Yet Another Value Podcast - Zack Buckley on $PRTH's take private

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Starting point is 00:00:30 You're about to listen to yet another value podcast with your host, me, Andrew Walker. Today, we've got a really interesting one. You know, I'll just start with the disclaimer. I own the stock, so I always think that makes the stock a little more interesting for me. Full disclaimer disclosure, whatever it is in the show notes and at the end of the podcast. But we've got Zach Buckley back on the podcast. And the company we're talking about is priority tech. The ticker there is PRCH.

Starting point is 00:00:53 And Zach knows the company really, really well. And that's going to shine through in the first half of the interview when we talk about the different segments and break it down. And then the really interesting. interesting thing to me, the reason I'm involved, the reason Zach someone on the podcast is the chairman, the CEO offers to take them private in November. And Zach published a public letter. I'll include a link to that in the show notes if you want to go see it. But, you know, in the back half of the show, we're going to talk all about that event. And that's what's got me really jazzed up. And I'm talking fast. I always talk fast. But that's what's got me really

Starting point is 00:01:23 excited. And I think, hopefully it comes off. I think I know events decently well. And this one is really interesting me. And there's a lot of things that are just flashing red, not red flags flashing signs that say interesting weird strange and uh that always gets me jazzed up so we're going to talk about that in the back half of the podcast and zax going to chime in too he knows a lot about that as well so i think you're going to enjoy it you know keep all the disclaimers not investing advice all that in mind see the disclaimer in the show and it's beyond we're going to get there in one second but first a word from our sponsors this podcast is sponsored by trada look i've been mentioned them for almost a year at this point if you like this podcast you will like trada

Starting point is 00:02:01 It's t rata.com. They are two bysiders who just hop on a phone, completely anonymized call, but they discuss a stock that they are interested in. Generally, it's a stock that both of them have a long position in, but sometimes it's one person who is long and one person who's kind of skeptical. Or sometimes you'll have a person who's long and a person who's short, but they're just going to come on and they're going to discuss what actually matters to them in the investment in the stock.

Starting point is 00:02:25 So if that sounds like a lot like this podcast, yes, that's a lot like this podcast. Honestly, probably better. they're really involved they've got actual skin in the game the conversations are really interesting and the best use i found for it aside from just getting on and talking to another knowledgeable person on it is hey there's a new uh there's a new transcript on a company i'm interested in let's see what people who are actually know the name let's see what they're really thinking about so i think it's just a fantastic product if you're interested go to trota dot com that's t rata.com to check them out all right hello and welcome to yet another value podcast i'm your host andrew walker

Starting point is 00:02:59 with me day i'm happy to have on for it might be the sixth time it might be the the seventh time I'm not sure, Zach, but Zach Buckley from Buckley Capital. How's it going, buddy? Hey, I'm good. How are you, man? Doing good. Really excited to talk today. Before we get there, quick disclaimer, Ryan to everyone, nothing on this podcast is investing advice. I'll disclose. I have a position in the stock we're going to talk about today. So you should keep that in mind with everything we do. I'm sure Zach does too because he's on here talking about it. But there's a full disclaimer at the end of the podcast and the show notes. You can check those out if you want the full disclaimer, not legal advice, all that. So, Zach, the company we're going to talk about

Starting point is 00:03:29 today is it trades under PRTH. It is priority technology holdings. It's a really fascinating company. I know you've been involved. You published a letter. I want to say last November, December, but I'll kind of stop rambling and let you give the overview of it's got a really interesting situation, which is why I'm so excited to talk about it. But I'll stop rambling. I'll just talk to it over you. What is PRTH? Why are they so interesting right now? Yeah, absolutely. I guess before I get into priority, I just want to start kind of with a disclosure, just given sort of that we have written a public letter. So obviously, we're a shareholder of Priority. Last November, we did publicly oppose a preliminary tick private proposal made by

Starting point is 00:04:05 Priority's chairman and CEO, Tom Priory. So obviously, I have a strong view here. So I'll say everything I'm discussing today is based on publicly available information. And when I discuss valuation, those are my estimates and opinions. But the basic thesis is pretty simple. Over 90% of the company's business is either recurring or reoccurring, providing a very high level of predictability. 60% of its business comes from the high-quality treasury segment, which is effectively an 80% plus EBITDA margin, recurring revenue software business that has tripled EBITDA in the last four years. Now, despite all that, priority today is trading between four and five times free cash flow for a business that's consistently growing free cash flow per share at 10% plus. So I think there's

