in a squeeze out transaction. But those letters give the special committee extra late to stand behind and show them if you don't stand up, you're probably going to get hit with a lawsuit.

So any last words here, Matt? My last word actually is that. So if we do get screwed with a bad price, now yes, there's a majority of vote, which and there's and there's the language removed. So they've really protected themselves legally, but it's not ever full proof. So like if, If this closes at 1180, let's say, you can own it. And then the way the lawsuits work is whoever owns it at the close gets the lawsuit. It's a free roll. The lawyers fund the lawsuits. They get Discovery.

Let's say in Discovery, we find out that they did all sorts of shenanigans behind closed doors to dissuade other bidders. Let's say discovery comes out and they knew they were going to win this contract in the fall. All these things have happened before. That happened with... I know. I feel so naive because I'm like, no way what a special. committee sell when they knew that there was a contract coming. And then you'll find like, oh, come up in discovery. Yeah, they knew that they literally found $500 million

of gold sitting under their headquarters. Within there and the web or not. So anyway, so that's another piece of cushion here and additive to where, again, it's not super relevant today. But if we get screwed and holds in the price, this, you have a free, you have a free look at the close, which I will own this. I can tell you right now, I'll own this at the close for that lawsuit. they work. They really do what. Matt, this was a blast. I was like in my head, oh, this can be a quick 30, 45 minute podcast. No, hour and 15, we're going. I'm losing my voice, but this is being less. I'm going to remind everyone, nothing on this podcast was financial advice. We mentioned lawsuits at the end. Nothing on this podcast was legal advice. Matt and I,

we both went to the best school in the South, Tulane, but either of us went to law school. Have you been sued before, Andrew? Why would you ask that? I don't, I'm so worried about being sued. It's so, I always find it so funny, people that put those disclaimers, like at the bottom, I put it in my YouTube's. Oh, you'll show my YouTube. By the way, if you think, if you, if you like Andrew's polished YouTube channel, my YouTube channel is not polished. But, but anyway, I joke when I first did it, when I first did my first YouTube, my friend, a lawyer was like, you should put a disclaimer there. It says, not investment advice did it. I always put it, would have found a funny of like Bernie Madoff in every, like, in every monthly statement. It was like, nothing on here should be considered, you know, overturns. I feel like I doesn't do anything to this labor. You as the reason I the reason I'm so careful is A because I want I don't want people to get miss. I want people who like everything has risk. No one's be buying with two too too late no one to be listening to two Tulane alums pitching stocks on a YouTube channel for free like you shouldn't be listening to us. It's totally true. That's probably true. I do think all the time I'm like

man I have no clue in every aspect of my life. I have basically no clue what I'm doing like being a parent, no clue, raising a dog, no clue. Only thing I'm really good at is board games, man. That's pretty much the only thing. Well, Matt, you're better at one more thing than I am. So that's good. It's a ton of fun. I'm going to remind everyone, not legal advice, not funny.

Just because Matt made me want to say it again. We're going to have to have you on for a third podcast on the next exciting idea we do have, but this is great. Talk to you somebody. Hi. Thank you. A quick disclaimer. Nothing on this podcast should be considered investment advice.

Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.