Starting point is 00:04:53 multiple valuation analyses that suggest that true intrinsic. value of PR-TH is significantly higher, and sort of I wrote about that in the public letter that I put. But I want to talk a little bit about the segmentation of the businesses, because I think that's really important. Can I just push you? And I'll note, I'm going to include a link to Zach's letter from November or December, whenever it was in the show note. So if you want to go see that letter, you can pop up there, and I'm sure we'll talk about

Starting point is 00:05:18 the event. But please, break into the segment, Zach. I just wanted to note that. Yeah, of course. So priority is not just one payments business. It consists of three businesses with very different economic. merchant solutions, payables, and Treasury solutions. And I think Treasury is really the key to understanding

Starting point is 00:05:34 why the consolidated company is significantly undervalued. So it's not, priority does have a payment processing business within it, similar to like shift for global payments. But Treasury is really the majority of the value today. So Treasury basically generated $215 million of revenue and around $180 million of adjusted EBITDA, or roughly an 84% EBITDA margin. So that's like database or very high margin software type economics.

Starting point is 00:06:03 So what Treasury does is the biggest component is CFT Pay, which came through their priorities acquisition of FinCRA in 2021. So if you imagine you're a debt settlement company with hundreds of thousands of customers, a consumer might deposit $500 or $700 every month into a dedicated account while the debt settlement company is negotiating with creditors. So someone needs to establish and maintain those accounts. You have to maintain the ledger. You have to maintain and accept deposits.

Starting point is 00:06:34 Someone needs to handle ACH transfers, wires and checks. All of this obviously needs to be reconciled. And then obviously eventually someone needs to send money to the creditors. And so CFTPay provides that infrastructure. It's, I think, one of the most exciting things about that is the distribution. Because priority isn't going out and acquiring each individual consumer or customer itself, it's integrating with enterprise partners that can then bring them tens or hundreds of thousands of underlying accounts under their platform.

Starting point is 00:07:06 And so priority can establish one enterprise relationship and then monetize a very large number of end customers. And that obviously has created extremely attractive unit economics. So in terms of how they make money, they make money with enrollment fees when an account is established. They make a recurring monthly subscription or servicing fee, basically as their account remains active, and then they make transaction fees when the money is sent through ACH for check or wire. And so it's a highly recurring, again, essentially software-like revenue that obviously has grown very fast over the last three or four years and also has an extremely high margin. So people think of priority as a payments business. I think of it more as a sort of conglomerate

Starting point is 00:07:51 of various businesses, but CFTPA is the most important business, which is why I'm starting with that. Maybe I'll just pause there, if you have any questions. No, if you want to go to the segments, I do have questions on both the business and events, but if you want to go through the segments, why don't you keep going through the segments and then I can come in with the questions at the end of it?

Starting point is 00:08:09 Yep, sounds good. So going into FinChera just a little bit more. So acquired in 2021, when they acquired it, it was a subscale business, but it still had a 93.5% gross market. and a 68% event margin, as they've basically more than tripled the business over the last four years, you know, it's grown to over an 80% adjust even to margin. So it's just, it's been an incredible business, both from a growth standpoint, as well as from a margin standpoint. And that's, I just want

Starting point is 00:08:36 to harp on that because, you know, today, priority is being comp to shift for global payments, other payments businesses. And while that is a minority of what they do, you know, the majority of what they do truly is CFD pay. And I think that's just an incredible business that deserves a much higher multiple than the payment segment. So if you kind of look at, you know, average billed clients has grown very dramatically. You know, money transmission revenue has compounded in the 20s. There's just, I would say, really, really attractive growth over a multi-year time frame. The other thing I would say, so merchant solutions, you know, I'm going to spend less time on.

Starting point is 00:09:15 That's, you know, processing card transactions for merchants. its economics look much more sort of like the conventional acquiring industry like a shift for global payments. There was a very reasonable comp that occurred in June of this year, a business called Paynear that was sold about 8.3 times EBITDA. And if you just use that valuation, which I think under values priority, you would still get $12 a share and priority trades around $5.50 today. So you would still get over 100% upside from here. But again, I think it's worth more than that. The payables business, I'm really not going to focus on. It's just too small to be meaningful. I think the two main segments to really talk about our

Starting point is 00:09:52 Treasury and Merchant. So while there is a third segment, I just don't think it's worth harping on because it's relatively immaterial at this point. No, that's great. Let's, again, the event's what really excites me here, but let's stick with the business. I do have some questions in the business for you. So I think you touched on it a little bit. But, you know, again, there's an event we're going to talk about. But anyone who's been following the markets knows that there's the SaaS apocalypse, and there's the payments apocalypse that's happened over the past year, right? And you mentioned several of the comps. Shift 4 is the one that comes to my mind.

Starting point is 00:10:24 I understand the businesses aren't completely comparable, but I think Shift 4 just because so many value investors are in it, they've got the guy who's over at NASA now, that huge share buybacks, pretty controversial stock, cheap, huge share buybacks. That's the one that pops to mind, but there's certainly others. All of these guys have been slaughtered for the most part over the past year to 18 months. So I guess I would just start off just very high level. You've kind of laid out why you think this business a little bit different than some of those.

Starting point is 00:10:50 But what gives you confidence when you're buying this that you're not kind of buying a terminal zero? Or you look at the rest of the payments space and say, hey, this isn't exposed to some of the brutal competition or the, you know, the meta muse or all these things that are going to displace these things. Like what gives you the confidence here? Yeah, I guess the first thing I would point to is that just paying your transactions I mentioned. You know, that literally happened in June. So that incorporates the payments pocket. and incorporates the SaaSpocalypse, you know, and it still was 8.3 times EBITDA, and that would be about a $12 stock for priority.

Starting point is 00:11:22 Now, again, that is for the payments component. So if we want to just simplistically, just for the audience, try and say roughly 60% of the business is more of a software recurring revenue business, roughly 40% is payments. That's an oversimplification, but I think it's close enough. The, you know, SaaS businesses that are growing at the level that Treasury Solutions is growing, you know, still command double-digit epit multiples. So those businesses are still, you know, if you look at toast, if you look at par, if you look at various businesses that are relatively similar in the payment space,

Starting point is 00:11:55 you're still looking at double-digit multiples. So that's the first thing I would say. And you also have a private transaction that literally just occurred, you know, in the sort of 8.3 times range. So I think you have enough from that perspective on the multiple basis. And then just from a business quality standpoint, I mean, Treasury Solutions isn't going anywhere. Like, AI is not displacing that. There's really no way that AI would have anything to do with that because it's integrated financial infrastructure. So AI is not going to set up bank accounts for

Starting point is 00:12:22 customers. It's not going to set up, you know, those transactions. Those things are all things that I think are sort of not at risk at all from AI. Go ahead. I'm just laughing because you are probably right, but the past week, you know, my feed's been blown up with this new instinct chatbot. I don't know if you've seen that and meta launch a muse this morning. So I do hear you on, they're probably not going to launch. They're probably not going to set up bank accounts, but literally what instinct does is take your social security number and set up bank accounts and stuff. So it's moving, I do 99% agree with you, but there's the 1% of me that's like, oh, man, it is moving really fast up there. Let me just say it's one more question on the business. You know, I've been reading

Starting point is 00:13:02 the earnings calls, obviously, as I've been involved in following this process. And there's one really interesting thing just at a high level that jumps out. Now, they kind of blame the accounting and they blame different things, but you read the Q2 call, right? And they say, hey, we're raising our revenue guidance. We're going to come in at the high end of our revenue guide, but we're going to come in at the low end of our EBITDA guide. And then as you keep reading it, they're talking about, hey, we've got all these businesses that are growing quicker than our overall business, but a lot of, a lot of the businesses are lower margins or they've got some things, now this is partly influencing the revenue and margin. They've got some things where they're the payment of record versus a merchant.

Starting point is 00:13:39 And so they're booking it at a much lower gross margin. So I just want to ask you, like, how do you look at this business with, there's a lot of different moving parts and there's a little bit of accounting complexity? Like, how do you think the business is just performing in the here and now? I mean, I think the business is performing completely fine. You know, I think you still have treasury growing very nicely on a year-over-year basis, which I always I think is important. Again, I think Treasury is the business I'm the most focused on.

Starting point is 00:14:07 And, you know, that continues to grow. And so I guess generally speaking, I'm happy with how things are going. You know, I think, again, everything's relative, right? When you're paying four to five times free cash flow and you're talking about a business that's still growing free cash flow per share at 10% plus, you know, it's priced for a business that's going out of business when in reality it's actually generating a ton of cash. You know, net debt does come down actually quite a bit. So they're paying down debt every single quarter. So yeah, I think the business is doing quite well, especially given the overall environment and evaluation today. You mentioned net debt to EBDA, and I think that's the one other place people might get hung up on.

Starting point is 00:14:50 Now, you also gave the valuation on the pay in your multiple, and the stock would be like more than a double on the pay in your multiple. So that kind of solace for this. But I think the other people might get hung up on is you look at this balance sheet, and there is a lot of debt, right? And people might say, hey, Zach's doing a free. cash flow number, and that's great, but there's a lot of debt in front of that. So do you just want to talk about how you think about the leverage and kind of the financial profile of the company? Yeah, I mean, I would say their financial profile is very similar to other peers. So if you kind of look across the payment space, whether it's FISA or Shift 4 global payments, they're all

Starting point is 00:15:25 at relatively similar net debt debt levels. So given these are highly recurring revenue businesses with a very high degree of predictability, like they're comfortable carrying a certain debt load. this is actually the lowest leverage that it's had since like in years. And so if anything, I would say it's safer today than it was in the past. And you can also see the debt is coming down very quickly on a quarterly basis. So again, it's at 3.8 times now, but it's also coming down very rapidly. Perfect. All right.

Starting point is 00:15:52 Let's get to the part that really excites me. And that is the event here. So I think there's a lot of history. But there's stuff that happens before this that I think is actually important. But the reason you're coming on, the reason I'm so interested is, in November, the CEO who owns, I think 56% of the company, it could be off, but he owns the majority of the stock here. He offers to take the company private for $6 to $6.15, I think is the number. And that is a huge premium to the prior day closing price. But you, I think Steamboat comes out and says,

Starting point is 00:16:22 hey, this offer is unacceptable. So I'll just toss it over to you kind of like, what were you seeing? Because I do have a rule, hey, if somebody offers a premium for my stock, I'm always interested. What were you seen and why do you think the offer kind of is not in the best interest of minority shareholders or is too cheap or whatever the language you want to put alongside it is? Yeah. So just to be clear, he made a premium to the stock price like the day before. But it wasn't a premium to the stock price five days prior to that. That's called giving you a softball, right? I'm tossing you the softball. You just got to explain it. Yeah, so the stock was down over 50%. And I think my suspicion is, and I don't know this for sure, but I would imagine he was frustrated by the share price performance,

Starting point is 00:17:08 which I can understand. I was also frustrated by the share price performance and decided to make an offer above where the current share price was, but I don't think that is a fair offer. Again, 6 to 615 was the offer. I wrote publicly in my letter, some of the parts around 17 a share, like a more simplistic multiple analysis gets me to around 19 a share. And I was using a very conservative multiple for Treasury solutions in that sum of the parts analysis. So, you know, again, he made an offer

Starting point is 00:17:42 to a premium or to a stock price that was significantly dislocated. So I don't really think the percentage above where the stock was the day before is anywhere near reflective of intrinsic value. and I think there's both public market and recent private market comps, including Paynear, that validate that opinion. Can I just back a little further? So what happens is, again, I want to emphasize this is a small e-liquid stock. The chairman owns 56% of the company and board insiders own another two or three percent, right?

Starting point is 00:18:11 So 60% of the company is owned by board and insiders. They report earnings on November 5th or something, right? And the earnings, despite I thought they were fine, but, you know, I'm not a payments expert. the stock craters on the earnings. You know, you can correct me if I'm wrong. It goes from 9 to 5 or something, right? Seven-ish to 5, yeah. Something like that.

Starting point is 00:18:31 And the next day, two days later, the chairman, with the stock trading at 5, the chairman puts in an offer to buy the company through 13D to buy the company for 6 to 615 is the range you puts in. So if you, you know, if you had a 24-hour view and maybe we're all marked to market, you could say, hey, this is a big premium. If you had any longer view, you would say, hey, hey, this is a discount. And, you know, I don't think this is what happened here because, again, the earnings

Starting point is 00:18:56 refines me. I have seen companies kitchen sink and then do a take private. Or, you know, this is an e-liquid stock. But to me, it looks a little bit like, and you might be right. It might be frustration with the stock price trend. But it seems very clearly a very opportunistic bid on an e-liquid stock that was down on almost basically one print. So I'll pause there if you have anything else on just like the trading dynamics.

Starting point is 00:19:20 Yeah, nothing on the trading dynamics itself. but I would just say, like, when we wrote our public letter, we asked the special committee to conduct an independent and robust review of strategic alternatives and to focus on the intrinsic value of businesses rather than simply a premium to the stock price. You know, since then, the special committee retained Barclays as a financial advisor, which I think a very strong financial advisor, and Paul Weiss is independent legal. So I think the special committee is taking this very seriously.

Starting point is 00:19:47 And, you know, I think those are important protections, and I think fair value is likely to be realized. So let me go to a few other things. So the offer is made in November. And I've actually had, I can't tell you how long my notes on this offer and everything is. But I think the first thing a listener might hear is, okay, the offer was made in November of 2025. I think the special committee hires, the special committee hires their retainers in December of 2025. You publish a letter in November. We're in September of 2025. It's been nine to 10 months. Like this is a long process. So, again, I've got lots of notes on this, but I would just ask you, like, what is going on with a process that runs this long? Yeah, I think there's a variety of things that could be happening. Always have to be careful and speculating. I'll say my hope is that they're looking for and running a process for third parties to buy it, because ultimately I think that would lead to the highest intrinsic value. I think the second thing that could be happening is a negotiation between the special committee.

Starting point is 00:20:52 and Tom to the extent that he wants to raise a spid. I think there could be a negotiation going on there. And then also there's just things that happen behind the scenes that we don't know. I think if I was to speculate, it's possible the Payneur transaction, just given how recent of a comp it was, maybe that pushed the prices up and kind of gave us a recent transaction comp. Again, this is pure speculation on my point. But to be clear, I think there's very good reasons why priority is worth more than Paynearer.

Starting point is 00:21:19 So just I think the nuance that I would point out and why I think Payneur deserves a haircut is because it has much higher stock-based comp, Capax and Capulized software with a very small difference in organic growth. So the EBITDA to free cash flow conversion that Priority has is significantly better than Paynear. And so if anything, I think it's pretty clear to me that priority deserves a premium to Paynear. And again, if we are just using the Paynear price, it would be $12 to share today. I think it deserves a significant premium given significantly better conversion. And so people could say we don't have anything recent until that transaction.

Starting point is 00:21:58 Now we have something very recent that points to a much higher stock price. And I think that gives significant negotiating leverage for the special committee basically to negotiate. You know, that's a great point. I hadn't thought of how a paying your mark, you know, when it happens in June. So that's let's just call it six months after the bid when, you know, that's where you think things are going to really. I hadn't thought how that might have changed the negotiation. negotiating dynamics or cause everyone to reset or something. The first thing you mentioned was a third party bid. And the other interesting thing here, and there's a lot of interesting things here is

Starting point is 00:22:27 the chairman lobs in his first bid in, let's call it November 10th. And then about a month later, I think it's actually December 17th, but about a month later, he files an updated 13D. This is about five days after the special committee hires their financial advisors that says, hey, the special committee asks and I'm letting them know, I have no interest in selling to a third party. Now, this is not uncommon and take private offers, but I absolutely hate it because it has a real chilling effect. So how do you think about the, you know, the first thing you mentioned was a third party? How do you think about that in light of the chairman who owns 60% of this has said, I don't want to throw it to a third party? Yeah, I think there's a variety of things that could be happening behind the scenes.

Starting point is 00:23:09 I want to be careful in speculating. But what I would say is I think the way the language was worded, it's certainly possible for a third party to buy. the minority shareholders and still for the chairman to maintain his ownership and roll it into a private vehicle. So I think the way that I read the language, I certainly think there's a possibility of minority shareholders being made whole, you know, with a fair valuation, and the chairman's still getting to maintain his ownership state to the extent that he wants to. The company did a secondary offering. I think it was largely selling stockholders, not the company, but the company did one in January of 2025, and I think that's become an interesting data point

Starting point is 00:23:50 for a lot of shareholders. Do you want to kind of talk about what that priced out and kind of what the language around that transaction was? Well, I'm assuming your point is that they were selling stock in early 25 at, you know, more than or roughly double sort of the proposed take private price. And that at that point, Tom didn't sell any shares in that offering, you know, meaning, you know, he kind of thought it was worth, you know, implicitly through not selling any stock, he was kind of saying it's probably worth more than where we're selling shares. I'm assuming that's what you're referring to, or is there anything else you want to point out? So this was, and you can correct me if I'm wrong, there was a secondary offering in January of 2025 where a bunch

Starting point is 00:24:32 of shareholders sold stock at, it was 775, I think was the price that came out. And the language that I heard, and I think one of the letters mentioned this, was the company said, hey, we had the selling stockholders, which includes the chairman who sells a little bit, had the opportunities sell more. And they're like, no, this price is ridiculous. It undervalues us like crazy. We're not going to sell any more than we have to, than we have to right now because the price is crazy. And we think the company's worth much more than that, which, you know, that was something that was communicated, not like put in a, but I thought that was interesting on a host of levels. I mean, they did a secondary at 775, and now they're trying to take the company private for 610 or 6 or whatever it is,

Starting point is 00:25:12 and they were communicating that they thought it massively undervalued the company. Yeah, that makes sense. Yeah, sorry, I was thinking about where the stock was actually trading at the time. Yeah, I mean, I think that's true. I think I don't think there's any doubt that the stock is dramatically undervalued. I think it's just what will happen in this strategic process. I think that is ultimately what we're waiting for. But I think my point to, you know, people listening to this, looking at it for the first.

Starting point is 00:25:37 time is you have an incredible risk award because in the very worst case scenario, theoretically, you're looking at 6 to 615 a share, which is roughly 10% upside from here. In a most likely scenario, you're looking at, I mean, fair value is certainly well north of 100% from here. It's hard for me to say what a transaction results in, but let's just assume a transaction results in fair value. You're potentially going to make 100% over the next few months. You know, you're already very deep in this process. If you're buying today, you're getting on the low side, I suppose, a 10% return over the next three months. And on the high side, a 100% plus return over the next few months. So I think it's just a very attractive risk award,

Starting point is 00:26:17 given that dynamic. No, look, I mean, that's why I'm both, I would see the other thing, I was pushing on timing. And the, the interesting thing I've seen is, this sounds true, but the ones that have had longer timing that have really dragged down the tooth, now me as an investor, like it makes me pull my hair out because I'm like what the F is going on. Do these guys have any clue what's happening? Do they have any clue what it's doing? But the ones that have dragged out, I have personally noticed for the most part, it's because it's actually pretty serious and there's real negotiations going back and forth between

Starting point is 00:26:49 the parties and there's something going on behind the scenes. Now, I can think of ones where that something I think has ultimately, I mean, it worked out for shareholders, but I think it ultimately was detrimental for shareholders. Like they would have gotten an even bigger premium if they had kind of pulled the trigger earlier. But, you know, I'd point to something like KORE got taken out recently, and that was a, it took a little bit while, but that came out at a pretty big premium. There's been several others. But I think people look here and say, oh, there's been no update. And I want to talk about no update in a second. There's been no update. Nothing's happening. I don't think anything could be further from the truth.

Starting point is 00:27:21 Like, I think there's real negotiations and real work getting done. And if I can remember for a more a second, I would point to, you know, their adjusted EBIT number, they add back the legal costs of the special committee. And in Q2, it was like three million bucks was the ad back. If you look at the Delta year over year, like three million bucks for a process in three months that hasn't like you generally get paid as a banker of success fee. Three million bucks is a big, big increase. Like I would suggest that the negotiations are kind of hot and heavy if they're running that big bill. So I remember a lot there.

Starting point is 00:27:52 I happy to toss it over to you if you have any thoughts on that. Yeah, I think like I said before, I think the most likely reason for taking this long is potentially something like the pay. in your transaction, just creating a very recent comp, and that leading to further negotiations. I think the other thing is they're just running a robust process, and sometimes robust processes take a fair amount of time. So I don't think this is, I think this is on the long side of a typical process, but I don't think it's by any means unusual relative to processes that I've watched over time. Some of those processes, you know, result in transactions. Some don't, so I can't say with absolute certainty that a transaction will occur here. But certainly, I don't think the amount of time

Starting point is 00:28:31 that's transpired means that a transaction won't occur. Do you think priority would be an attractive, an attractive strategic acquisition target to a strategic? Absolutely. Yeah. I mean, for anyone, really. Think of, I mean, for a private equity firm, for a strategic, I mean, I would, like, that Treasury Solutions business is a gem. Like, that is an incredible business. So I, I agree on on private equity firm, but I mentioned strategic because I could see one scenario happening where the CEO says, I'm not selling to anyone. The company runs a full and fair process. And they're sitting there and the CEO, let's go in our fever, James.

Starting point is 00:29:09 The CEOs bumped his bid up to eight. And there's a strategic at 12, 15, whatever number you want to choose, right? And the attention is the special committee, I mean, they can't sell without the CEO's blessing, right? But the special committee going, hey, we've got this massive premium bid. You need to get your, you need to get your bid up. Like we could sell to you at 11 if there's a strategic at 12, but you say we won't, you won't do to anyone else. If you're at 9, like, we can't do that. And you also need to look yourself in the mirror and say, hey, why do I want to take this private for 9 when there's a strategic who should pay the highest bid at 12?

Starting point is 00:29:43 Like, shouldn't I just go engage with the strategic and sell? So I could see something like that happening here just because I agree with you. I think this is a very strategic asset. And the history of payments suggest there's always three strategic bidders who want to buy. you rip out your SGNA and just realize huge synergies because the synergies to deals are massive. Yeah, I mean, there are a ton of comps for, I mean, prior to kind of the payment Saspacocalypse, it used to be, you know, 13 to 15 times NTM Evta. Now we're talking eight to nine times and we're still getting huge upside. So I think eight to nine times is probably

Starting point is 00:30:20 the floor of where a transaction should occur for this. And I could easily see it happening much higher. And again, eight to nine times is a $12 stock or higher. The other interesting thing here is I followed a lot of these, and most of them will open up their earnings calls, right? And they'll say, hey, we know everybody wants an update on the strategic process. We can't update it. You know, if it's a CEO trying to do it take private, they'll say it's in the hand of a special committee. If it's just a general company that's announced a strategic review, they'll say, hey, we won't share any news. The company hasn't even acknowledged the strategic process.

Starting point is 00:30:55 You know, there's been three earnings calls, Q4, Q1, Q2. And they haven't even mentioned the strategic process in any of the calls, except to say, hey, there was increased ad backs from the strategic process. And the very last question in the most recent earnings call was an analyst. I can't remember what bank he was from. But he was saying, hey, all investors really care about is the strategic, is this special committee. And you guys haven't talked about nine months.

Starting point is 00:31:19 Like, can we get an update? Can you guys do something? And they didn't cut him off. but they didn't respond and they ended the call after that. So I don't know, like, what do you make of that? It's just very weird to me. Yeah, I, look, I think it's the appropriate thing to do. I think it's uncomfortable and I understand why people don't like it.

Starting point is 00:31:36 But I think there's absolutely a robust process happening behind the scenes. And, I mean, you can either say nothing or you can get on and say, we can't comment on this, you know, the strategic review. And there's not really a big difference between the two. It's either we can't comment or you just say nothing, and either way, it's saying nothing. So I think from a legal standpoint, they're doing the right things. I appreciate the fact that they're still holding conference calls. Some companies don't hold conference calls during strategic review processes for that exact reason.

Starting point is 00:32:07 So I actually appreciate the fact that they are at least holding conference calls during the strategic review. And I respect their reasoning and their thought process and not commenting, even though I can also empathize with the shareholder base that's frustrated and wants to hear something. but as soon as they have something that's finalized, then they can communicate. I'm sure they'll be communicating with us. And at that point, we'll get to evaluate what they decided. No, you make some great points because I am with you. Like one of the things that sucks is when a company goes into a strategic review and then they black out and you're like, hey, I'm a shareholder.

Starting point is 00:32:39 And this is not an easy business to understand. There's a lot of numbers, a lot of moving parts. Like, if you're not giving any commentary to me, you've kind of turned this into a black box. And now I don't know, like, if you came and announced the deal at eight, I'd probably be happy on a market's market basis, but I don't know if like that undervalues or overvalues the company at that point, right? So I think you're right. It's nice that they continue doing calls.

Starting point is 00:33:00 And you're probably right that just saying nothing is the best thing because I will tell you, I've done these before. And every word that you say when you're in a special, when you're in a special committee gets reviewed. Like I remember one time, one company, they had ended every earnings call saying like, we can't wait to talk to you next quarter. And they were in a strategic review and they didn't say that.

Starting point is 00:33:19 And I had a few friends who were like, my God, the deal is coming. Like, they're, they're winking to us that there's a deal coming and the deal did not come, but everything gets read. You know, the other interesting thing here is I always worry. And this is one of the reasons a lot of companies do take earnings calls off, especially when the CEO bids for the company. You always worry that they're going to start kitchen sinking things, right?

Starting point is 00:33:42 So that shareholders are kind of happy to get rid of the business. And it is interesting. If you review their earnings slides, how their earnings decks have, evolved from before the process to after the process. So this would be Q325 is the last earnings they do before they make the bid. You know, they have taken away a few slides. Like it does feel like they're talking it down a little bit. And I would just point out they used to a recent business wins update slide.

Starting point is 00:34:08 They haven't done that since they announced their earnings call. They used to highlight this thing that said, hey, we're continuing to shift the higher value segments, right? And there is Treasury. And they would talk about how their business is moving over there. So it's getting better business, better marginal that. They dropped that. And they used to have a financial guidance slide that said, hey, here's our financial guidance

Starting point is 00:34:28 and breaking it down. And they dropped that. They still guide. But I just thought it was interesting that they started pulling down a lot of the KPIs. I don't know if there's any, I don't know if there's any fire there. I don't know if there's any smoke there. But I just thought it was worth noting. Yeah, I mean, again, I want to be careful to speculate on things that I just don't know.

Starting point is 00:34:48 I think, again, what I would reiterate is. I feel very comfortable and confident that there are independent directors on the special committee that are being advised by very good financial advisors that have advised on other similar payments transactions that know the industry and the space and evaluations very well. And then I'm confident there are just a ton of comps for this business. It's not like there's one or two comps. I mean, there's a lot of recent comps. There's a lot of comps over the past 10 years and they just all point to you know, sort of massive premiums to where the stock is today. And so I think, again, the opportunity from my perspective for anyone looking at this for the first time is, again, on the low end, you have a bid that's currently, I think, completely disconnected from intrinsic value, but still 10% higher than where the stock is today.

Starting point is 00:35:37 And then at the high end, you have a prospective takeout that could be north of 100% from here. And then theoretically, if this were to stay public, you know, you have a stock that is extremely dislocated. and probably doubles in a relatively short period of time as it should reach intrinsic value as people start to follow the story more and really think through the segmentation. The other interesting is, I mean, again, I get all obsessed with the event process, but it has been kind of business as usual for the company, right? They recently announced a small little tuck-in acquisition. And when you've got a payments company like this, again, the reason strategics love to buy these

Starting point is 00:36:19 is the SG&A and the synergies are just massive. They just did a little tuck in acquisition. The business has performed well to my eyes. I mean, you went through it, but you know, it's growing. It's generating a lot of cash. The cash is kind of building up on the balance sheet as they wait for the special committee strategic process to get done. But if they don't reach a deal, like this is a business that is performing well, all

Starting point is 00:36:41 a sudden the 50 million or so of cash that they've generated so far this year, they can just go pay down debt or they could do a share repurchase. They have done very tiny share repurchased in the past. So I think there's a lot of optionality on the back end just given how the business is performing here. Yeah, I mean, look, I just don't think there's any business out there I can point to where you have, you know, high recurring revenue, high barriers to entry, you know, strong growth. And it's trading it, you know, less than five times free cash flow, like true free cash flow, not like a adjusted number with a lot of stock based comp, like an actual true free cash flow number. I think it's just extremely rare in the public and the private markets. I think it's an incredible deal here.

Starting point is 00:37:22 And I think that will get realized one way or the other, whether it's through a private transaction or whether it's the stock staying public. Perfect. Well, you know, I hope it is through a private transaction. I hope it is through one sooner than later. And I hope it is at a massive premium because honestly, if it was 10, I would probably, I mean, I always take good, but even 10, I think they would be giving a steal out. And that's just so far above the current price.

Starting point is 00:37:46 it's laughable, but this is a levered entity that's performing well. There are synergies to taking this private. You know, this is what, at 10, it's what, a 600 million, 700 million market cap, something like that. Maybe I'm a little off, but you probably say four to five million in public company costs and the CEO already owns 60% of this. So you say, hey, I write a $200, $300 million check. I own this whole business at a really interesting multiple.

Starting point is 00:38:09 And by the way, I say $4 million in public company costs per year. Like $4 million on a $200, that's a pretty solid return right off. the bat. So yeah. Anyway, anything else we should be talking about or thinking about with priority? Again, I would really just encourage people to go look at the various segments of the business, really spend time to understand Treasury solutions because that is just a really, I think, incredible business. You know, spend time looking through all the different M&A transactions. I mean, you have a lot of recent ones. You know, World Pay, Avid Exchange, New Vi, you know, pay a near. There's a ton of different examples. And I think if you just spend time looking at

Starting point is 00:38:49 the quality of the business, the amount of private comps that are out there, I think you can get really comfortable that this is just an incredible risk award here. And I think very limited downside over a long period of time and a really significant upside. And potentially you're going to realize that in the very near term. So I think it's really exciting from a risk reward standpoint today and super attractive. Perfect. Well, wait. Thank you. Thanks for coming on. Thank you for sending the letter to the board because I think one thing people underestimate is when you're in these special processes, letting the special committee know, hey, this price is way too cheap. That gives them something to stand on and something to point. And a shareholder saying giving them some directions, I think actually is really helpful. So thank you for your work there and publishing that. And looking forward to having you on again in the near future. Yeah, absolutely. Thanks so much for having me. I appreciate it. A quick disclaimer, nothing on this podcast should be considered investment advice.

Starting point is 00:39:43 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.

Yet Another Value Podcast - Zack Buckley on $PRTH's take private

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